Paschal Mooney (Fianna Fail) | Oireachtas source

I welcome the Minister to the House. I could not help but reflect while listening to her contribution that the much-maligned Fianna Fáil Administration of 2002 to 2007 had an enduring legacy in the vision of the then Minister for Finance, Charlie McCreevy, in setting up the National Pensions Reserve Fund. It was unique. As subsequent events were to prove, it was a very useful pot into which the last Government and current Administration have been able to dip for reasons other than those for which it was established. The Minister will remember clearly the buzzwords when the fund was established, including the reference to a pensions "time bomb". The issue of a pensions time bomb has become more rather than less acute in the intervening years due to the changing demographic profile of the Irish population. I have no doubt that it will continue to actively concern the Government and its successors. I hope we do not ever reach a point where the non-productive element of the population starts to outstrip the productive element and that one person will be working to supplement the income of two who are retired. That is what the pensions time bomb means.

The report is logical. It recognises the importance of greater security for those approaching retirement and of ensuring fairness for younger workers saving for retirement. It acknowledges that anomalies have built up which must be addressed. The basic conclusion of the report is that the current system is disjointed and inconsistent in its coverage of and outcomes for public and private-sector workers and State pensioners. The Minister addressed these issues to a great extent in her contribution. There are certain figures in the report which suggest rather starkly the challenge faced by the Government. According to the Pensions Board, only 54% of people in the workforce have pension coverage. While the public service coverage is in excess of 90%, coverage in other areas is exceptionally low. In the hotel and restaurants sector, coverage is only 23%. In the wholesale and retail trade, coverage is only 25%. These are stark figures which present the reality of the challenges the Government faces in squaring the circle.

An interesting aspect of the debate is that employers are obliged by law to offer employees access to a pension.

Only 43% of those interviewed had not been offered access. Of those, 93% had never asked an employer about access to a pension. I am sure the Minister will have some comments on that. The other aspect of the statistics concerns awareness of the tax relief on pension contributions. While it is high, at 73%, the majority of people did not know or had incorrectly understood the amount of tax relief that applies. Perhaps this is something the Department of Social Protection, in terms of knowledge and communications, could examine.

Some consideration has been given to mandatory pensions but the Minister has not touched upon it. I can understand why because it is a thorny issue. The State must grapple with the issue in years to come. An interesting comparator is the Australian style of a compulsory 9% superannuation. While attractive in the short-term, it would be politically unacceptable for any party in government in light of the continuing demands on the Irish electorate in terms of widening the tax base. Of the OECD countries, only Ireland and New Zealand do not have compulsory pensions saving. I am not suggesting the Minister should fly a kite because it is a political timebomb. Any Government would shy away from it in the current tax environment. The OECD report states that mandatory contributions to pensions may be perceived as a tax, discouraging people from working.

On the tax treatment of pension contributions, the OECD report has unequivocally concluded that the Government system of tax incentives disproportionately benefits higher income groups. For those who have incomes too low to pay income tax and credits, the OECD proposes a Government subsidy or a matching contribution in an individual's retirement savings. I refer to the Administration from 2002 to 2007. One legacy, now long forgotten and consigned to history, is the SSIA scheme that encouraged people to save. It was a runaway success. It worked well in that case and perhaps, in the context of the Government providing a matching contribution or subsidy to an individual's saving scheme, it may be worth examining. The Fianna Fáil Party recognises that pension tax relief is a significant cost to the State. Our most recent budget proposals envisage a reduction in the annual earnings limit.

One of the persistent criticisms of the private pension industry is that it is designed to make vast sums of money for the pensions manufacturers, fund managers, administrators and intermediaries. I can never get my head around it. It is often described as opaque, confusing and offering mediocre to poor value for the pension holders. The Department of Social Protection issued a report last year showing the impact of high charges, particularly in the case of small schemes. Perhaps the Minister will comment in this respect. We are encouraging people to take out pensions in their 20s. The report showed that in the case of someone who saved €250 a month from the age of 35, after 30 years of saving, and without any charges, the pension would amount to €10,000 in retirement. The average charge of 2.18% per year, it reduces the fund by €62,000 leaving a sum of €6,900. This is a scandal. The pension industry has much to be answerable for and I am sure the Minister, being the determined Minister she is, will have some issues in this regard.