Margaret Cox (Fianna Fail)

I move:

That Seanad Éireann:

—notes the ongoing commitment of the parties in government to the National Pensions Reserve Fund which is helping to ensure future generations of the elderly will be properly provided for;

—congratulates the Government for maintaining the National Pensions Reserve Fund and the payment of 1% of GNP per annum into the fund;

—welcomes the fact that in the first quarter of this year the fund earned €830 million or some 5.4% bringing its total value to €16.6 billion; and

—welcomes the fact that in the first quarter of this year the fund earned €830 million or some 5.4% bringing its total value to €16.6 billion; and

—acknowledges the overall success of the fund, since its inception in difficult market conditions, and urges the Government to continue to support this innovative scheme which will assist in meeting our great responsibility to provide for those who will need pensions in future years.

I am pleased to be able to speak on this issue, although I do not count myself as an expert in finance or the National Pensions Reserve Fund. We must acknowledge the foresight of then Minister for Finance, Mr. Charlie McCreevy, in establishing the fund under the National Pension Reserves Act 2000, with effect from 2 April 2001. He thought about the rainy day, realised the serious challenge that faces us from a pension point of view and decided to do something different and smart. We have known for many years that the Celtic tiger would not have occurred without the successful baby boom of the 1970s, which created a large workforce, and through the management of the economy and the economic growth we have seen. We have a buoyant economy with many people at work but they will continue to work only for a period of time. At some point we will all have to look to our pensions and wonder how we will provide for ourselves when we get older and are not working as much as we used to or when we come to an age when we are not able to work. It makes great sense to make provision for these contingencies.

The Minister for Social and Family Affairs has been before the House here several times to speak on pensions and the challenges that face the Exchequer in terms of the future cost of social welfare and public service pensions. The National Pensions Reserve Fund was established to meet the cost to the Exchequer by providing for the payment into the fund of a minimum of 1% of GNP every year from 2001 to at least 2055. The fund is controlled by the National Pensions Reserve Fund Commission, which has absolute discretion to control, manage and invest the assets. It is managed by the NTMA for the first ten years and publishes annual reports, which is a statutory requirement, and quarterly statements. On 31 March the value of the fund was €16.6 billion.

The Minister will forgive me if I focus on the operational side of a pension, what it means and what I think we can do, because I am not a financial expert. The Pensions Board, with this treasury fund behind it, is doing a reasonable job in getting the message across and I acknowledge the new leaflet that is being distributed. I do not know how, but recently I received a box of them in the post. It focuses the responsibility of individuals to start making pension provision. It is well laid out and makes it clear that the State social welfare pension is €193.30 per week, or €10,051 per annum. We must get this message to young people aged 25 to 27 years and who are starting to work. They must understand that one should begin providing for a pension at that age. If one begins when one is 25 or 26, it will not cost a significant sum and one will not be reliant only on the State pension. People believe, as I did when I was 25, that they do not need to worry about a pension because they will get one from the State. The message must be got across that the State will not be in a position to provide the levels of earnings and lifestyle that we now enjoy. No matter how strong the National Pensions Reserve Fund and the PRSI and social welfare funds are, we cannot provide for all pensions.

The public do not realise that if one were to contribute €100 of one's salary into a pension, that sum would be invested tax free and in full whereas if one was to keep it as salary, the net benefit might be as little as €58 when tax and PRSI were deducted. The Government is backing savings. To consider SSIAs, which were to encourage people to begin saving, for every €4 invested, the State invested a further 25%, so the total investment was worth €5. We should point out the similar position with regard to pensions. It will not cost the State more as we are currently spending the money in any case, but how we present this position to the public is important. If the public realises that the net cost would be just €60 when the tax and PRSI benefit is included, whereas the total invested would be €100, it will make them more inclined to provide for their own future. We need to get that message across.

Higher earners are making sound financial use of pension funds. However, those on the 20% tax rate and the lower paid, who are more dependent on their pensions, do not fully understand or appreciate the benefit. The challenge for the Pensions Board and the Government is to get this message across so that they understand.

There is a responsibility on Government, which it is fulfilling, but there is also a responsibility on the individual to invest in his or her own pension fund and to provide for his or her own pension while in a position to do so. The responsibility is on individuals and on the organisations they work for in terms of promoting the various schemes, whether a contributory pension or PRSAs. Employers must get the information across and must encourage employees to undertake a PRSA and begin saving in that way. We are not getting the message across.

Some 76,000 employers have set up PRSA schemes but only 27,000 employees have taken them up. There is a fundamental problem with regard to the message, which is a challenge. As well as providing and managing the fund, and making sure we are getting the proper growth and treasury management, which we will leave to the experts, we must make sure that the public — me, you and everybody — provide properly for their pensions.

Another challenge which makes the National Pensions Reserve Fund more important as we move forward is the arrival of the new migrant workers who have come to Ireland since May 2004, when the EU expanded. These migrants are important to our economy. They are working and are entitled to the benefits of the State. This development has created a new group for whom we need to provide. We will not achieve this if we do not invest in the fund and manage it properly, and if the fund does not experience appropriate growth. The fund has outperformed its benchmark by 10% since its inception in 2001. There is good fiscal management of the fund but it is important that we continue to manage it and show a commitment to investing in it, particularly as we realise the challenges of the future, to some of which I referred.

While I understand it is not the Minister for Finance's brief, when the Minister for Social and Family Affairs, Deputy Brennan, goes to Cabinet, an issue arises in terms of pensions and the entitlements of women. I congratulate the Minister, Deputy Cowen, with regard to the tax breaks put in place for child care workers. The acknowledgement that they can pay their own PRSI contributions reflects the fact they are doing important work and providing for their own pensions, while constantly focusing on the importance of the role of women or the full-time carer in doing work which is not paid for by an organisation or company.

Perhaps we can expand that scheme to other sectors and to other individuals such as those being paid carer's allowance, who would not mind paying a contribution towards their pension. We are making a start with the child care payment and the disregard to €10,000 but allowing people to make a PRSI contribution is an important step and a clear reflection of the commitment of the Government, the Department of Finance and the Department of Social and Family Affairs to the recognition of the important role of women in the area of unpaid caring work in the home or in other people's homes. I compliment the Minister on this.

The real challenge is twofold. First, we must manage the resources we need to pay out in the future to cover State pensions of public servants. Second, we must ensure that we get the message across so that people understand pensions are their responsibility. We are continually examining the area of pensions with a view to deciding whether we should make them mandatory. In terms of managing our economic competitiveness, Ireland has a low rate of corporate tax and personal tax. If we are to introduce any mandatory measure that is a tax on employment, it will work against us in the global competitive market. So long as it is a matter of choice and organisations have the choice to invest money in a tax efficient manner, that is to be welcomed. However, the moment we make pensions mandatory and insist that every employer must pay X% into a pension scheme, we will have difficulties that affect our global competitiveness on a daily basis.

While I do not claim to be an expert, we are suffering from this challenge. We have a buoyant economy but much of the development is generated internally from the building industry, the turnover of land, stamp duty and other positive developments in the economy. However, the level of exports is falling daily. If we are to have sustainable development that will allow us to maintain the economy, we must be careful not to put increased tax on employment. We must ensure we continue to work in a system that provides for the future, reflects the good fiscal management of the Government in terms of managing its pension fund and also allows flexibility for organisations to introduce the type of solutions that work for them and their employees.

I am delighted to have the opportunity to speak on the motion and look forward to the contributions from all sides of the House.