Séamus Brennan TD
Minister For Social Affairs
The Irish Association Of Pension Funds
Burlington Hotel, Dublin
24th February 2005
Tonight is an occasion to acknowledge and salute the valued and valuable contribution that the pensions industry overall makes to the Irish economy.
Your own Association can be proud of the pivotal role it is playing in growing the industry and building confidence. Right now, your members provide -
- retirement income security to over 200,000 employees,
- pay pensions to nearly 70,000 men and women who have already retired
- are responsible for some €50 billion in retirement savings.
Retirement and pensions are becoming increasingly central issues in the lives of many, many people on this island. Why? Well that well know quotation from Oscar Wilde may give us more than a hint:
When I was young, I thought that money was the most important thing in life; now that I am old, I know that it is."
The well-known actuary Woody Allen, as you would expect, had his own view on aging:
I recently turned 60. Practically a third of my life is over".
Either way, retirement is inevitable at some age and a good pension at that stage can make the difference between surviving on the basics and having a limited lifestyle, or having an income that allows you enjoy life to the full.
So it begs the question - why do so many of us go to the cliff edge before sorting out retirement and pension?
Now, I am not here tonight to provide all the answers or to lecture you on pensions. This is a social occasion and I know I am speaking to experienced pension professionals. Let’s be honest, most of you here know a lot more about all the intricacies, the permutations and the variations of pension schemes, and the pension business in general, than I am ever likely to fully grasp.
Indeed, some would say that reading and understanding Joyce's Ulysses is a cakewalk compared with unravelling the complex world of pensions. But Joyce is the territory of Senator Norris and I will leave that literary maze to him.
However, I would like to take this opportunity to mention some of the challenges on pensions that must be faced by all of us over the coming years and the types of policy decisions and directions that will be needed in meeting those challenges.
In recent months I have identified a number of key issues on which we must make urgent progress. It will come as no surprise when I say that Ireland has a pensions problem. It is not a crisis, yet, as it is in a growing number of other countries, including the
UK which I visited recently.
But if left unchecked the consequences in the years ahead for hundreds of thousands of older people, the State and the pension industry itself will be daunting.
The facts speak for themselves. They are stark and worrying. Only half of those currently working who require private pension cover have a pension scheme.
It is estimated that 50% of those private pensions are totally inadequate.
In other words, there is a good chance that up to 75% either have no pension or have a pension that falls well short of what they will need for a comfortable retirement.
For women, the pension situation is particularly serious. Only 46% of women in the Irish workforce have pensions. When you take away those on public service pensions, then that falls further. In other words, only one third of working women outside the public service have pensions and many have pensions that are far from adequate. Women are now living longer than men but, unless circumstances change, the sad reality is that some will end up poorer. What all of this means, of course, is that retirement for hundreds of thousands of our women and men will mean surviving on the State pension of just over €8,000 a year and, if they are lucky, additional low income from an inadequate private pension.
Oliver Goldsmith in his famous poem The Deserted Village concluded:
How happy he who crowns in shades like these A youth of labour with an age of ease."
Surely those who have worked hard for decades deserve to have that contribution recognised with an "age of ease" in retirement. And that is why addressing the issues of adequacy and coverage is now an urgent priority.
Considerable progress has been made since 1997 when a series of clear goals and targets were set out.
Social welfare pensions, for example, have increased since then by 81%, or some 50% above the rate of inflation over the period. We are now close to achieving the Government commitment to take old age pensions to €200 a week by 2007.
The Pensions Board, under the leadership of Michael McNulty, Ann Maher and a dedicated staff, has developed a strategy to aggressively tackle the problem.
Representative associations, such as your own and the industry in general, has brought about many improvements. More than 46,000 individuals have taken out
PRSAs and the National Pensions Awareness Campaign is helping to firmly plant pensions on the agendas of more and more people.
It is also worth remembering that tax relief on private sector pensions now costs €2.5 billion annually.
Despite all the incentives and all the good work, I regret to say that overall the coverage figures achieved are disappointing. Despite the hard work of all concerned, the reality is that we are failing to mobilise the general public and employers to start contributing to pensions in the numbers required to achieve our overall targets in any sort of reasonable timescale.
Action on pensions is needed and it is needed now.
I have discussed the issue in some detail at Cabinet with my colleagues in Government. I have also had discussions with my colleagues at
I have recently written to the Pensions Board outlining my concerns and I have asked them as a matter of urgency to bring forward the statutory review of the pensions strategy. This review was to be completed by September 2006.
However, I consider that the coverage situation is unlikely to improve dramatically over the next year. I have asked the Pensions Board to complete that review and to submit a report to me by mid year of this year. I want that review to include specific and targeted proposals to address the current situation.
I want professional associations like your own, and individuals in the industry, to contribute their views. We must look at alternatives solutions, devise new products and fundamentally change the pensions landscape.
One innovative route that is already beginning to open up involves
As we are all no doubt aware the SSIA's begin maturing by the middle of next year. Between then and the end of 2007 some €14 billion will be available to account holders. I have asked the Pensions Board to examine ways of tapping into the valuable savings habit the SSIA's have solidly established.
I look to the Board and tonight I invite the pensions industry, employers, the trade unions and individuals to come forward with proposals for new products. I can assure you all that I will act on proposals that offer practical and innovative solutions that would be easily understood and send out a clear and simple message.
If we are to achieve the level of cover that will guarantee most of our aging population at the least a reasonably prosperous retirement then we must all work together to build confidence in pensions.
It is understandably difficult to entice workers to contribute their hard earned cash to pension funds if day after day they read of funds in trouble or watch on TV some high profile instances abroad of funds being robbed.
The pensions section of the Social Welfare and Pensions Bill which is currently before the Dáil is mainly concerned with the transposition of the Directive on the activities of Occupational Retirement Provisions, better known as
The Bill includes significant legislation on the operation and supervision of occupational pension schemes and on the Funding Standard for defined benefit schemes. On the Funding Standard, I am expanding the grounds on which extensions to the time allowed to restore full funding can be granted, to include difficulties on the liability side and the details will be set out in Regulations shortly.
In operating a strict standard we are attempting to strike a reasonable balance between ensuring security for fund members and, at the same time, making sure that undue pressure is not placed on the scheme sponsors.
One other element of the Bill that has been receiving attention in recent times is the section of the Directive that provides for investment rules to ensure that funds are invested in regulated markets and are properly diversified. Borrowing by funds, other than for liquidity purposes, is prohibited. I have reached the decision that the implementation of the borrowing and investment requirements, and the application of the exemption rules allowed under the Directive, will require very careful consideration.
A Working Group, comprising my own Department, the Department of Finance, Revenue Commissioners, the Pensions Board and the
IFSRA, will be established to consider the prudential and tax related issues involved.
Again, I would welcome your input into this assessment in advance of the Group making recommendations later this year.
I want to make clear that whatever reforms may be necessary it is not my intention to interfere in any way in the sensible running of pension schemes.
Finally, at some stage going forward it may benefit all involved to look at retirement ages. Working a few years more can make a real difference to income in retirement. Men and women are living longer and leading more active lives in their later years.
Of course working longer should be a matter of choice. People want to have choices and do not want to have to adhere to inflexible rules.
As with social welfare in general, a one-size fits all retirement regime may not really reflect the needs and wishes of Irish people in the 21 st century.
Oliver Wendell Holmes captured it well when he wrote: "
It is better to be 70 years young than 40 years old."
In conclusion, who better to finish with than The Beatles. Don't worry- I'm not going to sing. Back in the 60's. Lennon and McCartney posed the question:
"Will you still need me?
Will you still feed me?
When I’m sixty four?"
They obviously wrote it without the benefit of actuaries. Had they consulted on it, the line would probably have gone "when I'm 84".
Well, whatever the age, I genuinely hope we can all work together to make sure that the answer, particularly for those facing uncertain retirement, is a confident and resounding YES.