Wednesday, 14 November 2007
Pension Provision: Motion
That Seanad Éireann commends the Government on its publication of the Green Paper on pensions as a first step towards ensuring that as our society ages there is adequate pension provision, particularly for people on low and middle incomes.
I am delighted to have the opportunity to introduce this motion on the development of an adequate and sustainable pension system to meet the changing demographic circumstances that our country will face in the coming decades, and I welcome the Minister to the House.
Pensions should be a matter of great importance to everybody and how they are to be provided for in the future is an issue that requires full-scale debate. The Green Paper sets out in a clear and comprehensive manner the issues the country is facing and the potential options which are available. There has been some criticism that it does not reach definitive conclusions as to the various options. I believe, however that is somewhat misguided. Any effective solution requires a sustained long-term approach based on a broad consensus and this can come only from an informed national debate. Hence the consultation period. The motion gives Members of the House an opportunity to contribute to this debate.
Ireland is lucky in the sense that because of our recent strong population growth, we have more time than most developed countries to fashion a response before we have to adjust to a decline in the number of workers who will sustain pensions, or resolve how to deal with a situation where we have a much smaller number of people of working age relative to a much larger number over pension age. While this demographic change may be delayed in Ireland, it will happen and in the event will represent a major social change. As the Green Paper points out, the population aged 65 and over will increase by 59% in 2021 and by a further 142% by 2061. As a result, the ratio of people of working age to those over 65 will decline from 5.6:1 in 2006, to 1.8:1 in 2061.
This is largely as a result of people living longer and healthier lives, which undoubtedly is a cause for celebration. All the projections suggest that as a result of economic growth and technological change the standard of living will continue to increase. Good governance is about preparing and planning for this future scenario. It would be reckless in the extreme to ignore the inevitability of our future pension needs and liabilities. Government must act to make the necessary policy adjustments to plan for the future, and prudence would dictate that we act now. Furthermore, given the projected ratio of working people to pensioners, Government must alert, encourage and incentivise people to plan for their future retirement needs.
It is obvious we need to agree on a national strategy in relation to the provision and funding of pensions that will ensure future pensioners have the resources to maintain a reasonable standard of living, and that this is done in a manner that does not place an unsupportable burden on what will be a proportionately smaller labour force. This is the vital issue. We cannot burden workers today or in the future with the pension requirements that are needed further along the way. It cannot be an unsupportable burden and that is why we need prudent planning. Planning for future pension provision will have to be facilitated through successive governments and therefore a political consensus is necessary.
The State pension must, in my view, form the basic pillar of any such system. I am proud of the improvements in the State pension in the past ten years. In 1997 the contributory old age pension was €99.04 per week. It was increased to €147.30 by 2002 and is now €209.30. This represents a significant real increase, over and above the increase in the cost of living of more than 60% since 1997. It has more than kept pace with the increase in earnings, growing from 31% of average earnings in 2006 to 33% in 2007. The Agreed Programme for Government commits to an increase in the basic State pension to at least €300 per week by 2012. This will bring the State pension to around 36% of average earning in 2012. I believe we should see this as a staging post on the way to reaching a target of 40% of average earnings within the lifetime of the next Government. Furthermore, I would like to see a national commitment towards maintaining at least this level into the future.
Nothing has worked to alleviate poverty among older people quite like the pension increases. That is why it is so important that we commit to linking the pension to the average industrial wage, thereby continuing the significant reduction in the poverty rate among older persons, and hopefully eliminating it ultimately. This would provide all who qualify with a guaranteed level of State pension that would provide the basis from which they could plan additional provision. I am aware that the Green Paper raises concerns about the sustainability of the State pension even at existing levels of provision. However, I believe it is essential that we provide for a reasonable level of basic provision linked to average earnings.
If the State pension is to be increased to, say, 40% of average earnings, then serious consideration must be given to reforms that will make this sustainable, including increasing the share of the population in work, and raising the retirement age. With increasing health and longevity, an increasing number of people will in any event want to work longer, and we must put in place measures that encourage and facilitate this trend. In this regard, I urge that the earliest possible implementation of the commitments in the programme for Government to increase the State pension in respect of every year that a person over 66 delays taking it and to extend the amount those in receipt of the State non-contributory pension are allowed to earn without affecting their pension entitlement.
On supplementary provision, there are significant and ample tax incentives available to those on higher incomes to provide for their retirement. In any event, these people usually have sufficient incomes to enable them to make additional provision without undue hardship. I favour the continuation of tax relief for pension contributions but support strongly the measures introduced by the Minister for Finance in the last two Finance Acts to eliminate potential abuse. They should be an incentive for a reasonable level of pension provision, but only for a reasonable level.
I am concerned that the current system of tax incentives does not appear particularly attractive or user-friendly for low and middle income earners. It was for that reason the Progressive Democrats, in its election manifesto, proposed an SSIA-type scheme for those earning up to twice the average industrial wage to encourage them to make personal pension provisions. Under our proposal, instead of offering tax reliefs, the State would add €1 to a pension fund for every €2 contributed by the individual. The rules for contribution limits would be broadly similar to those applying to PRSAs at present.
We witnessed an extraordinary and massive uptake of SSIAs by people of all levels of income and this was for a scheme that offered a return of one additional euro for every €4 contributed. Furthermore, we have seen that people have, to a large extent, continued to save at the same level and not splurged their savings, as some more excitable commentators predicted. Our proposal of offering €1 for every €2 contributed is warranted in the case of pension funds because people are making a longer-term commitment than was the case with SSIAs. It also represents a significant improvement on the relief for those in the standard tax band. This relief is available to those on more modest incomes but it is not encouraging people to provide for their pensions as we would like.
In many instances people on modest incomes are also inhibited from contributing to a pension scheme by the high level of charges levied by the fund managers. As in the case of the SSIA scheme, there should be maximum charges specified for providers of funds. I am pleased that the programme for Government commits the Government to develop, in consultation with the social partners, proposals "to provide an SSIA type scheme in an effort to make supplementary pension provision more attractive to those on low incomes". I recognise that there are many variants to the scheme other than those we in the Progressive Democrats have proposed and I look forward to the Minister's proposals arising from the consultation process. Our scheme would be more attractive to individuals on modest incomes and obviate the need for a mandatory scheme, which could be regarded as a tax and would be fraught with difficulty.
I do not intend to address the broad issue of pension regulation today but one matter in this area raised by constituents should be addressed as a matter of urgency. It arises where people in the workplace have a defined contribution scheme rather than a defined benefit scheme, which is increasingly the case. In the case of defined contribution schemes, the pensioner, upon retirement, can take a lump sum equal to 25% of the value of the fund but must use the rest of the fund to purchase an annuity. Annuity rates have fallen considerably in recent years and many pensioners feel they are getting a very raw deal. They also point out that PRSA holders do not have to take out an annuity but can opt for other arrangements.
I am aware that there are pros and cons in respect of requiring the purchase of an annuity, but I believe people deserve to have a wider range of choices than they have at present. I ask the Minister to give serious consideration to extending such choice to individuals in defined contribution schemes at an early date.
I welcome the Green Paper and congratulate those who prepared it on the comprehensive manner in which it lays out the issues. The challenge we face on pensions is a problem of success in that it results from people living longer and healthier lives. Our recent economic success provides us with the opportunity to address it effectively. We must grasp this opportunity, learn from the experience of others and forge a national strategy that will ensure this and future generations will have the resources to enjoy a secure and productive retirement.
I am delighted to have the opportunity to discuss this motion. As my colleague, Senator O'Malley, said, this is an issue of great importance for the nation. The provision of an adequate and sustainable pension system is of great importance not only to current and future pensioners but also to the future prosperity of the country. If our generation, living at a time of considerable prosperity and benefiting from a historically high ratio of workers to pensioners, does not address this issue properly, it will place an unsustainable burden on workers in the future and endanger national prosperity. While the Green Paper does not give all the answers, it sets out the issues fairly and indicates the range of options to address them in a satisfactory manner.
I believe strongly that an adequate and sustainable State pension is the essential foundation upon which any system must be based. The Progressive Democrats has always been at the forefront in seeking to improve the State pension. It was the first party to advocate a pension of £100 per week in the mid-1990s when others said it was unaffordable. In Government, we achieved it. We then advocated a pension of €200 per week and this was more than achieved by 2007. In the previous general election we committed to a pension of €300 per week by 2012 and I am delighted that this has been included in the programme for Government.
While I am aware that the Government faces tight prospects in the forthcoming budget, I urge the Minister for Social and Family Affairs and the Minister for Finance to give priority to giving a significant increase to pensioners on 5 December to make more apparent our determination to reach and, if possible, exceed the €300 target in the lifetime of this Government.
Another important issue concerning the State pension affects the status of women who left the labour force for various reasons prior to 1994 when the homemaker scheme was introduced. Those of us who canvassed in the previous general election will have met many such women, many of whom are now widows, who were effectively forced out of work either by formal or informal marriage bars. They rightly resent the fact that their pension entitlement, if they have any at all, is dependent on the contributions of their husband.
In our election manifesto we committed to amending the homemaker scheme to ensure the aforementioned women would be entitled to a contributory pension. While this is not addressed specifically in the programme for Government, I welcome the commitment it contains to remove anomalies identified in the pension system and ensure women are treated fairly by way of pension provision. If any group of women deserves to have this anomaly removed, it is the women in question. Such reform will cost money but, unlike many initiatives in the pensions area, the cost will decline over time. This is because it only applies to people who left the workforce prior to 1994. In any event, an increasing number of women stay in or leave and return to the labour force nowadays and thus qualify for a contributory pension in any event.
I would strongly support further increases in the State pension as a proportion of average earnings after 2012 to bring it to approximately 40% of earnings. I recognise that if this is to be sustainable over time in light of changing demographic trends, we will all probably have to work longer. Most people today would be more than prepared to do so but every effort needs to be made to provide an environment that makes it possible. I therefore welcome the commitment in the programme for Government to allow people to benefit from PRSI contributions made after they reach 65.
However, initiatives must go beyond Government. Employers must be prepared to offer more flexible working conditions to workers at or approaching what is now regarded as retirement age. As we confront our changing demographics, the concept of a retirement age will become increasingly irrelevant. I therefore refuse to regard the change in the age structure of our population as a burden. We are living longer and healthier lives. In October 2006, Dr. Garret FitzGerald described this nation's rapid increase in life expectancy from 1999 to 2005 as a "remarkable phenomenon". Ireland had the lowest life expectancy of the 15 EU member states in the early 1990s. By 1996, it still had the third lowest life expectancy but by 2005, it had the sixth highest. Our workforce is increasingly healthy, educated and adaptable. We have proven ourselves capable of dealing with massive social change.
An adequate, sustainable and flexible pension system is an essential component in making a successful transition to this new demographic reality. The Green Paper gives us the tools with which to address the challenge of designing such a system.
I move amendment No. 1:
To delete all words after "Seanad Éireann" and substitute the following:
according to most recent poverty figures almost one in five pensioners is at-risk-of poverty;
among EU member states Ireland has the second highest at-risk-of poverty rate for persons aged 65 years and over;
Ireland has the lowest pensions expenditure among EU member states;
the number of people over 65 will increase by 60 per cent over the next 14 years, and will more than triple by the year 2061; and
that progress has been slow in reaching the National Pensions Review target of ensuring that 70 per cent of the working population has private pension coverage;
calls on the Government to ensure that the consultation process, as set out in the Pensions Green Paper, will conclude by May 2008 and that a strategy is implemented as a priority to fill the existing pensions gulf."
I am pleased to meet the Minister for the first time and thank him for taking the time to come to the House. Senator Cannon noted that in the agreed programme for Government, the Government promised to increase the basic State pension by around 50% to at least €300 per week by 2012 while reducing the rate of PRSI from 4%to 2%.
A recent report proved that by 2010, PRSI contributions will not be enough to pay for welfare benefits. This means that the social insurance fund will move into huge deficits. The current surplus of €2 billion will be gone by 2010 and by 2016 we will have reached a deficit of €12 billion in today's money. According to recent poverty figures, almost one in five pensioners is at risk of poverty. The other day I met an 80 year old man who retired on a pension that was not index linked. His pension at the age of 80 is the same as it was 15 years ago. How can we talk about the pensions of the future while standing over the failure to index link the pensions of the elderly today? I know this is mentioned in the Green Paper.
We are putting away money to provide for the pensioners of the future when the pensioners of today are the people who gave us the Celtic Tiger. It is these people who are in poverty and it should also be noted that the majority of pensioners are dependent on social welfare. The number of people over 65 is expected to increase by 60% over the next 14 years. That people are living longer, healthy and full lives is to be welcomed. However, it means that the number of pensioners at risk of poverty will rise significantly.
It is estimated that the pensioner support ratio, which is the number of people of working age compared with the number of people over 65, will fall from six in 2006 to two in 2061. In addition, Ireland has the lowest State pension expenditure as a percentage of gross domestic product among EU members.
Given these facts, how does the Government realistically expect to provide pensions in the future? How does it expect to deliver on its promises to increase State pensions, a move we also want, and reduce PRSI? Fianna Fáil has been in Government for ten years and this Green Paper is its first attempt to provide adequate pension coverage. Senators O'Malley and Cannon commend the Government's publication of this Green Paper but it has taken ten years, which is a very long time. The Government promised this Green Paper seven months ago. I acknowledge the work of the former Senator, Sheila Terry, who worked on this issue for a significant period and put forward many constructive proposals in respect of this issue.
Pensions should be dealt with by one Department. It could be argued that there should be one Minister with complete responsibility for pensions, perhaps the Minister for Social and Family Affairs. As it stands, the regulatory body for life assurance companies and pension funds is in the hands of the Department of Enterprise, Trade and Employment. The Pensions Board regulates occupational pension schemes, while the Department of Finance controls the National Pensions Reserve Fund and the SSIA scheme. The latter scheme, to which Senator O'Malley referred, would, if slightly modified, make an excellent pension vehicle.
Only one third or 32% of pensioners have an occupational pension. Around one half of pensioners get 80% or more of their income from social welfare. Half of those currently working hard and paying taxes to the Government expect their main retirement income source to come from occupational or personal pensions. The other half of the working population is not part of any occupational or personal scheme. This means they expect the State to provide their full income after retirement.
A total of 27.5% of people under the age of 25 have a pension. It is crucial that the views of young people in their 20s and 30s are heard in this debate as they will be most affected by these policy changes. I consulted the National Youth Council of Ireland when researching for this debate and it was made very clear to me that young people recognise that there is a long-term need for a greater uptake of private pensions by young Irish workers. The Government should encourage young people to take out pensions as soon as they start work.
In light of this, it is essential the Government takes a role in changing people's views on pensions. It needs to take a lead role in encouraging people to plan ahead, find other sources of income after retirement and not depend solely on the State pension because this Government will not be able to provide it.
It is important the Government looks at the distribution of tax benefits for private pensions and considers ways to better target tax incentives at lower and middle income earners, drawing from experience with the successful SSIA initiative. I call on the Government to rise to this challenge. We must ensure the consultation process set out in the Green Paper is concluded by the deadline of mid-May 2008 and eventually leads to positive legislation
A pension is a property right which is protected under our Constitution. It is a breach of an individual's constitutional rights to force him or her into a pension which ultimately turns out to be more or less worthless. Some people continue to be forced into such schemes as a condition of their employment. Will the Pensions Board continue to stand over current circumstances in which a person does not have a choice to opt out of a pension, even where an employer seeks to make it a condition of an employee's contract?
The Green Paper on pensions represents a comprehensive examination of the challenges and options facing Ireland in ensuring all our people have adequate pension coverage, and I welcome it. Given that one half of the working population does not have any personal or occupational pension scheme and few have the security of a defined benefit scheme, it is vital that major steps are taken in the coming years to improve pensions. I ask the Minister to honour the promise to increase the basic State pension to €300, provide for it in the upcoming budget, remove the anomalies identified in the pension scheme in respect of farmers and ensure women are treated fairly in pension provision, especially those affected by the marriage bar, as Senator Cannon noted.
I second the amendment. I welcome the Minister to the House and congratulate him on his elevation. This debate is timely and opportune. In many people's eyes, the time for debate is over and it is now time for action. I commend Senators O'Malley and Cannon on tabling this motion.
I welcome the publication of the Green Paper. I suppose it is a case of better late than never. Like the bus, it is better to have it than not to have it. This Private Members' motion is being played out in every private house across the country and ignites a debate about provision of a comprehensive pension scheme. Members are aware of the fear of growing old and not having adequate cover to survive the last few years of life. The Green Paper represents a detailed diagnosis of the current situation and of the challenges we face, as Senator McFadden stated. It gives us options. I agree with Senator O'Malley that we need to plan for future provision of pensions. There is consensus on all sides of the House on that matter, provided it is done thoroughly and fairly.
Senator O'Malley also referred to increases in pensions in successive budgets. It is correct that it was increased for citizens whose toil and labour gave rise to the Celtic tiger. She neglected to mention that the cost of living has risen in tandem with the old age pension.
I accept that. We all aspire to the €300 figure by 2012 and that this be a staging post. That is the consensus on this side of the House. We need to alleviate poverty. There is a growing differential between people in society at present. On Monday night I knocked on doors in Cork South-Central. An elderly woman opened the door in her coat, jumper, scarf and gloves because she was afraid to put on the heating. That is the reality, not an invented story. Her money is gone before it comes in.
I support Senator O'Malley's suggestion of an SSIA-type scheme for pensions. Let us have a detailed proposal on that. We need to engage people in a debate. Successive advertising campaigns have been run but we need a debate on the matter.
Senator Cannon referred to women forced to leave the workforce. This constitutes an anomaly that must be rectified. Ireland has an ageing population. How does the Government propose to provide adequate pension cover for its citizens given that the Green Paper does not give us a way forward? Perhaps the Minister could respond to that.
Almost half the women in our workforce of 2 million do not have personal pensions. Only 43% of the private sector have personal pensions and this must be rectified. Will a one-for-one pension scheme, espoused by the Members opposite during the general election campaign, be introduced for those on low incomes? Will this result from the Green Paper or must we wait for it until after the tax cut commitments are delivered? Senator McFadden referred to the fact that one in five elderly people is at risk of poverty and that EU data show that, among member states, Ireland has the second highest rate of risk of poverty for those aged 65 or over. That is a sad indictment. The number of these people will increase by 60% over the next 14 years and we must have a scheme to cope with this.
According to some independent commentators, PRSI contributions may not be sufficient to pay for social welfare benefits in three years' time. The Minister may disagree with this but how does he expect to deliver on the promise to increase the State pension and reduce the rate of employee PRSI to 2%?
We need action on pensions. It is almost 12 months since the Pensions Board proposed a mandatory system. The Green Paper has been published. At the launch the Tánaiste stated that we face "a difficult challenge in ensuring the financial and economic sustainability of our pension system as the task of financing increased spending on pensions falls to a diminishing share of the population". That presents a challenge and it behoves us to ensure people do not live in poverty and that our elderly and those who have contributed to society are treated well at their most vulnerable time. The proposed amendment recognises this and I ask the House to support it.
This is the first opportunity to welcome the current Minister in this Administration and to wish him well in his portfolio. I thank my colleagues in the Progressive Democrats for tabling this motion on what will be one of the most important issues in the future. I wish to comment on some of the issues I have come across in the Green Paper, even though Deputy Olwyn Enright's reaction was that there was nothing in the Green Paper. Senator Buttimer, who has just left the Chamber, commented that the Green Paper has no concrete proposals. The Minister intervened to explain that the nature of a Green Paper is to inspire reaction and suggestions. It is a mature admission by Government that this is such a problem that, after 2012, if still calculated as a proportion of incomes, pensions will be in unsustainable territory. It requires all of our ideas and innovation to come up with a strategy that can best address this issue.
By 2021 the population of those over 65 will have increased by 59% and by 142% by 2061. The worker to pensioner ratio, currently 6:1, will be 1:1. This is frightening when one considers its implications. I hope all sections of society will buy into the process and allocate thought time to their views on planning and tackling the issue. One of the greatest challenges is that working class people, or less well-off people, are those on whom we must focus because they are least likely to be in a position to provide for their future. We must be most innovative in this regard.
Research by the Irish Association of Pension Funds suggests that 86% of those without a pension in the services sector would start one if the Government contributed €1 for every €1 saved. That is not sustainable. It also stated that 91% of those with pensions said they would increase their contributions. Again, we are not dealing with those who are already making pension contributions but rather with those who are not doing so. I refer in this regard to younger members of the population who must be told to make provision for the future.
When one is 18 to 21 years one may well be a student. For those between the ages of 21 to 26, the emphasis may be more on taking a year out to travel to Australia, buying a first car or whatever. It is alien in the extreme to young people to consider providing for their futures by way of making pension contributions. We must focus on ways to encourage these individuals to make such contributions. Perhaps we could do so via a scheme under which it might be possible, if the scheme was successful, to withdraw an amount of money every five years — until one reaches 45 — in order to make key purchases. People might be of the opinion that they could reap benefits from such a scheme.
I first paid into a pension scheme from the age of 21. I thought I was being exceptionally prudent. However, I reached a period in my mid-20s where, when buying a car or whatever, I realised that I would not see the benefit of the money I was putting away until I reach the age of 65.
It is drawing nearer in any event. Many of my friends, none of whom was contributing to pension schemes, laughed at me and stated that it was my tough luck. Perhaps I will eventually have the last laugh. These are some of the reasons the people who will be most vulnerable when the time comes have not bought into the process.
In discussions on the Green Paper, perhaps we could consider the introduction of SSIA-type schemes. It is interesting, however, that the pension-incentive tax credit scheme — which post-dated the payment of SSIAs — attracted only 1% of people. That is significant.
As already stated, this is one of the biggest challenges we face. The population is getting older. There are positives in that Ireland currently has the lowest number of people over the age of 65 among EU member states. That gives us time and creates a window of opportunity to allow us to be proactive and tackle this matter in the most effective way.
This issue is non-political and cross-party in nature. While we may kick many a political football around this and the Lower House and beat up one another in respect of all sorts of issues, it is my opinion that there would be broad agreement on this matter. There also would be broad agreement that this is a good news story. The Green Paper is good and we look forward to having an input into the debate on it. I hope that solid actions will eventually result from the publication of the White Paper that will follow this one.
The publication of a Green Paper is likely to be regarded as one of the most important events in a Government's term of office. Such a document is deserving of the closest scrutiny. The future direction of policy in this area is obviously vital to the long-term health of the economy. Any decisions we take on foot of the publication of this paper will have profound and long-term consequences.
I do not wish to be overly repetitive and everyone recognises the importance of this matter. In my opinion, significant innovation will be required to allow us to arrive at an optimum solution. I will be preparing a submission, which, I hope, will help in some way. I also hope that everybody prepares a submission.
I ask the Minister to focus our efforts on encouraging those people who are of the opinion that, at this stage, pensions are not remotely relevant to them to buy into making contributions. We should be innovative and develop a system under which people could, at key stages of their lives up to a maximum age of 45, reap the benefits of pension funds that are performing well.
I thank the Minister for coming before the House. I again thank my colleagues from the Progressive Democrats for using their Private Members' time to table this most important of motions, which I obviously support.
I welcome the Minister and I wish him well in his new role. I am also pleased that Senators O'Malley and Cannon tabled the motion because, as Senator MacSharry stated, Green Papers must be discussed. This is exactly the forum at which the debate on them should take place.
One of the options examined in the Green Paper is the question of introducing some form of compulsory pension system. I hope this option will be considered carefully because, realistically, it is the only option that will deliver what we want and need in this area. Sooner or later, we will accept that compulsory pensions are inevitable. It is very much in our interest that this should happen sooner rather than later. I accept, however, that this is a difficult nettle to grasp.
The truth is that too few people want to make voluntary provision for their pensions. When one is young and at the beginning of one's career, one fools oneself into believing one will always be young and healthy. Looking ahead to what will be our financial position nearly half a century hence requires more foresight than most young people in their 20s possess. As someone pointed out to me recently, many people expect to win the lottery at least once in 50 years. If one is 20 years old, one will assume that one will win the lottery before one reaches 70. Perhaps this is one of the reasons people do not start to make provision for their pensions at the start of their working lives.
Most people only start to consider providing for a pension, if at all, when they get married. By that time, they are older and providing for a pension is more expensive. Moreover, this is a period in their lives when they must cope with many additional calls on their incomes. The result is that a shockingly small percentage of our population approach pensionable age having made a proper provision for their declining years.
Given that, as individuals, we are reluctant to face up to the consequences of this challenge, as a society we have no option but to take collective action. All Governments have a responsibility not only to serve the voters of today but also to protect the interests of the next generation and the generation beyond it. If this necessitates making unpopular but correct decisions, so be it. No one ever said that government involved making only the easy decisions.
The only way out of the problem we face in respect of pensions is to make it compulsory for everyone at work to contribute to his or her pension. While one could argue that we do this already through the PRSI mechanism — providing for pensions was the original purpose of the scheme — we must face up to the fact that the sums simply do not add up in that respect. If people are to have decent pensions to provide for them in retirement, they must pay out more than they do at present. If they expect a future Government to play fairy godmother to them, they are only fooling themselves.
By now we have had more than enough experience of the voluntary approach to know that it simply does not work to the extent required. Only a tiny minority of the population has proper pension provision. I forecast that the position will not change for as long as we continue to consider pension provision to be a voluntary matter. I say this in the knowledge that a large number of people involved in business are frightened at the thought of that. They say that if we are to maintain competitiveness in this country we must be extremely careful in the context of how we monitor our costs. People in business recognise that something must be done and that it is the Government's duty to take action. The Green Paper gives us the opportunity to debate the matter.
There is nothing outlandish in the idea that pension provision should be compulsory. Several countries already operate schemes of this kind, all of them with, as far as I am aware, conspicuous success. Finland, Germany, Singapore and Switzerland operate compulsory pension schemes and Australia is, I understand, phasing in a new scheme. I am not pushing an idea that has not been tried before. On the contrary, compulsory pensions work and a number of countries already have them.
One of the great benefits of the compulsory approach is that people start providing for their pensions from their first day at work. In other words, they start paying in to their pension at precisely the best time for them to do so. By putting aside money for their pension throughout their working careers, individuals make it possible to get a decent pension at a reasonable cost, which is not the case if they leave the matter until they are in their 30s or 40s. In the past when I suggested to an employee aged between 19 and 25 years that he or she should set money aside for his or her pension, I discovered that he or she did not regard this as a major concern and it was not high on his or her list of priorities. Young people setting up home and having children are tempted to put off providing for retirement because they face additional costs at that time. One day we will have to face up to it and the sooner we do so the better it will be.
The case was made to me on the difficulties caused by defined contributions as opposed to defined benefits. We cannot argue with this. We live in a world where it will be defined contributions and not defined benefits and we must recognise this. The State has its own headaches with this but we have managed to convince our citizens to recognise that their pensions will be based on what they contribute and not on defined benefits. We face a challenge. I am pleased this motion was tabled this evening. I am pleased the Green Paper provides us with the opportunity to debate it. This should be the start of a debate in which the Minister will take an interest. I am confident he will not allow this to be put on the long finger and will act on it.
I welcome the tabling of this motion this evening. It is stark in its simplicity. I am more than a little surprised that an amendment to it has been tabled. I would have thought everyone in the House would have welcomed the publication of a Green Paper and the consultation process accompanying it. It is clear we must prepare for the future. Policies are in place which are beginning to address this matter and we need a national debate to define how we make the journey from now.
Much was said about the future demographic difficulties. I prefer to be more positive in this regard. In European terms, we remain a young country and during recent years we have had immigration to our country. Both of these factors mean our dependency ratio is much better than more established European countries such as Germany and Italy. That said, we must provide for future pensions and how we go about it will determine the livelihoods of those, including ourselves, who will be older in future years.
We need to have a debate on having either State or private pensions or the best combination of both. In recent years, we struggled with getting this balance right. On the State pension side, major progress has been made from the old £100 to €200 to the projected €300 and beyond. We are fast catching up with the rates of pension provision found in other countries and keeping in line with 30% of average income, which is a policy objective as a result of the partnership agreement. We also fail to factor in to the State pension the ancillary benefits which accrue such as free travel, electricity, gas and television licences. When these are factored in, we come closer again. That said, issues of equity must still be tackled and I hope the consultation process will address these.
The issues of women having separate social insurance records and being obliged to leave the public service in the recent past were raised by other speakers. These must be addressed through improvement of the non-contributory pension. It must be acknowledged that steps were taken in most of the recent budgets to address this anomaly. I look forward to it being addressed again in the forthcoming budget.
The situation with regard to private pensions should be scrutinised carefully. I take a more dubious view of the talk of impending meltdown in the pensions service which is informed by a vested interest in the private pension industry itself. Those of us in the political process need to take due regard of the fact that our primary responsibility is to ensure the State pension is properly resourced now and in future.
Previously I stated the support measures which exist to encourage private pension take-up are badly in need of examination. Although it is the mainstay of current policy, I do not believe the use of tax relief is the most effective way of bringing it about. That the State now forgoes more in tax than it pays in State pensions while supporting private pensions is not a statistic in which we can take pride. It is useful that the Green Paper points out alternatives we can follow in addressing this anomaly.
In opening the debate, Senator O'Malley discussed the SSIA proposal. My party made similar suggestions in the past and had such suggestions included in the Green Paper. We should go towards the idea of a long-term savings plan where the benefit is targeted towards the lower paid. The modification we can make to encourage future pension take-up is that the payback of such a special savings scheme should have higher amounts for people on lower incomes tapering down for people saving on higher amounts. Accepting this principle could address the difficulties we saw in the past with the take up of the PRSA.
I welcome the fact the Minister is addressing this issue with sufficient gusto and is giving commitments that the consultation process will be advanced to a major extent by next July. If we stick to this timetable, whether it is accompanied by a White Paper or promises of specific legislation, we can look forward to putting in place reforms of the pension system during the lifetime of this Government, a system which has gone unchanged for too long. A generation of people need a reformed system put in place.
I welcome this debate and congratulate the Progressive Democrats on tabling the motion. I look forward to the House in its entirety accepting the motion which, in its stark simplicity, is a sufficient statement for the House to make without resorting to amendments.