Joan Burton (Dublin West, Labour) | Oireachtas source

I thank the Senators for their thoughtful and incisive contributions. I wish to stress that the OECD report is quite positive about Ireland, in the sense that we have quite a good and strong universal retirement pension system through the State. One of the features of it is that if somebody has made contributions, they qualify. However, as Senator Moloney said, very often people have a short contribution history. Many of them would be self-employed people coming into the system to pay contributions relatively late in their working lives, and the Social Insurance Fund shows that it is such people who get the highest contribution from the State pension. The non-contributory, means-tested State pension was brought up to the same level as the contributory pension during the boom.

Many of the reforms which are under way at present were agreed by the troika in November 2010.

We are, for example, raising the age of pension eligibility over a period of time in accordance with that agreement. This partly reflects demographics, as well as the financial and economic situation in which the country finds itself.

In regard to the various options available, the OECD has indicated in its report that its first preference is a mandatory scheme because it would be simpler and cheaper to operate, with its second preference being automatic enrolment, whereby people would be automatically enrolled but could opt out. My view is that the latter option which has worked very well in New Zealand might be more appropriate in our case. As it was adopted in the United Kingdom in recent times, we do not yet have outcomes from that jurisdiction in terms of take-up. The experience in other countries is that there tends to be a very high opt-in level under such schemes.

One of the difficulties is that we have critical groups of people, particularly women and middle-income and low-paid workers, who can find, at the end of their working life, that their pension entitlement is seriously inadequate. Unless they are contributing to their pension fund over their entire working life, the chances are that their expectations of what they can look forward to in retirement will not be met. This is especially the case for women who often move in and out of paid employment at different times to accommodate child-rearing duties. In that sense, the State pension, through the PRSI and means-tested system, provides a minimum level of income in retirement. That income will probably feel adequate to people who were previously on a low income or in receipt of social welfare benefit. In fact, the State pension will provide for an increase in income for persons who are entirely dependent on social welfare prior to reaching retirement age. For middle-income earners, however, it might come as a shock to have to survive on a pension of €12,000, or up to €14,000 if one includes the benefits package, in contrast to those who are looking at a pension in retirement of €25,000 or so.

Several Senators referred to the cost of tax reliefs and urged that they be geared more to people on middle and low incomes. Our position in this regard is reflected in the inclusion in the programme for Government of the undertaking to confine the subsidisation of pensions through tax reliefs to workers whose total fund will yield a pension of no more than €60,000 per annum in retirement. That is a very handsome pension for most. Moreover, Members should note that the first efforts to impose restrictions on the pension pots of very wealthy individuals and a cap on the total permissible fund were initiated as recently as 2005. I was party to that debate, having conducted a great deal of research. It subsequently emerged that certain people had pension pots of €20 million to €30 million, which meant there was a very large allocation in tax relief in their direction. The programme for Government and the associated commitment given by the Minister for Finance reflect our determination to address that issue.

A number of Senators referred to public versus private sector pensions. It is important to bear in mind that public sector workers are subject to a levy contribution of 7% in respect of their pensions. Senator Sean D. Barrett referred to the USC. When the ESRI produced the original paper on that levy, it was described as a universal social "contribution". In the heat of the economic crisis, however, it morphed out of the arms of the Department of Finance as a universal social "charge". As we look towards automatic enrolment or a mandatory system in the future, as the economy recovers, there will be scope to earmark some of the levy for the purposes of a defined pension provision in subsequent years. In this regard, we should be mindful of what happened to the National Pensions Reserve Fund, as referred to by Senator Paschal Mooney. The purpose of the fund which had built up to a very significant level before the economic crisis was to provide for public service and social welfare pensions from 2025 onwards. Whatever system we develop, whether it be automatic enrolment or a mandatory system, we must be able to provide future contributors with reassurance to a very high level that it will be in their name and that the Department of Finance will not dip into it at some future time, as happened with the reserve fund.