Speaking Notes-Seanad Debate on ESRI Report
Welcome this opportunity to discuss with Senators the recent
ESRI report on Pensioners' Incomes and Replacement Rates.
In particular, welcome the opportunity to hear the views of Senators on how we can best shape and structure a pensions system going forward that will guarantee that all of our citizens can, at the very least, enjoy a relatively rewarding and adequate income in their retirement years.
My Department commissioned the ESRI report so that its findings can feed into the National Pensions Review currently underway by The Pensions Board.
This review was due in late 2006 but I have asked The Pensions Board to bring in forward to this year-I expect an interim report in June and a final report by September.
I ordered the acceleration of the review because of the urgency of the pension's challenge this country faces.
Before dealing specifically with the ESRI problem I want to briefly outline what that challenge is.
The reality is that 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.
Put simply, a century or so ago pensions were introduced for those 70 and over at a time when life expectancy was around 60 years.
Today, people generally retire at 65, while life expectancy is now 80 and upwards.
In Ireland today the facts speak for themselves. I regard them as 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 unacceptable 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.
We have made considerable progress. State welfare pensions, for example, have increased by over €80 or 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. Personal Retirement Savings Accounts (PRSAs), which is a savings account tailored for the individuals needs, show 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.
Yet, 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.
The ESRI report on Pensioners Incomes and Replacement Rates that has prompted this debate confirms much of what we already knew. It must be factored in that this report is based on statistics from the year 2000. Ireland has changed a lot since then.
But overall it has to be said that the report has added a depth of research that is valuable and that will assist and influence the national review currently under way.
There were a number of central findings to the report.
- Average income of a pensioner unit was in the year 2000 was just over half of average industrial earnings
- About 33% of pensioners have an occupational or private pension and this accounted for about 25% of total retirement income.
- pensioner's incomes are lower at higher ages; for women; and for non-owner occupiers in 2000;
- all sources of retirement income other than social welfare benefits fall in importance as age rises and are less significant for women than men.
- The percentage of persons aged 65+ falling below 60% of median income and experiencing relative deprivation increased from 5.9% in 1994 to 38.4% in 2000.
- income from occupational/personal pensions are concentrated in the top two fifths of the income distribution of pensioners in 2000. On this basis, ESRI conclude that tax expenditure on pensions produces inequitable results, and call for this to be examined further.
- replacement rates for pensioner couples were 51% in 1994-2000 period and 43% for single pensioners; this can be compared against the Pension Board's
NPPI income replacement target for retirement income from all sources of 50% of gross pre-retirement income.
- younger persons are more likely to expect an income from occupational/personal pensions while older people expect their retirement income to mainly come from the social welfare pension.
- 63% of under 35s expect income from occupational/personal pension while
CSO data tells us that only 37% have coverage.
State pension increases are well ahead of both prices and earnings and, as the ESRI report points out, the welfare pension is now replacing a greater proportion of gross earnings than it did in previous years.
However, other developments, such as income tax reductions and the increased numbers at work, are all serving to improve overall household disposable income.
In this regard, one aspect of the report's findings that particularly concerns me is that which shows that pensioners are at a higher risk of poverty that many other groups in society.
This is a situation that is not acceptable and that I will not accept.
Overall, you can see from the report findings that retirement income expectations are high.
And rightly so. People who devote a lifetime of service to this country, in whatever service or occupation, are entitled to expect that they will be looked after in their later years and their contribution recognised.
I have already broadly outlined the significant progress that has, and is, being made on pensions.
However, I do not believe the pace and delivery is sufficient.
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 continue to monitor the importance and 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 relief's 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.
But 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.
The Pensions Board as part of its national review will be examining progress towards existing targets and the general strategy, including the supports and incentives offered through the tax system to encourage private pension's provision.
The Board will also be looking at alternative models for providing pensions based on best practice from other countries.
But 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 requested The Pensions Board to urgently examine a number of possible new routes, including:
- Whether we need to introduce more mandatory provisions into the system. One possible way forward may be to introduce a mandatory 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.
- 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.
- I want the Board to assess the pros and cons 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.
I strongly believe that those who, through their toil and effort, have and are, contributing to the continuing evolution, growth and prosperity of this country have a right in retirement to be recognised for that effort and to share in the fruits of this country's prosperity.
How we achieve this will be mark of how we have progressed and matured as a nation.
There are fundamental questions that must be asked and debated.
The responsibility to ensure that this is delivered rests with all of us.
The State will play its part through regular increases in the State pensions, incentives to save for retirement and by planning and legislating for necessary changes.
Employees must face up to their responsibilities to plan ahead for retirement.
Employers also have a central role to play. I was disappointed by comments on Monday by one employer organisation which appeared to distance its members from any responsibility in the drive to provide all of our citizens with adequate pensions.
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.