The Minister For Social And Family Affairs
Séamus Brennan TD
Pension Action Week
Firstly, I would like to thank the Pensions Board, and in particular the Chairman Michael McNulty and Chief Executive Anne Maher, for inviting me to launch National Pensions Action week.
I also want to thank all those at The Pensions Board who have worked extremely hard this year to ensure a very extensive programme of events for the week ahead.
A special word of thanks to the Board's Information Unit and, in particular, Mary Hutch and David Malone, for their tremendous work in putting this Action Week together.
This is the third year of the campaign targeted at increasing awareness of pension's issues amongst the general public and to try and convince them of the need to starting contributing to a pension at work or a private pension scheme.
There can be no doubt but that awareness of pensions has grown significantly, thanks to campaigns like the Action Week.
Of course, it's another story when it comes to convincing people to invest in pensions, and to do so now.
Lets be honest, pensions are not high up the list of glamour topics.
It takes a cold look at some hard facts and figures to jolt many people into the realisation that what decisions they take now on pensions will probably be a major deciding factor in determining how rewarding their retirement will be.
The facts speak for themselves.
They are stark and worrying.
Out of a current national workforce of some 2 million people, it is estimated that over 900,000 workers do not have a private or occupational pension.
So unless speedy and targeted action is taken to address this alarming situation, the reality is that most of the 900,000 will end up relying on the basic State welfare pension in retirement.
For women the pension situation is particularly serious.
Only 46% of women in the national workforce have pensions. When you take away those on public service pensions, then that falls further.
In reality, only one third of working women outside the public service have pensions and many have pensions that are far from adequate.
Ireland has a pension's problem.
But it is a problem that is not unique to Ireland.
Internationally, as here, Government's are grappling with meeting the challenge of funding pensions for an older population that is generally living longer and healthier lives.
In some ways Ireland is fortunate.
The problem has not yet become a crisis, as is the case in a growing number of countries.
But if left unchecked, the consequences in the years ahead for hundreds of thousands of older people in retirement in Ireland, the State itself and the pensions industry could be alarming.
We have made considerable progress since 1997 when a series of clear goals and targets were set out.
State welfare pensions, for example, have increased by 81%, or some 50% above the rate of inflation over the period.
We are close to achieving the Government commitment to take old age pensions to €200 a week by 2007.
The Pensions Board strategies to increase awareness and coverage are delivering results.
I welcome the latest figures for the innovative Personal Retirement Savings Accounts (PRSAs), which is a savings account tailored for the individuals needs, that show more than 50,000 accounts have been taken out.
The National Pensions Awareness and Action Campaign is helping to firmly plant pensions high on the agenda of more and more people.
The Social Welfare and Pensions Bill included significant legislation on the operation and supervision of pension schemes.
But despite the hard work of all concerned, the reality is that we are failing to mobilise the general public and employers to start contributing in the numbers required.
We can not leave 900,000 people, many of them vulnerable and unsure as to what their later years will bring, stranded and uncertain.
Decisive, determined and targeted action on pensions is needed, and it is needed now.
There are no easy solutions.
There are difficult and complex issues to be assessed and addressed as we devise short, medium and long term solutions.
We must factor in a growing belief that the future return on pension investments may not be as high as was forecast a decade or so ago.
We must assess the impact of tax relief’s on pensions, currently running at €1.5 billion a year which is, more or less, what the Government spends on State welfare pensions.
As currently structured the reliefs may not be achieving the wider pension coverage we need.
However, it must be stressed that the tax concessions are an investment in the retirement incomes of those currently at work.
And in the years ahead the coverage figures we are aiming for should see a significant improvement in the numbers of older people with supplementary pensions.
Above all else we need to be radical in our approach.
We must look at alternative solutions, devise new and attractive products, and set out to fundamentally change the pension landscape.
I have asked the Pensions Board to deliver by this Summer the statutory review of the pension's strategy that originally was to be completed by late 2006.
I have brought the review forward because I considered that the coverage situation was unlikely to improve dramatically over the next year.
I want the review to include specific and targeted proposals.
I welcome the recent
ESRI report on Pensioners Incomes and Replacement Rates which was commissioned by the Department of Social Affairs as a research project that will feed into the overall Pensions Board review.
The ESRI report served to confirm much of what we already knew but it has also added a depth of research that will influence the review currently under way.
Let me again stress that if we are to make really significant progress then radical alternatives have to be considered.
In this regard, I have the Pensions Board to urgently examine a number of possible new routes, including:
- Whether we need to introduce more compulsion into the system. One possible way forward may be to introduce a compulsory scheme that would incorporate an opt-out clause. This scheme could be split three ways with the employee, the employer and the State contributing. My own judgement is that very few would end up opting out, particularly if the State and employers were contributing. It is also very clear that the majority of employees want to be in a pension scheme but are often put off by the complexity of the pensions system and the level of individual contributions they must make.
- Examining ways of tapping into the valuable savings habit the innovative
SSIA savings scheme has solidly established. The SSIA's will begin maturing by the middle of 2006 and between then and the end of 2007 some €15 billion or more will be available to account holders. There is a unique opportunity to encourage investment of SSIA savings by individuals in pensions but to do so will require the devising of an attractively packaged product. One possible route is a pension's scheme that incorporates a savings element that would allow the individual withdraw a percentage in cash every few years while at the same time maintaining an adequate pension scheme.
To assess the merits of making retirement at 65 a choice for the individual-in other words giving people options to work longer if they so wish. The reality is that men and women are living longer and leading more active lives in their later years. Working a few years more can make a real difference to income in retirement. I want us to look at innovative ways of encouraging and allowing people to work longer if that is what they want and of rewarding this with a bonus system when they eventually retire. I believe that people want to have choices and do not necessarily want to have to adhere to a set of inflexible rules. As with social welfare in general, a one-size fits all retirement regime may not best reflect the needs and wishes of Irish people in the 21st century.
In conclusion, I firmly believe that Ireland, with its new-found wealth and relatively young population, still has the time and opportunity to plan and structure a pensions system that will guarantee, at the very least, a reasonably prosperous retirement for all our citizens.