Martin Cullen (Waterford, Fianna Fail)

I thank the Members of the Seanad who have already spoken. In particular I thank Senators O'Malley and Cannon for tabling the motion. It is important to have a robust and substantive debate on the issue. Seanad Éireann is often a place to get leadership on such a debate. Interestingly, some Senators, including Senator Quinn who has left the House, have taken an employers' point of view. I disagree with his analysis that defined benefits should be regarded as a thing of the past. That is not my approach to the debate. They are not a thing of the past in many other countries that have been highlighted in the House this evening as having a good pensions regime.

It highlights the complexity, vested interests and different perspectives that will be reflected in the debate in coming months. For that reason it was somewhat disappointing and missed the point of what the Seanad can achieve that an amendment to the motion was tabled. The motion was sufficiently all embracing to allow the Seanad to give leadership by initiating this debate in an important public sense because of how the Seanad is viewed. In recent weeks motions in the Dáil have been accepted by the Government side because they were regarded as sufficiently all embracing for us as politicians to give the leadership that is required in a debate such as this. I view the debate in the Seanad this evening in the same context. Perhaps the Opposition will choose not to press the amendment because it misses the point of what this debate will be about in coming months.

The publication of the Green Paper on pension policy marks another major step in the process of reviewing our pension system. More importantly it marks the start of a major debate to decide how we, as a Government, and as a society, plan and secure the future of those currently in retirement and those of younger generations. Pensions have been an important issue on the Government agenda for a number of years and we are proud of our achievements for older people. In the past ten years there have been a number of major initiatives to ensure that our pensions system is sustainable in the future, that social welfare pensions offer a decent income to those who are already retired and that younger people make provision for their futures.

We introduced the National Pensions Reserve Fund in 2001 to pre-fund part of future pension liabilities. At the end of June the fund was just more than €21 billion and is continuing to grow. Great credit is due to the former Minister for Finance, Charlie McCreevy, for having taken this policy initiative. While it does not resolve the future pensions issue, we all accept it will form part of the solution.

We have increased social welfare pensions significantly — by 56% since 2001 which is higher than the rates of increase in both earnings and prices. The rate is now in excess of 34% of gross average industrial earnings which was the target recommended in the national pensions policy initiative published by the Pensions Board in 1998. We have promoted an increase in the number of people contributing to a private or occupational pension through the national pensions awareness campaign and the introduction of personal retirement savings accounts. More than 1 million people now have a personal or occupational pension with about 120,000 of these contributing to a PRSA. I am somewhat disappointed in this figure and we need to review its structure to encourage more people into the system.

Despite these major improvements, there are serious concerns for the long-term future of our pension system. Given our experience in the past ten years, it is entirely appropriate that we should now review our overall approach in order that we have in place a pension system which is sustainable in the long term and which will deliver an adequate retirement income to all retired people.

While the focus in this area is often on the future, we must not forget that we also have a duty to ensure that today's older retired people also have an adequate income in their retirement. The occupational pension system in this country is still relatively immature with only about one third of existing pensioners having an income from that source. Accordingly, a large part of the existing retired population rely on social welfare pensions for the bulk of their income. It is important that we maintain, and where possible, improve on the value of social welfare pensions. The Government is committed to a pension of €300 per week by 2012, and I will be seeking to make progress towards this target in the forthcoming budget.

Let us be in no doubt that we face difficult challenges ahead. People's working lives are now shorter and we are living longer in retirement. At present men aged 65 can expect to live another 16 years and women 19 years, in round figures. By 2036 this will have increased to 21 and 24 years, and to 22 and 26 years by 2061. Those figures indicate to me that the men will never catch up with women in terms of longevity. This translates into an increase of up to 40% over the period which will be reflected in pension costs, as the longer a pension is paid the more expensive it becomes. While longer life expectancy is something to be welcomed and celebrated, it poses challenges for us in terms of the sustainability of our pensions system.

While we have one of the youngest populations in the EU with approximately 11% over 65 years of age, this will change in the decades ahead when those aged 65 and over will more than double to 28% of the population. In contrast, the share of the working age population is projected to gradually decline from 62% to 51%. In the decades ahead we will move from having almost six people of working age for every person of pension age to having fewer than two, a point well made by Senator O'Malley. Long before we reach that level, however, we will face the same challenges on pensions and other age related costs as many of our EU neighbours are facing at present. However, as a country we are fortunate that we have time before these changes will impact and we must use that window of opportunity to get things right. As we know major economies, such as the UK, Germany and France, are already in this difficult situation whereas at least we have a window of opportunity, albeit narrow, to get this right.

We know that progress has been slow in ensuring that those in employment have an occupational or private pension. The national pensions review target is to ensure that 70% of those aged over 30 in employment have such a pension. While progress is being made towards this target, with 62% of the workforce participating in a pension scheme, the rate of improvement does not suggest we will reach our target within an acceptable timeframe, which should form part of how we consider pensions structure in the course of this debate.

While improving pensions coverage is a priority, we also must be concerned about the quality of the arrangements already in place. There are concerns that the level of contributions being made to some schemes is not adequate to ensure a decent pension at retirement. Many defined contribution schemes were set up, and continue to operate, on the basis of quite a low level of contributions. The Irish Association of Pensions Funds recently found that this is improving but, nevertheless, it is something which continues to cause concern.

As has been highlighted in this debate, women continue to have a lower coverage rate than men, although the gap is narrowing. Certain sectors of the economy such as hotels and restaurants, agriculture and retail continue to be extremely difficult to reach. Despite the progress we are making there are still upwards of 1 million people who will rely exclusively on social welfare provision for their retirement incomes unless action is taken.

The Green Paper addresses all of these challenges and puts forward a number of options for dealing with them. Its preparation follows a period of increased activity in the development of pensions policy in which we have had the benefit of two major reports by the Pensions Board. The Green Paper takes account of these reports but it examines the situation in a much broader way to deal with other issues, such as the operation of the funding standard for defined benefit schemes, together with a comprehensive look at issues pertaining to social welfare pensions.

Another important input to the Green Paper was the actuarial review of the social insurance fund, which I also published recently and which sets out the position of the fund at end of 2005 and updates the previous review undertaken five years ago, particularly in light of the impact of recent policy and demographic changes. This valuable work will contribute to the ongoing development of social insurance and pensions policy in Ireland. The review complements the Green Paper by providing another important reference point from which the emerging challenges to Ireland's social security and pensions system can be assessed.

Awareness of pensions issues is now extremely high. The Government was pleased at the focus on pensions in the partnership talks on Towards 2016 and was happy to commit to the publication of the Green Paper. We have a golden opportunity to hold a serious debate on the pensions system and its future structure to ensure that we meet the needs of those currently in retirement as well as future generations.

The Green Paper sets out the key issues and challenges facing our pensions system for the future. The major topics include the demographic challenge, sustainability of the pensions system, work flexibility in older age, the roles and relationships of social welfare, private occupational and public service pensions in the future, the role of tax incentives in the current system and their efficiency and effectiveness in supporting Government objectives in the area, the role of annuities and the operation of that market, the role of regulation, including the charges levied by pension providers, and pensioner incomes and the contribution various elements of the pension system, including the social welfare system, can make to the adequacy of this income. The Green Paper includes a comprehensive review of social welfare pensions and the issues which are raised from time to time in representations and parliamentary questions, together with the implications of making provision for those affected. In regard to the role of annuities and the operation of the market, Senators may be aware that a report on the annuity market was recently published by the Department of the Taoiseach in conjunction with the launch of the Green Paper.

In terms of solutions the Green Paper puts forward a number of ideas for consideration. I am open to other proposals because I do not believe the Green Paper has to be totally prescriptive. This is a worldwide issue and new methods will probably emerge. I see no reason why Ireland should not be part of any new and innovative approaches that emerge in the coming years. I would like the Government, unions, employers and the pensions and financial markets to start collectively thinking outside the box because the challenge is to move away from simplistic vested interest positions. By meeting that challenge, we have some chance of finding a path on which we can agree but we will otherwise have to go down the road of an imposed solution. I would like to build consensus at least on the core issues. Employers and employees have to consider the issue with a view to finding a solution which benefits the entire society so that everybody can win as we approach 2050.

The options set out in the Green Paper include maintaining the status quo, which with the wider coverage levels we have seen in recent years will bring some measure of improvement to this area; delivering improved adequacy through an enhanced social welfare pension; improving the incentives to encourage pension take up by using SSIA-type matching contributions instead of tax relief; introducing a mandatory supplementary pension system funded by employers, employees and the Exchequer to cover a certain level of earnings; and the use of soft mandatory approaches like the Kiwi save system introduced in New Zealand, where people are automatically enrolled in a pension scheme when they start work but are allowed to opt out. The latter is a psychological way of approaching the issue because, as we know from human nature, people generally will not take the decision to opt out. It is an interesting solution.

In an EU context the pension challenge is being approached using a number of basic principles, including support for longer working lives and active aging, balancing contributions and benefits in an appropriate and socially fair manner and promoting the affordability and security of funded and private schemes. In an Irish context some or all of these principles can be applied.

Although the Green Paper sets out some ideas on an approach for the future, it would not be appropriate for me or the Government to champion any particular approach at this stage as this would focus the debate in one direction and diminish the consultation process which is being undertaken. I stress that the purpose of the Green Paper is not to recommend any particular course of action but rather to set out clearly the current situation and the implications from an economic and social perspective of various courses of action. However, we must be clear that good pension provision is expensive, whether it is done through personal contributions to private pension schemes or through the State by way of PRSI contributions or taxes. The tension that exists between the two key challenges facing us in this area, namely, the provision of adequate retirement incomes and the cost of providing that system, is apparent in the Green Paper. Pensions is one of the major issues the country must address and any decisions we take at this stage will impact on society for decades to come.

Given the importance of the issue I am anxious to hear the views of as many people as possible on how they would like to see the system developed. The Seanad has a great tradition of leading societal debates. It is not a good idea at this stage to divide the House because doing so would send the wrong signal to the various stakeholders. I have no doubt, however, that once we reach the point at which decisions must be made, people's perspectives will differ. As politicians and leaders in this area, we need to be careful and that is why I commend Senator O'Malley on the care she took in crafting her party's motion, which embraces the issues in a general way rather than begging an amendment.

With the publication of the Green Paper, I have initiated a consultation process which I want to be as inclusive as possible. Given the complex nature of the subject, I want to ensure people have ample time to consider the issues and formulate their ideas and comments. The consultation process will remain open until mid-2008, an appropriate period given the nature of the issue. This approach may pay dividends when it comes to developing our final proposals.

It is important that we receive the views not only of representative organisations but also those of the public and I hope as many people as possible will take the time to contribute. We accept submissions by way of e-mail, letter or fax. Copies of the Green Paper are available from my Department or via the dedicated website, www.pensionsgreenpaper.ie, and submissions can also be made via that route. I am pleased with the level of interest shown thus far by the public. We have had in the order of 2,500 hits on our website since the site was launched. The website also includes copies of the related documents mentioned earlier, the actuarial review of the social insurance fund and the study on the annuity market. The public fora convened to discuss the issue have been well attended and people have been positive about the timeframe of six months for engagement in the debate.

I am aware of the diverse views that exist on how the pensions system should develop and there is no doubt that building a consensus on any approach will not be easy. However, in the interests of those who are already retired and of future generations of older people, it is a challenge to which the Government and I will have to respond. I intend to meet the timelines I have set out.

Next year will be an important milestone for pensions policy in Ireland. As a society we need to consider and debate the type of retirement we want for our older people and how we might pay for it. I am pleased we have embarked on that debate. I hope that by this time next year we will have a clear vision, which will command broad acceptance, on how our pensions system should be developed for the future.

I wish to make some points which might help to clarify one or two issues which arose in the debate. The pensions system in Ireland comprises two main elements. The first is the social welfare system and the second is voluntary supplementary pensions provided through the private sector. The function of the social welfare element is to provide a basic income with the earnings related part of the pension provided by way of occupational and private pension provision. The structure of the Irish system is unique in contrast with those in many other countries where the state system performs both functions, that is, basic income and earnings related pensions.

Given the way our pensions system is organised, some surveys can provide a distorted picture of the economic position of our older people. These often focus on the cash income provided through state pensions systems, as highlighted this evening, but in our case they make no allowance for the role of the private sector or the additional supports provided such as household benefits, medical cards, free telephone rental and free television licences. All of these form part of it. I am not trying to present it as the solution but when one looks at some of the comparisons made on a simple cash basis, one is really only looking at a snapshot of a pure cash payment. That is not relative. We should take everything into account. I do not believe we should base our argument on the fact that somebody else gets this or that because, in most cases, we are not comparing like with like. I hope we take a much more holistic approach to the debate.

There is a very high level of home ownership in Ireland, especially among older people, which is not the case in many other countries. That is not reflected in surveys. This impacts on the disposable income levels available in retirement. While such surveys are useful to compare aspects of the pensions systems across countries for the reasons outlined, they are not a true indication of the economic position of older people. I say that not to be argumentative but so we can have a much rounder debate.

Our State pensions system provides flat rate payments to older people. Combined with the fact that the proportion of older people in the Irish population remains low when compared with EU countries — 11% against the EU average of more than 16.5% — this means that by international standards State spending on pensions is low. We are spending less because we have a smaller older population. It is blindingly obvious why that figure is there. Saying we are paying less is not making the full comparison. Since we probably have the youngest population in Europe, of course we are paying less.

These surveys make no allowance for the fact we have about €2.5 billion, which the Green Paper highlights, in tax forgone by the State in terms of incentives to people to have private pensions. The people involved in the Green Paper said the figure is approximately €2.5 billion in tax which we, as a society, have forgone annually through incentives to allow people to get into private pensions. That is also very much part of how the mix has come about in our pensions scheme. I make those points which are important in the round.

I commend the motion and hope to come back to the Seanad as this debate progresses and as issues become clearer in terms of the direction we may take. I am sure Senators will have a very good input into that debate as we move forward. I thank Senators for inviting me to the House.