Willie O'Dea (Limerick City, Fianna Fail)
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47. To ask the Minister for Social Protection if he will clarify recent comments he made in the media to establish a new SSIA-style universal scheme for private sector workers; and if he will make a statement on the matter. [3028/17]

Willie O'Dea (Limerick City, Fianna Fail)
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This is as a result of a recent newspaper interview given by the Minister referring to the pressure that what we know as the old age pension system will come under due to the rapidly increasing elderly population. I merely want the Minister to elaborate on his ideas on how to deal with that.

Leo Varadkar (Dublin West, Fine Gael)
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I have made pension reform a priority for my term as Minister for Social Protection. This includes an intention to develop a new supplementary retirement savings system for those workers without adequate savings for retirement.

The rate of supplementary pension coverage in Ireland is estimated at only 35% of the working population when the private sector is considered in isolation. If measures are not taken to ameliorate this low rate of coverage, many future retirees will suffer potentially significant unwanted reductions in their living standards on reaching retirement.

Despite considerable efforts over many years to incentivise voluntary pension participation, the purely voluntary approach is not achieving the desired goal of increasing coverage. Therefore, it is my intention to bring forward proposals for an auto-enrolment retirement savings system. The reform would be consistent with the outcome of the OECD's 2014 Review of the Irish Pensions System, a key recommendation of which was to increase private pensions coverage through the introduction of a mandatory or quasi-mandatory earnings related system.

Initial consultations have taken place with Irish sectoral interests and international experts in this field. While there is much to learn by looking at the strengths and weaknesses apparent in aspects of other countries' pension systems, any solution must be tailored to fit the Irish situation. Therefore, as work progresses, I will ensure that extensive efforts are made to build consensus across political, business and civil society lines and to consider the manner in which such a system would be best delivered.

Willie O'Dea (Limerick City, Fianna Fail)
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What the Minister is talking about is an auto-enrolment scheme where one will be opted in and one can opt out if one wishes. The Minister's calculation is that, if he starts at 1% extra per annum, it would eventually rise to 6% per annum to be matched by employers and the State. Is he talking about a situation where, ultimately, when this is in place, there will be 6% extra on the individual, 6% on the employer and 6% extra on the State to provide a pension of approximately half the average wage? That was as I understood the interview.

This would be a supplement to the old age pension. Does the Minister envisage that we will not be able to continue increasing old age pensions at their present rate, and possibly even have to reduce them, but that this will be some form of supplementary income to compensate for that?

Leo Varadkar (Dublin West, Fine Gael)
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The reason I have held back on too much detail in this area is because the detail has yet to be worked out and anything that is done, as we will be aware from experience in other countries, needs to be done with a degree of political consensus. It is one of the issues that I hope the new labour-employer forum will consider this year. Indeed, the Government will ask it to do that. It is something we want to develop with agreement, if possible, from unions and employers.

My view on the State pension is that it should remain the bedrock of the pension system. It is the mechanism by which we have 98% avoidance of pensioner poverty in this country. That is why I expressed the view, previously and in that interview, that I believe the State pension should increase every year at the very least in line with the cost of living. What I am saying clearly is that any new system brought in should be supplementary and on top of the State pension.

We do not yet have exact figures but if a person wanted an occupational pension that delivered roughly half his or her salary at retirement, the kind of figure that would need to be put in is roughly between 15% and 18%. That is the kind of sum workers have to put into their pensions to get the kind of return they would like, but of course that includes the tax relief from the State and, therefore, it is really approximately half of that.

Willie O'Dea (Limerick City, Fianna Fail)
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Does the Minister intend to start putting this system in place in time for the next budget and what sort of timescale does he envisage to have it completely in place? I accept this depends on political consensus and various other issues, but the Minister must have some sort of a timescale in mind. Does he intend to start at the next budget?

Leo Varadkar (Dublin West, Fine Gael)
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On the timescale, based on other countries that have done this, such as the United Kingdom, New Zealand and Australia, people must be given a number of years' notice that this will happen because employers have to factor it into their business plans. As wage demands are being made, for example, these matters must be factored in. What they did in Australia, for example, instead of getting a 3% or 4% pay rise every year, was to provide one percentage point of that 3% or 4% towards the pension system.

Nobody was ever worse off in a year but instead of taking the full 3% or 4% pay increase, 1% of it went into the pension fund. That is the type of thing I envisage. Based on what other countries have done, it takes three to four years before the first set of accounts is opened and it takes approximately ten years to phase in and phase up the contributions. The UK did not bring everybody in on year one. It took in different sectors one by one. These are the types of issues that must be worked out and agreed, if possible.

I am convinced it must be done. I am anxious to ensure that nobody suffers poverty in retirement and that everybody, particularly in the private sector, at least has the opportunity to retire on a pension that is roughly equivalent to half his or her salary, just like people in the public service can at present.