Séamus Brennan (Dublin South, Fianna Fail)

We are dealing with section 3, which concerns pensions. The contributory State pension cost us €2.4 billion this year. This is up 57% on the previous year's expenditure, which was €1.5 billion, so the cost of paying the State pension is quite significant. The cost of the non-contributory State pension next year will be €810 million. I do not have the figure for tax forgone, but it is in the order of €3 billion. The Senator's argument still holds nevertheless.

Senator Terry knows I still hold the view that, although we have made some progress, pension reform is essential. The concept of mandatory cover is one of the items I have raised and it will be examined in the Green Paper. The Senator has expressed her concern to me many times about the security of people's funds and the professionalism with which they are invested is a critical factor. As I told the Senator yesterday, I must rely on the Pensions Board to police this area. The Green Paper will rehearse many arguments concerning the prudence principle and how to ensure people's money is properly invested and secure.

In respect of value of money, to put it very simplistically, and I know the Senator is not advocating it, one could simply double the State pension and remove all need for private pensions. Ideologically, I would have a problem with this in the sense that the State now takes on everything. I do not think this is necessary. I do not have the percentage, but the bulk of this tax relief is given at the higher rate or certainly to people on higher incomes so there is a pattern of middle and higher income people providing themselves with pensions.

The Minister of Finance put a cap on the value of an individual's pension fund which may attract tax relief, which is the amount in the individual's pension fund on 7 December 2005 or €5 million, whichever is the greater. This will be adjusted annually from 2007. If the fund is greater than the limit, tax at 42% will be charged on the excess when it is drawn down from the fund. The maximum tax-free lump for pension drawdowns made on or after 7 December 2005 will be €1.25 million. The balance of a lump sum greater than this amount will be taxed at the marginal rate as income. The restriction applies to a single lump sum or, where more than one lump sum is drawn down, the aggregate value of those lump sums. The lump sum will also be adjusted from 2007 onwards.

It is predicted that the labour force will remain static up to 2050 while the population of older people will treble. It is against this background that we must go down the road of pension reform. The Green Paper will be published at the end of March. It will look closely at the contributory and non-contributory State pensions, how they interact with occupational pensions and how we can have a good first pillar and a second pillar, that being occupational pensions. I do not think one would have as many people covered by pensions today if they had not been given tax relief.

One suggestion from the Pensions Board was that we introduce an SSIA-type arrangement under which, instead of tax relief, the Government would give matching funds, as happens with SSIA accounts. It has been argued that this would attract more people, especially those on the lower rate, to pensions because they would better understand the matching and it would be more transparent than tax breaks. This option, which has considerable merit, will also be examined in the context of the Green Paper.

I also think the mandatory system has some considerable merit and must be looked at. When PRSI was introduced, it was mandatory, and still is, for those who work. We are well used to the concept of ensuring people provide for themselves. This week, I extended PRSI to people on farm assist, which again is mandatory. People in this category are required to make this payment, but it gives them a very good pension.

Value for money is subjective. I am sure that if we did not have tax relief, whole swathes of the population would not have pensions cover, which would be bad for the country and the people themselves. The question of whether the money could be better used is a judgment issue. I would like to ensure tax relief is pushed down the line and taken up by people on lower incomes, but this is possibly where the SSIA-type reform will come in. We must make all these decisions in the context of the March Green Paper.