Dáil debates
Tuesday, 25 May 2010
Priority Questions.
Pension Provisions
2:30 pm
Seán Barrett (Dún Laoghaire, Fine Gael)
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Question 36: To ask the Minister for Social Protection the reason a distinction is now being made as regards the payment of PRSI at Class S rate, between those in retirement who purchase an annuity to draw down income and those who do likewise by using approved retirement funds; and if he will make a statement on the matter. [21938/10]
Éamon Ó Cuív (Galway West, Fianna Fail)
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Approved retirement funds or ARFs are funds managed by a qualifying fund manager into which an individual may invest the proceeds of his or her pension fund on retirement. The income and gains of such funds are exempt from tax within the fund. Any amounts withdrawn from an ARF are referred to as a distribution. A distribution is treated as income from an employment. It is subject to income tax and the fund manager must operate the PAYE system on it.
Under social welfare legislation any payments received by way of pension are not regarded as reckonable emoluments for the purposes of self-employed pay-related social insurance. However, unlike annuity products, ARFs are not pensions but are treated as assets. As such, distributions from ARFs fall within the charge to self-employed PRSI.
There has been no recent change in legislation pertaining to this area but my Department recently clarified to qualifying fund managers that, as the legislation stands, they are required to apply the appropriate PRSI when making distributions. In this regard it may be noted that only distributions made before pension age will attract the charge to PRSI, as social insurance only applies to individuals between the ages of 16 and 66.
My Department, working with the Department of Finance, the Revenue Commissioners and the Pensions Board, is currently engaged in a review of ARFs and the interaction between PRSI and pensions in the context of the national pensions framework. This review will have particular regard to the necessity to achieve the correct balance between ensuring that the social insurance fund is supported by contributors and providing incentives for people to save for retirement.
Seán Barrett (Dún Laoghaire, Fine Gael)
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I will ask the Minister a direct question. If the two of us retire at 65 years and we receive our payment from our pension fund, and the Minister decides to purchase an annuity and he draws down €20,000 a year and I decide to put mine into an ARF and I draw down €20,000 a year, does it make sense to him that he does not pay PRSI whereas I do?
Éamon Ó Cuív (Galway West, Fianna Fail)
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First, I do not have any private pension fund so the direct question does not apply to me.
Seán Barrett (Dún Laoghaire, Fine Gael)
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The Minister should answer the question.
Éamon Ó Cuív (Galway West, Fianna Fail)
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I did answer it because the Deputy spoke about himself and me. I tried to answer the question. The Deputy has raised an issue that has validity. There are, I understand, other-----
Éamon Ó Cuív (Galway West, Fianna Fail)
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Because under the present law-----
Brendan Howlin (Wexford, Labour)
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Please allow the Minister to reply and I will call the Deputy again.
Éamon Ó Cuív (Galway West, Fianna Fail)
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My understanding is that as the legislation stands, they are required to apply the appropriate PRSI when making distributions.
Seán Barrett (Dún Laoghaire, Fine Gael)
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The Minister for Finance set up this system whereby people were given an alternative as to whether they would purchase an annuity or else put the money into an approved retirement fund and draw down their income from that. The main difference, from the State's point of view, is that the State is guaranteed for all time, so long as the fund remains in place, and PAYE is paid on all of the income taken, right down to the day there is no income left. This is compared with an annuity where tax dies when the person dies and this could be after five or six years. Therefore, the State gets more PAYE from an ARF than from annuities. I am asking the Minister a straight question. Can he tell me who on God's earth decided only recently in a circular from his Department that ARFs are not pension schemes and are instead retirement funds? Withdrawals from ARFs are liable for PRSI at Class S. What benefits does a person get paying Class S contribution from the Minister's Department if he or she is being asked to pay when in retirement and receiving an income which is fully taxable, as is the same with annuities?
Éamon Ó Cuív (Galway West, Fianna Fail)
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I will present another scenario to the Deputy. If somebody retires at 63 and -----
Olwyn Enright (Laois-Offaly, Fine Gael)
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The Minister is asking a question.
Éamon Ó Cuív (Galway West, Fianna Fail)
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This will explain and elucidate why this-----
Brendan Howlin (Wexford, Labour)
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The Minister is entitled to answer as he will.
Éamon Ó Cuív (Galway West, Fianna Fail)
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-----issue is not a one-way street. Supposing one retires at 63 and one does not have enough contributions made to earn a full pension. Then, putting up the Class S could be an advantage because one would get another three years.
Olwyn Enright (Laois-Offaly, Fine Gael)
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The Minister is asking a question.
Brendan Howlin (Wexford, Labour)
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I am confusing myself now. The tradition is that the Opposition asks the questions and the Minister answers the question.
Éamon Ó Cuív (Galway West, Fianna Fail)
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The second issue I would like to elucidate is that I am informed we are bound to charge this under the present law as it is. The Deputy asked me who introduced this provision. It was brought in by Oireachtas Éireann.
Seán Barrett (Dún Laoghaire, Fine Gael)
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It was not charged up to this year.
Éamon Ó Cuív (Galway West, Fianna Fail)
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Apparently, it is still legislatively bound to be charged. I cannot change the legislation without bringing it before the Houses of the Oireachtas.
Seán Barrett (Dún Laoghaire, Fine Gael)
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It is the Minister's interpretation.
Éamon Ó Cuív (Galway West, Fianna Fail)
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I assure the Deputy I never put legal interpretation-----
Seán Barrett (Dún Laoghaire, Fine Gael)
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When I refer to the Minister, I mean his Department as he represents the Department.
Éamon Ó Cuív (Galway West, Fianna Fail)
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But it is a legal interpretation, therefore, the Department informs me we are bound by law in this regard. If the Deputy wishes, I will ask my officials to double check whether we are bound by law. I do not have any great feeling on the matter one way or the other. We are examining the issues fully with the Revenue Commissioners and the Department of Finance and that is the best way forward in the circumstances. I know the Deputy has strong views on the matter.
Seán Barrett (Dún Laoghaire, Fine Gael)
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The Minister asked about someone who might retire at 63. If the Minister retires at 63 he can equally get an annuity as easily as an income from an ARF. The point I am trying to put across to the Minister is that if A draws his income from an annuity, he is not asked to pay PRSI. If B draws an income from an ARF which is exactly the same as it is a fund, the same as an annuity is a fund, one is now being asked to pay PRSI and one gets no benefits.
Brendan Howlin (Wexford, Labour)
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The Minister has indicated that this matter is subject to review.
Éamon Ó Cuív (Galway West, Fianna Fail)
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They may look the same but there is some slight legal difference. I know the Deputy feels very strongly about this matter and he raised it in the Seanad with the Minister for Finance. I will have it double checked from a legal perspective. I want to be helpful on the issue. If the double check shows the law is as it is, we will try to see where we go from here. I want to ensure there are not other consequences because there will always be a thin line between what is pension and what is income from earned income.
37. asked the Minister for Social Protection his plans in regard to amending the qualifying criteria for reducing the rate applicable to the State contributory pension; and the way he plans to make savings. [21597/10]
84. asked the Minister for Social Protection if he will confirm that he does not intend to dismantle the social welfare contributory pension structure either by way of means testing or in any other fashion which might reduce the entitlement of a person to pension based on their contributions and their expectations at the time of contributions; and if he will make a statement on the matter. [21707/10]
Éamon Ó Cuív (Galway West, Fianna Fail)
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I propose to take Questions Nos. 37 and 84 together.
The current Government policy in regard to pensions is laid out in the National Pensions Framework which was launched in March of this year. The framework includes a number of changes to the State pension in order to make it more transparent, simple and equitable for those reaching pension age.
From 2012, social insurance credits will be introduced for people who take time out of the workforce for caring duties. This will replace the current homemakers disregard and will assist people, particularly women, to qualify for a contributory pension or a higher level of payment. In addition, from 6 April 2012, and as provided for in legislation since 1997, the minimum number of paid contributions required for State pension (contributory) will increase from 260 to 520.
From 2020, the way in which eligibility for State pension is calculated will be simplified. Specifically, there will be a switch from the way in which pensions are currently calculated over the average working life. Under the new system, the level of pension paid will be based on the total number of social insurance contributions made by a person over his or her working life.
A person will need to make contributions for 30 years to qualify for a maximum pension. Once a person has the minimum number of paid contributions required, he or she will accumulate 1/30th of a pension for each year of contributions up to a maximum 30 years. Upon introduction of the total contributions approach, the maximum number of credits that can be used for pension purposes will be set at 520.
Recognising that people are living longer and healthier lives, the Government has also decided to amend State pension age in three separate stages: in 2014, the State pension transition will be abolished. The effect of this will be to standardise State pension age at 66; in 2021, the State pension age will be set at 67; and finally, in 2028, State pension age will be set at 68.
For those who wish to postpone drawing down their State pension, arrangements will be put in place to enable them to receive an actuarially increased benefit when they decide to retire. In addition, for those with contribution shortfalls at pension age, arrangements will be put in place to allow them to receive additional benefit at a later date if they continue to make paid contributions for pension purposes while remaining in work or self-employment. An implementation group for the National Pensions Framework has been established by my Department and this group will work through the relevant issues in implementing the measures contained in the framework.
Social welfare changes for 2011, including any changes to State pensions, will be considered later this year in the context of next year's budget preparations, having regard both to needs and to the resources available to meet those needs.
Róisín Shortall (Dublin North West, Labour)
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Does the Minister accept that his recent comments, in which he failed to rule out the possibility of a cut in the State pension, have caused widespread anxiety and concern among pensioners across the country? Is he prepared to give an undertaking that he will not target pensioners for cuts again, given that several cuts impacted on pensioners last year? Is he prepared to give an undertaking that he will not interfere with the entitlement of people who have contributed to a contributory pension scheme throughout their working lives, and that he will not move to introduce means testing of that State pension, given that people have already made those contributions to qualify for that pension? Can he provide those assurances to the many pensioners who are really worried following his recent comments? Is he prepared to make that statement today? Does the Minister accept that when it comes to making savings in the pensions area, he is barking up the wrong tree? He should be targeting people at the high end of the private pensions industry, rather than those on State pensions.
Éamon Ó Cuív (Galway West, Fianna Fail)
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My answer was in response to a question about a budgetary issue. I am concerned that the remark was misinterpreted by people in a certain way. I gave the standard reply that I give to any query about the budget before the Budget Statement, that is, it is not in my power to pre-empt my Cabinet colleagues on any budgetary issue. Therefore, if the Deputy asks me any specific question about what the Government might or might not do in the budget, I cannot answer her in May. I gave a generic answer, as I have to do in these cases. That is because it would be wrong to start answering specific questions before Cabinet discussions on any budgetary issue. I regret that when I gave what I thought was a generic answer - one that a media person, who is an ex-Minister, would understand perfectly as being the only answer that a Minister could give in the circumstances - it was not taken at face value. At this stage, it is not for me to make any comment on what might or might not be in a budget. I understood that would be taken as being the way we ought to operate.
Olwyn Enright (Laois-Offaly, Fine Gael)
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The Minister gives the impression that he turns up at Cabinet meetings to discuss the budget and brings the entire Estimate for the Department of Social Protection, which is then gone through line by line. Is it not the case, however, that he will bring to the Cabinet his recommendations for cuts in his Department? Is that not the reality of how it will happen? The Minister for Social Protection will bring forward suggestions, which will then be discussed and decided collectively by the Cabinet, as distinct from Cabinet members going through it and asking, "Could you save a few quid here and there?" Is that not the case? The Minister is concerned about the media's interpretation of his comments, but have the media interpreted those comments incorrectly? Have Opposition spokespersons misinterpreted the Minister's comments? Is he not going to touch the old age pension?
Éamon Ó Cuív (Galway West, Fianna Fail)
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Unfortunately, the Deputy is again trying to get me to give some specific commitments one way or the other on the budget. As I said, however, there is long time to go between now and the budget. I will not in any way pre-empt any Cabinet discussions or any Government announcement on the budget. Therefore, no matter how often or how persistently people ask me what I will do concerning the budget, the same answer will be given, that is, they are all decisions to be taken by the Cabinet.
In my experience we will look at all the parameters in great detail. Last year, we had a large number of meetings before the budget and because the Department of Social Protection accounts for one third of total expenditure, a lot of time was spent on it. My colleagues all have a big interest in it. We are greatly concerned to protect the vulnerable, which is the important thing from our point of view. The matter is a very complex one. We also understand - I believe the Deputy's party agrees with us on this - that unless we meet our fiscal targets the sustainability of any future budgets will be put at risk.
Olwyn Enright (Laois-Offaly, Fine Gael)
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We do not agree with how the Minister addresses that aspect.
Éamon Ó Cuív (Galway West, Fianna Fail)
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There will be differences on how we might proceed but we must adhere to what we said in the 2010 budget and must work within that framework.
Róisín Shortall (Dublin North West, Labour)
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Deputy Ó Cuív is the Minister for Social Protection and for that reason it would be helpful if he provided assurances for those who are dependent on the State pension that he will not target them again this year. The Minister said earlier that he was looking at all options. I asked him if he was barking up the wrong tree when it came to making savings in the pension area. Is he prepared, for example, to examine high-rollers who can have pension pots of €5.5 million? Is he prepared to examine the possibility of making cuts in that area, rather than targeting people who depend on the State pension? Equally, will he look at the current situation that allows widespread tax evasion by employers, as there is no limit to the contributions they can make to the pensions of company directors? Those are two areas where the Minister could make savings in pensions. Will he give an assurance that he will consider making savings in those areas, while at the same time providing some assurance to those who depend on the State pension?
Éamon Ó Cuív (Galway West, Fianna Fail)
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I would like to provide an assurance to those in that segment of the social welfare budget who are over 66 and depend on social transfers but I must also look at pensioners, the unemployed, those with disabilities, those in receipt of domiciliary care, child payments and so on. I must also examine the issue of consistent poverty, including vulnerable pensioners, those with disabilities and the unemployed. What we must try do is to frame the budget in such a way that nobody is asked to bear a burden he or she cannot bear. Deputy Shortall asked me other questions but they relate primarily to taxation. I will be part of those discussions on the budget-----
Róisín Shortall (Dublin North West, Labour)
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But the Minister is responsible for pensions policy.
Brendan Howlin (Wexford, Labour)
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I call Deputy Barrett. I ask Members to facilitate the Chair in trying to conduct the debate.
Seán Barrett (Dún Laoghaire, Fine Gael)
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I wish to ask the Minister a straight question. As Minister for Social Protection, will he bring to Cabinet any proposals to reduce the contributory old age pension?
Éamon Ó Cuív (Galway West, Fianna Fail)
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What I say to the Deputy is-----
Éamon Ó Cuív (Galway West, Fianna Fail)
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I will not in any way pre-empt-----
Seán Barrett (Dún Laoghaire, Fine Gael)
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The Minister is not bringing forward proposals.
Brendan Howlin (Wexford, Labour)
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The Minister should be allowed to conclude his reply.
Éamon Ó Cuív (Galway West, Fianna Fail)
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I am not going to disclose anything to do with the discussions before budget time-----
Seán Barrett (Dún Laoghaire, Fine Gael)
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I am asking the Minister if he is bringing forward proposals.
Brendan Howlin (Wexford, Labour)
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Please allow the Minister to reply to the question without barracking.
Éamon Ó Cuív (Galway West, Fianna Fail)
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I am not going to answer questions on what I am bringing forward in any circumstance because it would pre-empt-----
Seán Barrett (Dún Laoghaire, Fine Gael)
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I am not asking the Minister what he is bringing forward; I am asking him to confirm whether he will not be bringing forward proposals.
Brendan Howlin (Wexford, Labour)
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The Minister heard the Deputy's question. Let him answer.
Éamon Ó Cuív (Galway West, Fianna Fail)
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I will not confirm whether I am bringing proposals to Cabinet.
Seán Barrett (Dún Laoghaire, Fine Gael)
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So the Minister is not ruling out a cut in the State's old age pension.
Brendan Howlin (Wexford, Labour)
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Please, Deputy Barrett should allow the Minister to answer.
Éamon Ó Cuív (Galway West, Fianna Fail)
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What I have said is that anyone who asks me a specific question-----
Seán Barrett (Dún Laoghaire, Fine Gael)
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I am not anybody. I am asking a question.
Éamon Ó Cuív (Galway West, Fianna Fail)
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Deputy Barrett or any other Deputy or person who asks me a specific question on budget proposals ahead of the budget announcement will not get a specific answer. I will not be tricked into-----
Seán Barrett (Dún Laoghaire, Fine Gael)
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The Minister is not being tricked. We are entitled to ask questions. This is Parliament.
Brendan Howlin (Wexford, Labour)
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Please, the Minister is entitled to be heard without being shouted down. I call him for a final, brief response.
Éamon Ó Cuív (Galway West, Fianna Fail)
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It has been customary, as Deputy Barrett is aware from when he was in government, not to disclose what one will do prior to a budget. I remember a certain Minister of State in Deputy Barrett's party had to resign because he disclosed information on the day of the budget.
Olwyn Enright (Laois-Offaly, Fine Gael)
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That is not something that happens too often on the Government side of the House.
Brendan Howlin (Wexford, Labour)
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We need to move on to the next question.
Éamon Ó Cuív (Galway West, Fianna Fail)
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-----will not be disclosing anything.