Joan Burton (Dublin West, Labour) | Oireachtas source

I thank the Acting Chairman and the Seanad for the invitation to speak about the OECD pensions report and give Senators some background information on it.

Secure and adequate finances are one of the fundamental components of a happy and active retirement. The sustainability of the pensions system is a particular concern. The demographics, or population bonuses, Ireland has mean we have many more older people living a lot longer. In recent years the social welfare budget has gone up by €200 million to €300 million per annum in respect of an increase in the number of older people qualifying for retirement payments against the background of a deterioration in the public finance.

In the future the task of financing increased pension spending will fall to a diminishing share of the population. Currently, there are 5.3 people at work to one retired person, but by 2060 the figure will decline to 2.1 working adults to one older person. Life expectancy in Ireland is increasing and while this is a very welcome development, it also presents very real and obvious public policy challenges as to how we provide for the retirement people would like to enjoy. It was in that context and the context of the financial crash the country had suffered, that in April 2012 I commissioned the OECD to review long-term pension policy in Ireland. I launched the completed review of the pensions system jointly with the OECD on 22 April. It is informed by the extensive consultation undertaken by the OECD in Ireland but also internationally as part of its work. It takes account of the considerable body of work already completed in Ireland on the analysis of the pensions system and the different proposals for reform brought forward in recent years. It provides excellent comparative data between the pension arrangements in Ireland and those in OECD countries with comparable systems. It draws on international experience and examples in the recommendations and options proposed for reform. It looks at critical issues, that is, the sustainability of the pensions system in the light of population and investment challenges; adequacy and coverage levels in order to ensure an adequate income in retirement, with a particular focus on the lower and middle income group; the modernity of pension systems to ensure flexibility in the labour market and supporting mechanisms for longer working; and equity within the pensions system.

During its visits to Ireland the OECD team met the representatives of a broad range of sectoral organisations, including representatives of older people, the pensions industry, employer and trade union groups, and academic, social and economic policy experts.

It worked closely with my own officials and those in other Departments. In addition, I hosted a very successful consultation forum, including all relevant stakeholders, at Farmleigh House in September 2012 when the OECD was presenting a preliminary assessment of its thoughts on pensions in Ireland. The good news is that Ireland is in a relatively favourable position compared with most OECD countries with regard to pension spending and the adequacy of retirement income provision. Most importantly, the economic situation of pensioners in Ireland is comparatively good with respect to other age groups in the population and international comparators. The report also shows that recent decisions which have been made are in line with the roadmap needed for pensions reform. Compared to the rest of the population, older people have the lowest poverty rates at 1.9% and are least likely to be at risk of poverty, which points to the adequacy of the State pension. This highlights why it has been important to protect core pension and welfare rates, which I have been able to do in recent budgets. However, the report also raises question marks about aspects of the Irish pensions system. This is precisely why we asked an independent, respected body like the OECD to give us its objective perspective. We must ensure that the State pension remains sustainable in light of demographic changes and that the public finances can support these changes.

I have introduced a number of significant reforms to pensions in recent years. In 2014, the State pension age will be standardised at 66. The State pension age will then be increased over time to 67 in 2021 and 68 in 2028. In September 2012, a number of changes to the State pension rate bands came into effect for new customers. In order to simplify the State pension, a move to a total-contributions approach to determining eligibility for the State pension is already planned in 2020 to replace the current averaging system. This is a measure which is supported by the OECD. These reforms will ensure that the level of pension paid will be directly proportionate to the number of social insurance contributions made by a person over his or her working life. Aligning the rate of pension paid with the contribution made ensures that those who contribute more during a working life will benefit more in retirement. It also makes the State pension system more transparent. The overall objective of the pension system in Ireland is to provide an adequate and sustainable basic standard of living through direct State supports and to encourage people through generous tax reliefs to make supplementary pension provision so that they may have an adequate income replacement rate when they retire from work.

While the State pension is expected to provide sufficient retirement income for the lowest paid workers, many people retiring from work will have a significant income gap if they do not have supplementary private pension provision. However, only 51% of people in employment aged 20 to 69 have pension coverage. This relatively low rate of pension coverage is a key concern of the Government. This is why the programme for Government includes a commitment to reforming the pension system to progressively achieve universal coverage, with particular focus on lower-paid workers. We are talking, for instance, about women, many of whom have varied working patterns due to family commitments at different stages in their lives, and about atypical workers. Many employers with zero-hour contracts offer relatively small employment hours and the people on such contracts often rely on two or three days social welfare per week to bring their incomes up to an adequate level. It is for this reason that we are looking at an auto-enrolment system. Such schemes are a very positive way to increase supplementary pension coverage. As well as giving a pension to people who may never have received one, the scale of a single pensions system would bring benefits in terms of lower charges.

I issued the report on charges in the Irish pensions system a few months ago. While the report identified that charges in Ireland can be very high, particularly for very small schemes, overall many of the charges for the larger schemes are broadly in line with international levels. I recognise, however, that the introduction of an auto-enrolment system would be best supported by a more favourable economic environment than currently exists. An auto-enrolment scheme is something I would look to introduce when the economy is in better shape and people's incomes have recovered. In that context, the findings and recommendations of the OECD report are not prescriptive. I note that the OECD did not do costings on all of the recommendations it made. The recommendations are more indicative of a broad roadmap of what the country requires if it aims to have a sustainable pensions system which meets people's expectations, particularly younger and middle-aged people who come to retire in 20 to 30 years time.

The report provides a wide choice of measures for consideration which involve a number of Departments. None of the structural options put forward has been costed and detailed analysis of some of these options will be required before decisions can be brought to Government. The report is being examined in detail and I will bring a response to Government for decision setting out a roadmap for long-term pensions policy in Ireland. We must recognise that there are costs involved in providing for good retirement incomes and that the earlier we can bring forward reform, the better. My aim is to ensure that we engage actively in this process to ensure that all older people have a safe and secure retirement with an income which is capable of meeting the expectations they have for their retirement.