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Dáil Éireann debate -
Wednesday, 23 Feb 2000

Vol. 515 No. 1

Written Answers. - Pension Provisions.

John Bruton

Question:

193 Mr. J. Bruton asked the Minister for Social, Community and Family Affairs if his attention has been drawn to the fact that many approved pension schemes encourage early retirement in view of the fact that persons who have completed their required years for pension eligibility and continue to work do not qualify for any additional pension entitlement on the basis of the extra contributions they are required to make in that period; his views on whether this is satisfactory from an equity and incentive point of view; and if he will make a statement on the matter. [4867/00]

In considering any issue relating to occupational pension schemes, it must be borne in mind that such schemes are voluntary arrangements usually introduced by employers following consultation with their employees.

A distinction needs to be made between defined benefit and defined contribution occupational pension schemes. Under defined contribution arrangements, pension at retirement is determined by the accumulated value of contributions paid and the return from investment of those contributions, whereas in defined benefit schemes, the pension payable is linked to salary at retirement.

I draw the Deputy's attention to research carried out by the ESRI in 1995 which indicated, inter alia, that: about 60% of members of defined benefit occupational pension schemes have their pension determined by their pensionable pay in the year before retirement and the remainder have it determined on the basis of average pensionable pay in the three years preceding retirement or some other basis; the rate at which pension benefits are built up is 1/60th of final pay for each year of service, subject to a maximum of 40/60ths of final pay.

From the above, it can be seen that it is not normally in a person's interests to retire early, where the rules of the occupational scheme provide for such early retirement, as, in general, the longer a person remains in employment the higher his-her final salary will be resulting in a higher rate of occupational pension.

While I am generally satisfied that where occupational pension schemes are provided by employers, they operate to the advantage of employees, I am concerned that the level of supplementary pension coverage – at 50% of those at work – is too low. The Pensions Board, in its report on the national pensions policy initiative, recommended that a target of 70% of the workforce over age 30 should have supplementary pension coverage. To achieve this target, the board recommended the introduction of a new pension savings vehicle, a personal retirement savings account. The board envisaged that this would be a low-cost, easy access personal investment account designed to allow people, regardless of their employment status, to save for retirement in a flexible manner.

I intend to publish a new occupational pensions Bill by summer 2000 to fulfil the commitment in the Programme for Prosperity and Fairness. One of the main issues to be addressed in the new Bill will be a legislative framework for the introduction of the personal retirement savings accounts to facilitate increased savings for pensions and provide a vehicle to extend occupational pensions coverage overall especially to people who have no such cover at present.

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