Willie O'Dea (Limerick City, Fianna Fail) | Oireachtas source

I move: "That the Bill be now read a Second Time."

This Bill is part of a two phase process. I have produced it in its current form to ascertain the views of the House on the matter. If the House is prepared to support it I will then bring forward legislation to provide for a constitutional referendum so this prohibition can be written into the Constitution.

I understand that we do not have the resources available to the Minister and the Government when we draft. There may be technical flaws but I am not worried about this as we can iron those out as we go along. This evening I am trying to ascertain the views of the majority of the House on the matter and on whether these types of levies should be prevented in the future.

I shall provide the House with some context. The State pension, relied on by many of those aged over 66, is coming under tremendous pressure and will come under more pressure as the years go by. I will demonstrate this shortly. We must try to encourage people to save to provide for themselves so they will not suffer penury in their old age. To do this we must have incentives for people to save, but we must also remove the disincentives. There is no doubt that this levy was a powerful disincentive to people who wished to put away part of their earnings to provide for their future.

People are living longer, which is a good thing, but it presents huge challenges for the traditional type of pension the State provides for its older people in retirement. This has already been recognised in the extension of the pension age to 67 as the age at which people become eligible for the State pension, and to 68 in future years. Growing life expectancy and the increasing duration of retirement is ratcheting up the pressure on the State pension year by year. CSO statistics published in 2013 predict that mortality rates will decrease and this will result in gains in life expectancy from birth. For males this will be from 77.9 years in 2010 to 85.1 years in 2046. For females this increase in life expectancy will be from 82.7 years in 2010 to 88.5 years in 2046. These statistics also reveal that the total fertility rate is expected to decline by 1.8% by 2026. The combination of decreasing fertility rates and increasing life expectancy will have serious implications for the State's ability to meet pension costs into the future.

The national pensions framework in 2010 highlighted that currently for every pensioner there are six people at work to support the pensioner. By 2060 the figure will be less than two people. Expenditure on the State pension and related welfare schemes, which was discussed last week at the welfare Estimates, amounted to approximately €7 billion in 2017. This is 35% of the total current expenditure for the Department of Social Protection. According to a report published by the Department of Public Expenditure and Reform, over the period 2016 there will be an average increase in the numbers of people collecting the State pension of more than 20,000 people per annum. There will be an estimated increase in cost of €233 million per annum, at current money values. This is with no increase in rates. The same report states that, even accounting for the rise in the eligible age of the State pension from 66 to 67 in 2021, the average increase in numbers collecting the State pension will increase by 22,600 per annum, from 2022 to 2026. The estimated costs will increase by €260 million per annum, again even with rates standing still.

The CSO's quarterly national household survey, published in May 2016, revealed there was a fall in the number of people who had a private pension in the fourth quarter 2015 compared to the same period in 2009. In the fourth quarter 2015, 47% of all workers aged between 20 and 69 had an occupational pension, personal pension or both. This compares with 51% in the fourth quarter 2009 and 54% in the first quarter 2008.

6 o’clock

The CSO statistics also revealed that pension coverage remained lowest among younger workers. As I said, the State has sought to confront this problem in various ways, including, because of increasing longevity, increasing the age at which people would be entitled to the pension. That legislation is in place and will come into effect in 2021 and 2028.

The State has also been providing tax relief. I do not have the exact figure for the total revenue foregone per annum by the State in respect of tax relief for people who contribute to their pension but it runs into billions of euro. The Minister for Finance, Deputy Noonan, in a reply to Deputy Maureen O'Sullivan on 26 May 2015 said that if we were to limit to the standard rate the relief that could be deducted for pension purposes in 2015, the amount gained by the Exchequer in 2015 would be approximately €480 million. That would be the amount accruing if the rate was standardised and is not the total cost of tax relief on pension savings. On the one hand, we are spending billions of euro encouraging people to save and on the other hand we have a levy in place which is a discouragement to saving. The Minister will be aware that I have brought forward a Bill on mandatory retirement - a similar Bill has been brought forward by Sinn Féin - which seeks to abolish mandatory retirement at the age of 65. There is no law in this country that requires that a person must retire at 65 years of age but the contracts to which people sign up usually provide for retirement at the age of 65. The legislation I have proposed seeks to make that illegal. I would like the Minister to indicate when that legislation will progress to Committee Stage. If enacted, it would alleviate the situation to some extent but more needs to be done.

There has been talk about auto-enrolment, which where one provides for a supplementary pension in addition to the basic State pension. As for how it works, the employee, who is enrolled in the scheme but can choose to remain in the scheme or to opt out of it, pays a set amount, which is matched by the employer and similarly by the State. That system has been introduced in the United Kingdom and I understand from a recent Mercer report that it is working very well. As far as I am aware, 80% of people have not opted out thus far. It also operates in Australia and other countries.

I have to hand a copy of a document issued following a press conference on 3 March 2010. The conference was attended by the then Taoiseach the Minister for Finance, that is, the Minister himself and the Minister for Social and Family Affairs. The announcement states that the Irish State pension system will be reformed and will remain as the fundamental basis of the pension system in Ireland but that a new supplementary pension scheme will be introduced to provide additional retirement income for employees who are not already in a pension scheme. It is stated that in terms of operation, there will be a contribution from the employee who can choose to remain in the scheme or to opt out, a contribution from the employer and a contribution from the State. This was supposed to happen in 2014.

See this speech in context