Josepha Madigan (Dublin Rathdown, Fine Gael) | Oireachtas source

I very much welcome the opportunity to note and discuss the response of the Oireachtas Joint Committee on Social Protection, Community and Rural Development and the Islands to the report of the pensions commission. I note Deputy Naughten's work as Chair and the work of other members. My colleague, the Minister, Deputy Humphreys, sends her apologies. She cannot be here this evening as she is attending a number of events in Sligo throughout today and tomorrow to which she committed some time ago.

The pensions commission was established in November 2020 to examine the sustainability of the State pension system and the Social Insurance Fund in fulfilment of a programme for Government commitment. The commission was an independent body of knowledgeable and experienced academics, pension experts, members of civil society and representatives of workers and employers. The commission's report was published in October last year. It contains almost 250 pages of analysis, consideration and recommendations. It is a comprehensive report that takes account of an assessment of various analyses of population, labour force and expenditure projections, an examination of international approaches and responses to an extensive consultation process.

The commission's analyses point to the fact significant demographic changes are under way in Ireland. While Ireland enjoys a more favourable demographic position than many of our European peers, all EU member states, including Ireland, face many fiscal challenges with ageing and its associated risks. Thankfully people in Ireland are living longer and are healthier than previous generations. This is great news. However, it would be a strategic risk not to plan and provide for this change, not least in terms of income adequacy for older people.

Ireland's population is projected to increase from approximately 5 million in 2020 to approximately 6 million by 2050.Projections also point to younger age cohorts declining in relative terms by 2051 while older age cohorts will continue to grow in absolute and relative terms. Accordingly, Ireland's population is ageing. There will be a much larger proportion of older people relative to younger age cohorts. This will result in a less favourable old age dependency ratio. The number of working age people paying tax and PRSI to support State pension payments will reduce significantly. Today we have 4.5 people working for every one pensioner. By 2050 this ratio will drop to approximately two people working per pensioner.

Demographic projections are based on assumptions that may change over time. However, the results from a range of sources, including the CSO, the Irish Fiscal Advisory Council, EUROSTAT and the Department of Finance, based on different sets of scenarios and assumptions, show only marginal differences. The overall trend is that Irish people are living well beyond the current State pension age of 66. The duration of State pension payments has been increasing steadily over time. It is projected it will continue to increase further. These demographic changes drive the projected significant increases in State pension-related expenditure. In 2010, pension programme spending made up approximately 28% of the Department of Social Protection's social welfare expenditure. This proportion has steadily increased. This year, we will spend more than €9.1 billion on the State pension system. This represents 39.1% of the total social protection spend.

According to the Department of Finance's assessment, spending is projected to increase substantially over the coming years and decades given the changes occurring in Irish society. Expenditure related to State pensions is projected to significantly increase over time, more than doubling from 3.8% of GNI* in 2019 to 7.9% in 2050 and increasing further to 9.2% of GNI* by 2070. The most recent actuarial review of the Social Insurance Fund published in 2017 indicates that on a no-policy-change basis the Social Insurance Fund will have an annual deficit of €2.3 billion by 2030. This will increase to reach €13.4 billion annually by 2050. By 2045 annual expenditure on the State pension contributory alone is projected to exceed the social insurance fund or PRSI income. These are big numbers and they are only annual deficits. The actuarial review further estimated these annual deficits will compound over the intervening years, leaving the Social Insurance Fund in a cumulative deficit position of €335 billion by 2070.

The pensions commission has made it clear after very careful and detailed analysis that the State pension system is not sustainable without considerable reform and has set out a wide range of recommendations in this regard. Its recommendations for making the system fairer include linking the employment contractual retirement age to the State pension age; enhanced pension provision for long-term carers who are caring for more than 20 years; options for the introduction of early and deferred access to the State pension, including the option for a person to continue to pay PRSI contributions past the State pension age to improve their social insurance record for State pension contributory purposes; and the introduction of benchmarking or indexation of State pension payment rates.

Its recommendations to mitigate cost pressures include full transition to a total contributions approach model and phasing out the yearly average approach and increases to the State pension age, commencing much later and increasing on a more gradual basis than previously legislated for. Its recommendations to raise funding include PRSI contribution rate increases for classes A and S; broader application of PRSI on earnings irrespective of age; and an annual Exchequer contribution to the Social Insurance Fund.

In the interests of older people and future generations of older people, the Government intends to consider the comprehensive and far-reaching recommendations in the Pension Commission's report very carefully and holistically. Therefore, the Government agreed the commission's report and recommendations would be referred to the Oireachtas Joint Committee on Social Protection, Community and Rural Development and the Islands and the Commission on Taxation and Welfare for their views. I note the Oireachtas joint committee published its 19 page report on 2 February. I thank the committee for providing its views and its work in considering the Pension Commission's report. It is clear from the committee's response that it agrees the State pension is an important element of Ireland's social protection measures. I note the committee set out some very differing views to the commission's findings, including not recommending any increase in the State pension age.

The committee's report seems to support some of the more politically palatable measures from the pensions commission, including pensions for carers and ending mandatory retirement ages, while not really engaging with the very difficult questions of how to fund pensions and how to ensure the system remains sustainable over the coming decades so young people today will have a State pension to look forward to. While the committee calls at a high level for changes in PRSI contribution rates and taxes on wealth it does not provide detail on what these actually mean, on whom they should be imposed and at what rates and what they will yield. Unfortunately, the committee does not show how these or other measures function to make the system sustainable.

The report of the pensions commission and recommendations are not anà la cartemenu. We cannot just implement the nice measures and ignore the less palatable ones. The workers and young people of today will not thank us if we shirk our responsibility to lead and to put the State pension system on a sustainable footing for future generations. There needs to be a package of measures to deal holistically with the systemic challenges facing the State pension. We cannot just cherry-pick some of the more positive parts of the Pension Commission's report for implementation and then decide to park all of the hard decisions.

The social insurance system is more than pensions alone. It would be remiss of the Government to make decisions relating to the social insurance system based on a report from the pensions commission without taking into account the views of the Commission on Taxation and Welfare, which has a broader remit. The Commission on Taxation and Welfare submitted its views on the Pension Commission's PRSI-related recommendations to the Minister for Social Protection earlier this week. The commission advised the increasing cost of the State pension is only one of a number of areas where ageing will likely lead to greater levels of public expenditure. Sustaining public services and social protection supports at the levels that Irish society expects, in combination with other demands, strongly suggests there will be a requirement to raise additional revenues through the tax system over the medium and longer term.

It is important, therefore, to see the PRSI system as part of the broader tax system.

The views of the joint committee, along with those of the Commission on Taxation and Welfare, will be considered carefully as part of the Government's deliberations over the coming weeks. All of the issues will be discussed in detail through the Cabinet committee structure. Following that, the Minister of Social Protection, Deputy Humphreys, will bring a recommended response to, and implementation plan for, the Commission on Pensions recommendations to the Government by the end of March. There are, and will continue to be, different views on the balance to be struck between cost-saving measures and revenue-raising measures. I accept the Government will have difficult choices to make, but we need to face up to the fact that reform of the State pensions system is necessary, although it is also complex. There are no easy answers and no answers that cannot be challenged. Equally, there are no answers that would find universal support. However, the State pension is extremely effective in ensuring our pensioners do not experience poverty. This Government is committed to ensuring this remains the case for current pensioners, those nearing State pension age and today's young workers, including those who are only starting out on their careers.

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