Sheila Terry (Fine Gael)

The Minister said he wished pensions were taken up by more people on low incomes. I disagree with this because they get very bad value for money if they take out pensions. They only receive tax relief at the lower rate as against individuals on the higher rate, so there is inequity in that. If the Minister were prepared to give them tax relief at the higher rate and afford them equity, it could be considered worthwhile.

How can somebody on a low income who is outside the tax net or who pays the lower rate of tax afford to pay into a pension scheme when he or she is probably struggling to save for a house, which is what he or she should be doing, or if he or she cannot afford to buy a house, is struggling to make ends meet? It is difficult to understand why we are spending large amounts of money trying to encourage people on low incomes, who are either paying tax at the lower rater or are outside the tax net altogether, to pay into pension schemes. The people to whom I refer — approximately 700,000 of them are outside the tax net — cannot afford to make such payments and are getting bad value for money.

People on the lower rate of tax may pay into pension funds when they are younger. Such money is, after all, only tax deferred, which causes some confusion because there are those who believe that it is tax relief and that they will never be obliged to pay it back. They will have to do so when they are drawing it down. They draw down this money at the top rate. We must ensure, therefore, that people are aware of what they are doing. Some individuals do not realise that they might obtain tax relief at the lower rate but that they will pay at the top rate when they are drawing it down. I have received many complaints to the effect that we should inform people of their rights. I have also received representations regarding the best way of doing things.

I understand the Minister is heading down the mandatory route in respect of pension contributions. I am, for some of the reasons I have already outlined, extremely concerned in this regard. It would be wrong to take the mandatory route. Would it be constitutional to impose a mandatory regime? Many people have already been obliged to pay into pension schemes because it was company policy to do so. These individuals were either forced to make contributions to such schemes or their employers did so on their behalf. Either way, this proved a benefit for the employers. People expected that making such contributions would deliver pensions for them but this did not prove to be the case. How constitutional is it to oblige people to make mandatory contributions?

I hope the Minister does not take the mandatory route. If he does, however, people should retain the right to opt out. This would at least give people the right to decide whether paying into pension schemes is the right way to spend their money. In circumstances where employers make pension contributions on behalf of employees, the latter might prefer to opt for increases in salary instead. An opt-out clause must be included in respect of mandatory contributions, unless guarantees are provided that people will receive pensions in the amount they would expect when they retire. If there is no opt-out clause and no guarantee of outcome, we should not proceed down the mandatory route.