Michael McCarthy (Labour)

I welcome the Minister, Deputy Brennan. I also welcome his initiative in opening up a debate on pensions. As one of the youngest Members of the House it is particularly important that I contribute to this debate and provide an insight into the mindset that exists in regard to participation in pension schemes.

I wish to focus on a point referred to by Senator O'Toole and other speakers, namely, the issue of compulsion. The Minister is aware of this matter as he has asked the Pensions Board to conduct a review on it before September.

It is difficult to explain to people in their mid to late 20s the importance or economic necessity of taking out a private pension scheme, which takes more of their gross income. We are paying enough for cars, mortgages and child care. We must find a way to convince people to give more of their earnings to pension schemes. The current approach is in some way responsible for the low take-up of pension schemes, especially among young people.

The figures released by the Minister in recent days show that 900,000 people do not have supplementary pension provisions in addition to the State pension. That is most worrying, not least because of the cost of living and lifestyle choices. We have become accustomed to certain luxuries. That people are living longer will create a difficulty in terms of their financial resources when they retire.

The Minister's initiative of exploring the possibility of allowing people to stay in the workforce after the age of 65 is interesting. In some cases that may be economically necessary but in other cases people will consider they have done enough — worked hard enough, reared and educated their families, built houses, paid mortgages — and they will not wish to remain in the workforce for an additional five or six years. That in itself has its own difficulties.

The nub of the problem goes back to the mindset that exists in regard to pension uptake. We must establish the factors underlying why people are slow to get involved in pension schemes. The slow uptake in PRSAs is a case in point. We must find out the reason for such a low uptake. If compulsion is the solution to the problem then we should consider it.

I welcome the proposal to tap into the savings culture that is evident from the significant uptake in the SSIAs. Many people have become involved in that scheme and developed a habit of saving money. Senator Terry made this point in her contribution. SSIAs have helped to foster a culture of saving which should be extended to pensions.

We live in an age where the workforce is mobile. People often go abroad for a number of years and return. People who have paid PRSI here for 20 years and then go abroad for whatever reason discover when they return at pension age, that they do not have enough contributions for the contributory old age pension although they may qualify for a reduced non-contributory old age pension.

The State encourages people to get involved in pension schemes but it gives with one hand and takes away with the other. If, for example, one has a private pension scheme which would provide €150 per week but one does not have enough contributions for a contributory old age pension then the private pension will militate against one receiving a non-contributory old age pension. This matter must be addressed. It may be worthwhile to give a person with 50% or 75% of the required number of contributions a corresponding amount in pension entitlements. It is necessary to overhaul the present arrangement.

It is important to ensure there is an incentive for people to take out private pensions. If people think that investing in a private pension scheme will inhibit their ordinary entitlement they will not be interested in investing in private schemes. At present there is a vicious circle which is not productive.

I would be slow to dismiss the ESRI report. The tax break issue is an important one, albeit that the position is contradicted by the Irish Association of Pension Funds. Tax relief is costing the State upwards of €1.5 billion and this should be examined.

The greatest difficulty relates to people's mindset. We must penetrate the mindset of people in their mid to late 20s who are in the workforce. That is the point at which people need to invest in private pensions. If an element of compulsion is necessary, this is worth considering as it would lead to a satisfactory financial situation for people when they retire.

I accept what the Minister is trying to do and I welcome the fact that he has opened up a debate in this area. I wish him well in his endeavour. I hope the review he has sought from the Pensions Board by September will be worthwhile. I look forward to the opportunity to debate the issue again at that stage.