Michael McDowell (Independent) | Oireachtas source

I welcome the Minister. Senator Burke made the point that Paul Kenny, the former Pensions Ombudsman, and Colm Fagan, a very distinguished actuary, have a radically different proposal for managing pension funds of this kind from what is set out in the Bill. The proposal advocated by them received an international award for excellence when it was devised and published. Reading between the lines, it seems the Government's attitude and that of the Pensions Council has been to disregard their proposal on the grounds that it has not been tried before in any state similar to Ireland.

I appreciate that the Minister was advised by the Pensions Council not to accept the proposal by Mr. Kenny and Mr. Fagan. However, I do not accept the proposition that the Pensions Council was entirely independent in coming to that view. The figures proposed by the proponents of the alternative system would in all probability provide far better pension entitlements over a long period than would the particular way of doing things set out in the Bill. In essence, the system now under contemplation suggests that an individual should have an individual account that will be managed, with various degrees of risk exposure, for them. In effect, Mr. Fagan and Mr. Kenny favoured the creation of a fund in which every participant would be allocated units. On an actuarial basis, their contention is that such a fund would, over time and on the basis of ordinary actuarial principles, guarantee a far greater return for pensioners or persons coming up to pension age than would the scheme proposed by the Government.

I do not claim to be an actuarial expert. However, I do not think it is good ground to reject a scheme that, on the face of it, appears far more attractive than what is proposed simply on the basis that it has not been tried anywhere else, especially when it was the subject of independent evaluation by independent consultants who found no fault with it and where it was, as I said, the subject of a major award for its innovative approach to this issue. I want to put it on the record of the House that the Minister and the Government have decided to go the route laid out in this legislation, which is, in effect, an agglomeration of individual accounts and entitlements. If Messrs Kenny and Fagan are correct, this will result in diminished benefits for pensioners as time goes by. If they are correct, this is a lost opportunity and a strategic error.

Senator Burke asked whether these matters will be reviewed at some point. Perhaps they will or perhaps not. Having been a Minister and having been in these Houses for a considerable time, I consider it highly unlikely that a strategic decision of this kind will be reversed. The best time to make a choice of a strategic kind is at the outset. I strongly suggest that rather than simply relying on the view of the Pensions Council, the Government should pause this legislation and ask some group, such as the Economic and Social Research Institute, ESRI, to carry out an evaluation of the Fagan-Kenny approach as compared with the approach favoured and now being adopted by the Pensions Council. Let us have a body like the ESRI take a long hard look at the issue, by way of a public, transparent process, and produce a report on what are the drawbacks of the Fagan-Kenny proposal compared with that set out in the Bill and whether the claims made for their proposal of a greatly enhanced entitlement and protection for people who are enrolled in the funds would, in fact, arise if their scheme were accepted.

Senator Burke suggests that we should wait and see for a while. Senator Higgins is a great person for putting down amendments to seek reports on the operation of schemes and so on three months, six months or one year after their introduction. It happens with great frequency that those amendments are not pushed to a vote. I agree with the reservations so gently expressed by Senator Burke that this is a really radical choice and that we should, at this stage, just pause it for another three months or whatever and obtain an independent view as to whether the option we are being asked to make legislatively is the correct option.

Senator Moynihan spoke about extending these provisions to the self-employed. Bogus self-employment is one problem. If we extend a 12% levy, split between 6% and 6%, even with a Government contribution of up to 2%, we will increase the incentive for people to be self-employed. As somebody who has been self-employed all my life, I know the difference between being self-employed and a schedule E worker. It is not necessarily a good idea to impose on the self-employed, against their wishes, decisions in regard to their life savings and investments. I do not agree with Senator Moynihan that there should be any wider extension of this scheme.

At the moment, employers pay PRSI of 11% at the top rate. These provisions will provide for an extra 6% to be payable on top of that, which amounts to 16% over certain portions of income on the employer's side of the wage bill. As I understand it, employees normally pay 4% in class A contributions, with these provisions adding up to 6% on top of that for them. The Government is saying it will top that up with a contribution rising to 2%. My understanding is that universal social charge, USC, is charged on pension contributions as well. Will the Minister confirm that? This is not a great giveaway by the Government. In fact, it is charging USC, which is a very heavy levy on income, on pension contributions. I would like confirmation as to whether that is intended to continue.

The Fine Gael Party was about to abolish USC, but that is like draining the Shannon. It just has not happened yet and I would not put all my money on it ever happening.The economic effects on employment in this State, and on this State being a good place to employ people, have to be considered. I do not doubt the proposition that people are under-providing for their pensions but I wonder whether mandatory enrolment is a good idea for everybody and if the rates of contribution should not be taken in conjunction with PRSI to give a better picture of what the effect on payrolls will be. Senator Moynihan was critical of employers seeking to avoid their obligations but, in fact, many employers are facing difficult choices as to whether to expand their payrolls or not. The purpose of a Second Stage debate is to consider whether in principle what is being proposed is a good idea and I am not satisfied this is a good idea. I voice those concerns.