Eoghan Murphy (Dublin South East, Fine Gael)
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To ask the Minister for Social Protection if she will provide an explanation as to the necessity to require registered pension schemes to generate a funding standard reserve of 15% of scheme assets at a time when such schemes have difficulty, due both to the reduction in assets caused by the requirement to pay a levy of 0.6% of such assets for four years and the requirement to calculate scheme liabilities in the most conservative manner in relation to sovereign bonds, in achieving a minimum funding standard of 100%. [56758/12]

Joan Burton (Dublin West, Labour)
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The Government is very aware of the serious funding challenge facing pension schemes. There are significant structural and affordability problems with defined benefit (DB) pension schemes due to a range of factors such as an under-estimation of longevity, poor investment decisions and the impact of the downturn in financial markets. The investment losses in Ireland were the highest in the OECD because of the high proportion of equities in pension fund portfolios, with some two-thirds of assets in equities compared with an average of just over one third in the 20 OECD countries where data are available.

A review of the DB model which included consultation with stakeholders was completed in 2011. The consultation resulted in a broad consensus that DB schemes as currently organised are vulnerable to shocks and the introduction of a risk reserve would provide a level of protection for scheme members against future volatility in financial markets. I accept that the requirement for a risk reserve presents an added challenge for schemes, however, guidance issued by the Pensions Board identifies options which schemes can consider in meeting this requirement by 2023.

The level of the risk reserve required will reflect the level of risk undertaken by the scheme’s investment strategy and it is estimated that this reserve will add approximately 8% to the scheme liabilities. A risk reserve of 15% would indicate that the scheme is over reliant on equity investment. It should also be noted that the requirement to hold a risk reserve is not being introduced immediately. Schemes are aware that the requirement to hold a reserve is a being introduced in 2016 and schemes will have until 2023 to satisfy this requirement. The pension promise associated with DB schemes is generally regarded as unconditional. If the scheme winds-up, the only practical way the promise can be fulfilled is to buy an annuity policy from an assurance company that guarantees a continued pension for the lifetime of the pensioner and their dependants. If the funding standard is changed in such a way that understates the cost of the benefits then the member will be misled about the ability of the scheme to meet its obligations.

I understand that a small number of European countries have eased their pension solvency requirements in response to the downturn in financial markets. I am satisfied that in all cases, the solvency regime after those changes continues to be more onerous that the current Irish regime. Overall the changes made to DB schemes are intended to reduce schemes’ exposure to risks and provide greater security for scheme members. Issues in relation to the pensions levy is a matter for the Minister for Finance who announced the pension fund levy as part of the Jobs Initiative. The levy will apply for a period of 4 years from 2011 to 2014.

Eoghan Murphy (Dublin South East, Fine Gael)
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To ask the Minister for Social Protection further to Parliamentary Question No. 116 of 30 June 2011, if, in respect of Government plans to increase the retirement age to 66 in 2014, there is a provision for those who are presently contractually obliged to retire at age 65 and will retire in 2014 and will therefore not be entitled to receive their contributory pensions until one year after they finish work , in particular in view of the fact that jobseeker's allowance will now only support them for nine months of that year. [56759/12]

Joan Burton (Dublin West, Labour)
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Raising State pension age and the abolition of the State pension (transition) is a necessary step in ensuring the sustainability of pensions into the future. The population share of those aged 65 and over is expected to more than double between now and 2051, from 11% to approximately 23% in 2050. In contrast, the working age to pensioner ratio is projected to decline gradually from 5.3 /1 to 2.1/1. This has obvious and significant implications in relation to the future costs of State pension provision. The fundamental principle involved here is that people need to participate in the workforce for longer and they need to contribute more towards their pensions if they are to achieve the income they expect or would like to have in retirement.

The Social Welfare and Pensions Act, 2011 provides that State pension age will be increased gradually to 68 years. This will begin in 2014 with the abolition of the State pension (transition) thereby standardizing State pension age for all at 66 years. The State pension age will be further increased to 67 years in 2021 and to 68 years in 2028. Even with these changes to State pensions expenditure is projected to increase from approximately 5.8% of GDP in 2010, to almost 8.3%% in 2060. The standardisation of State pension age at 66 removes the retirement condition associated with State pension (transition) which acts as an incentive to leave the workforce and has been widely criticised as a barrier to older people remaining in employment. There is no retirement condition attached to the State pension (contributory) which is currently payable from age 66.

From 2014, any individual aged 65 and unable to remain in, or find, employment would be entitled to apply for a social welfare payment based on the normal criteria. At present, my Department is working with the relevant agencies of State who have a role to play in identifying and breaking down barriers to remaining in work past the age of 65. The continued participation of older people in the labour market must be encouraged and facilitated to meet the challenge of an ageing society. Collectively, we need to change our mind-set to working longer. In the workplace, employers should try to retain older employees and create working conditions which make working longer both attractive and possible for the older worker.