Tuesday, 14 February 2012
Department of Social Protection
Question 297: To ask the Minister for Social Protection if she will consider altering the pension system to allow persons unlock and use part of their pension savings before retirement age as this would provide essential funds to complement budgetary initiatives and help stimulate the domestic economy; and if she will make a statement on the matter. [8142/12]
Pensions are a long-term investment aimed at ensuring that people have an adequate income in retirement. Government policy supports this aspiration through generous tax reliefs and we are currently reforming the pension system to ensure its future sustainability.
There are a number of reasons why early withdrawals of pension savings are not permitted, or desirable, the principal one being that funds, and the associated tax relief on contributions, are designed to support people in later life to ensure they have an adequate income. This requires that pensions must be long term vehicles based on the principle that savings will be “locked away” until retirement.
Allowing access to pension savings before retirement or pension age would be a significant change to pension policy and the basis of pension savings in Ireland. At the request of the Economic Management Council (EMC) the issue has been considered in detail by an inter-departmental ad-hoc group, chaired by my Department. The group concluded that the principle of pension savings being “locked away” until pension age should be maintained and reported this to the EMC. The EMC also requested that the report of this group be examined by the Interdepartmental Group on Mortgage Arrears who also examined the issue of early access to pensions and did not recommend such an approach.
The idea of allowing people to access their pension savings early to pay off mortgage debt or to increase their spending power may seem attractive, particularly at the moment. However, the resulting reduction in pension savings could have significant negative consequences longer term and in particular, fails to address the group who may be most affected by personal debt or mortgage arrears. For example, younger people who are most likely to be at risk of mortgage debt are also the group who have the least amount of pension savings. If their pension scheme has incurred losses, as many have over the past number of years, early withdrawal of funds would mean very poor value for money. Where people are close to retirement, an early withdrawal of funds could significantly diminish the pension they receive as they may not have time before retirement age to fill the gap left by such a withdrawal. There is no guarantee the funds could be repaid or that people could make up these losses.
Only 51% of people in employment aged 20 to 69 have pension coverage. This relatively low rate of pension coverage is a concern. The Programme for Government includes a commitment to reforming the pension system to progressively achieve universal coverage, with particular focus on lower-paid workers and so a National Employment Pensions Scheme based on an automatic enrolment approach is being developed. Allowing people access to their pension savings before pension age would run totally counter to the policy of encouraging more people to save more for their retirement.
Accordingly, there are no proposals at present to amend the legislation to provide for early access to pension funds.