Regina Doherty (Meath East, Fine Gael) | Oireachtas source

I move amendment No. 3:

To delete all the words after “Dáil Éireann” and substitute the following:notes that:

- our pensioners are the backbone of our society. They are the people who built this country in the years before the economic expansion we have enjoyed in recent years. They endured the hardships of a stagnant economy in the 1960s through to the 1980s, yet they reared the current crop of workers - a society of people who are among the most productive in the world and among the best educated in the world;

- our pension system is under duress and that is why the Government intends to implement the most comprehensive reform of pensions informed by the actuarial review of the Social Insurance Fund conducted for the Government by KPMG published today;

- the two most significant measures in the plan will be a roadmap to reform the State pension through the introduction of the total contributions approach, TCA, for pensioners and the development of a new auto enrolment supplementary retirement savings system for employees;

- this plan will also include measures to support fuller working lives to allow people to work beyond pension age where that is their choice;

- options for the TCA for the State pension will be specifically designed to acknowledge and allow for time spent caring, whether for our children or elderly loved ones. These options will then be subjected to a period of consultation with relevant stakeholders, providing them with information and requesting that they outline what they consider should be the priorities in this reform. After this, the Government will agree the new approach and prepare the necessary legislation for consideration by the Oireachtas;

- the Government would welcome the support of the members of the House in this public consultation which will contribute to allaying the anomalies in our pension system;

- these are complex reforms which will require significant political, legal, technical and administrative challenges to be addressed;

- with pensions, any time the rules are changed there is also a need to understand the impact of those changes on other participants and on the funding requirements for the Social Insurance Fund. The changes introduced in 2012 to bands, rates and minimum contributions were designed to more closely align pension benefits to pension contributions and to ensure that the Social Insurance Fund went back into surplus from deficit, and remain so;

- there were some people that were particularly disadvantaged as a result of these changes in 2012. The Government is acutely aware of the anomaly created by averaging, in particular, as it affects women whose pension entitlement is adversely affected by a short period of employment early in their working lives followed by a significant break in employment to perform caring duties;

- accordingly the Government intends to examine means of addressing this anomaly without necessarily reversing the changes to the averaging approach introduced in 2012; and

- the Department of Employment Affairs and Social Protection will conduct an analysis of the participants most adversely affected by the rate changes in 2012 and will report back to the Government with options on how to address these challenges.

The amendment I have proposed outlines the challenges faced in formulating pensions policy and indicates the general approach the Government will take into the future in order to introduce grater equity into the system. Pensions, as we know, are diverse and complex and that is reflected in the motion. It covers a very wide range of pensions issues, including, for example, gender equality, retirement age and pension eligibility rules.

Given that the motion arose out of an issue raised during post-budget discussions relating to State pensions, I will focus my contribution on State pension issues. Spending on State pensions has increased rapidly in recent decades. In 1997 spending on pensions was €1.7 billion. By 2007 this had increased to €4 billion and in the following decade to this year the cost had increased to €7.3 billion. Adjusted for inflation over the last decade, this amounts to an increase in real terms of 76% over ten of the most difficult economic years in the history of the State. This increase has occurred notwithstanding the 2012 reforms and the increase in the State pension age in 2014. Without these changes, the rise in costs would have been even more dramatic. As it stands, spending is estimated to increase by approximately €1 billion every five years. This expenditure increase is due in no small part to the very big increase in pensioner numbers. There are about 680,000 persons over the age of 66 years expected to benefit from State pension payments this year.

The latest actuarial review of the Social Insurance Fund, published and laid before the House today, confirms that this number will increase consistently in the coming years. This, of course, gives rise to a major challenge to the future sustainability and affordability of the social insurance system which affects every single person in the country. The Social Insurance Fund operates on a pay-as-you-go basis, with today’s workers contributing towards the benefits of today’s recipients. Therefore, it is worth remembering that the increasing cost of pensions is not funded by past contributions by people now retired but can only be funded by increases in contributions or taxes on current and future workers. As important as it to try to ensure equity in the treatment of today’s pensioners, it is just as important that we strive to protect the long-term sustainability of the system in order that today’s workers will be able to avail of an adequate pension when it is their turn to retire. Successive Governments have, therefore, sought to combine increases in the rate of the pension with reforms to make the system more sustainable into the longer term. The focus in the years of recession was on protecting and maintaining core rates and in so doing to make some changes which were consistent with the long-term pension strategy set out in the national pensions framework published in 2010. They include the changes made in 2012.

In the past three years the Government has increased core pension rates.

This benefits all pensioners, especially the most vulnerable. The Government has also supported or implemented new funding and new measures for older people in schemes such as the fuel allowance scheme, the free travel scheme and the new telephone support allowance scheme which was only announced last week. The Fianna Fáil proposals to reverse the rate band changes made in 2012 would cost almost €73 million extra in 2018 alone. This would increase to almost €85 million extra in 2019 and continue to increase every year after that. The 2012 rate band changes resulted in a system that more closely aligned a person's pension benefit with the social insurance contribution history. In addition, the revised system continues to provide very generous pensions compared with the norm in other countries. For example, a person with only 20 years contributions over nearly 50 years will still attract 85% of a full pension, which is substantially higher than could be expected in any other European Union country, including those with very generous homemaking provisions.

Had the Government of the day, instead of making these changes, taken an across-the-board approach to cutting pensions, regardless of means and contribution records, the hardest hit would have been pensioners with no additional incomes and widows and widowers living alone on only one pension payment. A very significantly higher proportion of such pensioners are women and this approach would have resulted in more women over 65 years experiencing consistent poverty relative to men of the same age. The 2012 changes, therefore, balanced the objectives of reducing cost, while minimising the impact of cost reductions on the most vulnerable and moving the State closer to the pension system envisaged in the national pensions framework from 2010, whereby the value of a person's pension is closely related to the contribution history. Backdating the homemaker scheme to include periods taken out of paid employment before 1994, as has been suggested by some, was considered to be exceptionally expensive at the time of its introduction in 1994 and it continues to be so today. The cost of backdating the homemaker scheme now to include periods prior to 1994 is estimated to be in the region of €290 million extra if introduced from the start of this year and again this figure would rise each subsequent year at a faster rate than the increase in pension costs generally. Given these figures, it is obvious that taking measures such as reversing the rate band change or backdating the homemaker scheme would, even on a phased basis, significantly impact on the affordability and sustainability of pensions paid from the social insurance fund in the medium term. It would also jeopardise our ability to provide for further increases in payment rates in forthcoming budgets and considerably restrict the fiscal space necessary to bring forward the broader reforms that are badly needed.

There has been much criticism of the yearly averaging approach to pension calculation. When the contributory pension was introduced in 1961, a yearly average approach was selected as the basis for calculating entitlements because reckonable social insurance had been introduced just eight years earlier and, therefore, nobody would have had the 30 to 40 years of contributions necessary to be paid under a total contribution approach. By contrast, the yearly average approach allowed many people to qualify for a full pension relatively quickly. The disadvantage of this approach is, of course, that people with a relatively short contribution history can qualify for a full pension; that is at the heart of the issue raised in recent weeks. A person with a partial contribution history accumulated over a long period does not receive the same pension as a person with the same number of contributions accrued over a shorter unbroken period. The real anomaly is not that the pension paid to the person with the partial history is too low but rather that the person with a short contribution history does much better than is really justified.

Having said that, I agree that the position of people - we all recognise that it is mainly women who are affected - who left work to take up caring responsibilities is a special case. We need to be careful that the solution used to address this special case does not exacerbate the underlying inequity and impose unnecessary and unjustifiable costs on future workers. The extension of pay-related social insurance, PRSI, over the years means that we can move to a more equitable total contributions approach from around 2020, as workers will have had a full 30-year window to accumulate the necessary contributions to sustain a full, or close to full, pension. The combination of a total contributions approach and a homemaker credit or disregard will ensure the pensions system is more equitable, while providing recognition for time spent in the home.

It must also be noted that where someone does not qualify for a full-rate contributory pension because of a break in the contribution record, he or she may still qualify for an alternative payment. If his or her spouse has a contributory pension, he or she person may qualify for an increase for a qualified adult, amounting up to 90% of a full-rate pension. Alternatively, he or she may qualify for a means-tested State pension in his or her own right, amounting to up to 95% of the maximum contributory pension rate. Whereas the non-contributory pension is means-tested, there are very significant capital and income disregards available. This means that the very large majority of payments are made at the maximum rate. This, in turn, means that anyone on a reduced rate of contributory pension because of a broken contribution record who does not qualify for a means-tested payment must have significant other means such as another private pension or a second property, in addition to his or her home. He or she is generally better off than many other pensioners.

Not only would reversing the 2012 changes cost a huge amount of money and run counter to the policy of on what we all apparently agree - moving to a total contributions approach - it would, being a broad brush measure, also tend to unnecessarily benefit people who have access to other resources. Accordingly, pending the introduction of the total contributions approach in 2020, my preference is to take a more targeted approach to addressing the issue of people with a short work record, particularly early in their working lives. As indicated in the amendment, I have asked my officials to carefully examine approaches that may help to address the issue raised with the averaging approach, as it affects people with a short work period early in the career followed by a long break for whatever reason. All our records from before 1984 are paper-based, which is the only reason for the delay. In advance of the analysis, it is impossible to make specific proposals that might work, as we must see what might provide the best advantage for the most people, while ensuring we do not inadvertently cause further anomalies or disadvantages to arise. We should not be here this time next year talking about some other unintended consequence of a change we want to make. We also need to determine, as best we can, how much any such approach might cost and how that cost can be dealt with in the budgetary maths. This is the most balanced and reasonable approach to take to addressing the issue of concern and I ask Members to consider the amendment before voting for the motion.

See this speech in context