Written answers

Wednesday, 6 November 2013

Department of Social Protection

Pensions Reform

Photo of Olivia MitchellOlivia Mitchell (Dublin South, Fine Gael)
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97. To ask the Minister for Social Protection in view of the recommendation of the report on pension charges in Ireland 2012 and the OECD Review of the Irish Pension System, if she plans to put in place a universal pension scheme; and if she will make a statement on the matter. [47367/13]

Photo of Joan BurtonJoan Burton (Minister, Department of Social Protection; Dublin West, Labour)
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The overall objective of the pension system in Ireland is to provide an adequate and sustainable basic standard of living through direct State supports and to encourage people (through tax reliefs) to make supplementary pension provision so that they may have an adequate replacement income when they retire from work.

Ireland’s State pension has been successful in lifting older people out of poverty. Compared to the rest of the population, older people in Ireland have the lowest consistent poverty rate (at 1.9%) and are least likely to be at risk of poverty, pointing to the adequacy of the State pension. However, many people retiring from work will have a significant income gap if they do not have supplementary private pension provision.

Figures indicate that only half of workers aged between 20 and 69 years have a supplementary pension and this relatively low coverage is of major concern. It is a priority for the Government to increase supplementary pension coverage, particularly amongst the lower paid and those with gaps in their employment. Significant reform of our pensions systems is necessary to safeguard future sustainability and adequacy. The sustainability of the pension system is a particular concern because of the demographic challenges faced by Ireland, the associated increases in pension (and other age related) costs, and the deterioration in the public finances. This means that the task of financing future increased pension spending will fall to a diminishing share of the population as demographic projections indicate the ratio of working age to pensioners will decrease from 5.3/1 at present to 2.1/1 by 2060. Life expectancy in Ireland is also increasing: in the mid-1990s, life expectancy for males was 73 and for females 78.5. In 2041, it will be 86.5 and 88.3 respectively. Whilst this is very welcome development, it also presents very real and obvious public policy challenges.

In April 2013, the OECD published its Review of the Irish Pension System. Whilst endorsing pension policy reforms undertaken to date, the report also makes a number of recommendations for future reform. The OECD’s key recommendation is to improve the adequacy of pensions by increasing coverage in the funded part of the pensions system through a universal mandatory or quasi-mandatory employment based pension system.

The Programme for Government includes a commitment to reforming the pension system to progressively achieve universal coverage, with particular focus on lower-paid workers. I have previously stated that a soft-mandatory approach such as that envisaged by an auto-enrolment scheme, using scale to achieve greater cost efficiencies for the member, is a very proactive way in which we can increase supplementary pension coverage, though it is recognised that introduction of such an initiative would be best supported by a more favourable economic environment than is currently the case.

International experience has shown that significant increases in coverage can be obtained from such systems. In addition, the significantly larger economies of scale have the capacity to achieve more competitive charging structures, which in turn would lead to improved returns for consumer members. As was highlighted in the Pensions Charges Report 2012, this type of arrangement could assist in resolving the difficulties inherent in the current Irish scheme structure of a proliferation of small schemes paying considerably higher charges than larger schemes, ultimately eroding the value of the pension received by the member.

Analysis of the options available is on-going in my Department and consideration of the recommendations of the OECD review will inform further developments in the area of pension policy.

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