State Pension Reform: Discussion

I welcome from the Department of Employment Affairs and Social Protection, Mr. Tim Duggan, assistant secretary, and Ms Helen McDonald and Robert Nicholson, principal officers, and from Age Action Ireland, Ms Corona Joyce, senior policy officer, and Mr. Gerry Scully, senior information officer. I will invite each of our witnesses to make their presentations to the joint committee. Members will then be invited to address their questions to the witnesses and they are reminded to confine their first round of questions to five minutes. If possible, I will come back to them at the end.

I wish to draw to the attention of witnesses the fact that by virtue by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence in relation to a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise nor make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House, or an official either by name or in such a way as to make him or her identifiable.

At the request of the broadcasting and recording services, witnesses and those in the Public Gallery are requested to ensure that for the duration of the meeting their mobile phones are turned off completely or switched to airplane mode.

I invite Mr. Duggan to make his opening statement.

Mr. Tim Duggan

I thank the Chairman and the committee for the invitation to attend. I am joined by my colleagues, Ms Helen McDonald and Mr. Robert Nicholson, who are both principal officers in the pensions policy area of the Department. In my statement, I will try to set out and address the changes that have occurred in the area of pensions and related payments since the committee published its report last July. In short, there have been three main areas of material change: the first being the measures introduced in budget 2018; the second being the measures announced by the Minister towards the end of January this year to deal with people impacted adversely by the 2012 rate band changes; and the third being the publication of the Government's Roadmap for Pensions Reform 2018-2023 in February this year. I will take each of these in turn.

I refer first to the budget 2018 changes. I think the committee will know all of this already but I will outline the changes for the record. The rate of the State pensions was increased by €5 per week and proportionate increases were provided for those on reduced and qualified dependent payments. This brings the full-rate State pension contributory payment to €243.30 per week and the full-rate state pension non-contributory payment to €232 per week. These increases became effective in the last week of March this year. In addition, a Christmas bonus of 85% was applied to all core long-term social welfare payments, including pension payments.

A secondary and new telephone support allowance of €2.50 per week was introduced for those living alone who receive the fuel allowance. This measure is specifically targeted at the most vulnerable pensioners to provide them with access to personal alarms or phones for security. It is also aimed at encouraging social contact and minimising social isolation for those living alone. Payment of this new allowance began last week and benefits approximately 126,000 pensioners.

The fuel allowance payment was increased by one week from 26 weeks of payments to 27 weeks. As the committee is aware, this was subsequently extended by a further week as a once-off measure to assist people during the unseasonably cold weather at the start of March. In addition to that, although not a specific budget 2018 measure, since last October, recipients of the fuel allowance can now opt to receive it in two lump sum payments, the first in October and the second in January, rather than receiving it as a weekly payment. This facilitates people buying fuel in bulk and availing of any special offers or discounts on the purchase of the particular fuel that meets their specific needs. To date, in excess of 58,000 people have availed of that opportunity.

A further provision of €10 million was made to maintain and enhance the free travel scheme for the approximately 915,000 direct beneficiaries of that scheme. The purpose of this extra provision is to facilitate more private commercial operators joining the scheme for the first time, for existing participants sustaining existing routes and adding more of them and for operators to return to the scheme where they had previously withdrawn. This provision also allows for the discount applied on free travel payments to Bus Éireann Expressway to be reduced from 40% to 30%, putting it on an equal footing with other commercial operators participating in the free travel scheme. That summarises the measures brought in in budget 2018 and the things that have changed since the committee published its report last year.

Moving on to the second set of measures, on 23 January this year, the Government agreed to a proposal that will allow pensioners affected by the 2012 changes in rate bands to have their pension entitlement calculated by a new interim total contributions approach, TCA, which will include up to 20 years of a new home caring credit. This approach is expected to significantly benefit many people, particularly women, whose work history includes an extended period of time outside the paid workplace while raising families or in a caring role. It will make it easier for pensioners assessed under the yearly average model to qualify for a higher rate of the contributory State pension. This interim TCA, which we refer to as T12, will ensure that the totality of a person’s social insurance contributions, as opposed to the timing of them, determines the final pension outcome for recipients.

Under the new arrangements a person who reached pension age after 1 September 2012 and has a 40 year record of paid and credited social insurance contributions, subject to a maximum of 20 years of the new home caring credits, will qualify for a maximum contributory pension where he or she satisfies the other qualifying conditions for the scheme. Crucially, unlike the existing homemakers disregard system, periods of home caring before that scheme was introduced in 1994 may be recognised under the new scheme. Up to ten years of other credits, for example, when unemployed or ill, may also be used, subject to the total number of credits not exceeding 20 years. For example, a person might receive a maximum pension based on 20 years of paid PRSI contributions, five years jobseeker credits and 15 years home caring credits over a 50 year working period.

The interim TCA for pensioners assessed under the 2012 rate band changes, comes into effect from 30 March 2018. Pensioners do not need to contact the Department at this juncture. Instead, the Department will invite approximately 51,000 pensioners who were assessed under the current rate bands in place since 2012 to have their pensions recalculated under T12 to determine if they qualify for a higher rate of entitlement. The Department has established a dedicated unit to progress this initiative and that unit is currently working to design and develop the required processes, procedures, legislation, IT solutions and staffing needed to implement it. Once that work is completed, the Department expects to send out the invitations near the end of the year and to begin payments, including arrears for any period from 30 March 2018, from the first quarter of 2019.

On 28 February the Government of its comprehensive Roadmap for Pensions Reform 2018-2023. The roadmap details a series of 43 specific actions presented under six strands, which taken together, will modernise our pension system while continuing to target resources at those most in need. The first strand is reform of the State pension; the second strand concerns a new automatic enrolment system; and the third and fourth strands relate to occupational and private pension schemes and improving measures around those; the fifth strand relates to further reform of public service pensions provision; and the sixth strand is about supporting fuller working lives. However, for the purposes of this morning's meeting, I will concentrate briefly on the measures relating to the State pensions area and auto-enrolment.

The roadmap confirms that the Government will introduce the total contributions approach for all new claimants of the contributory State pension from 2020 onwards. To this end, the Minister recently launched a public consultation process on TCA and departmental officials will, next week, brief Oireachtas Members and their staff as part of this process.

It is important to note that, contrary to some erroneous reporting in the media, no decisions have been made on the key elements of the total contributions approach, such as the number of years of contributions or credits that will be required for a full pension; how self-employed persons who were not in the social insurance system prior to 1988 will be dealt with; or what transitional arrangements may be necessary or suitable on the introduction of the system.

The Minister has made it very clear she is keen to hear people's views on these things before determining recommendations for Government, hence the public consultation process. The roadmap also sets out how the Government will explore how future increases in State pension payments will be formally linked to the CPI and average wages. This requires study to determine what elements need to be included in calculations and over what periods. We will commence that later in the year. Furthermore, the roadmap sets out the Government's commitment to no further increases in State pension age before 2035, beyond the increases to 67 in 2021 and 68 in 2028 that are already legislated for. Any future changes in the State pension age after 2035 will be linked to increases in life expectancy.

Contrary to some media reporting, Ireland will not have the highest pension age in OECD countries by 2028. While Ireland has legislated for a specific age, quite a number of other OECD and EU countries have complicated formulas linked to life expectancy which will result in some of them having the same pension age or higher pension ages than Ireland.

There are also proposals in the roadmap to provide individuals with the capacity to defer receipt of the State pension contributory on an annual basis up to the age of 70. In return, an actuarial adjustment would be applied to increase the rate the person receives when the pension entitlement is drawn down. The objective is to expand cultural norms and perceptions around retirement age and support a positive ageing environment where older people are to the greatest extent possible encouraged and provided with greater flexibility to work to and beyond the normal retirement age if they so choose. In addition, the roadmap sets out how consideration will be given to flexibility with respect to the age at which people who do not have the requisite number of contributions for a full-rate State pension may continue to make social insurance contributions beyond the State pension age, again if the person so chooses.

I will address Ireland's supplementary retirement savings gap. The Government has confirmed that by 2022, it will begin implementation of an automatic enrolment retirement savings system. While employees will maintain freedom of choice to opt out should they so choose, the objective of this reform is to encourage personal long-term saving for retirement purposes and to help individuals survive what would otherwise be unwanted and significant reductions in living standards at retirement. An interdepartmental programme board has already been established to strategically steer this work and it is intended to launch an automatic enrolment straw-man proposal in the near future which will act as the basis for a full national consultation process. The Government has already made it clear it is determined the State pension is and will remain the bedrock of the pension system in Ireland. Accordingly, any auto-enrolment system will not replace but will simply supplement the State pension. It will result in members making defined contributions into personal accounts which in turn will be supplemented by contributions by employers and the State. However, many of the details of the design are yet to be determined and will be set out in the straw-man proposal I mentioned. While not an exclusive list, these will include matters such as the preferred operational structure and governance of the system, the target membership for the system, the contribution rates that may be required for that system, the financial incentives that could be provided by the State, the rate of savings or investment options that may be available to members, the terms for opt-out and re-enrolment and the options available for subsequent draw down of pensions. I have listed them to give the committee a flavour of the types of issues that need to be teased out in the public consultation and the final design of the system. While suggestions for each of these will be made in the straw-man they are not meant to be definitive. They are being provided to help stimulate debate and discussion and hopefully some degree of consensus over the course of the remainder of the year.

We expect that public consultation to begin in the very near future and to run until the last quarter of the year. It is intended it will include a number of fora to bring people together for that discussion and debate.

I hope this gives the committee a sense of the changes that have occurred over the past year and an overview of the major reforms planned over the coming months and years. My colleagues and I are happy to try to answer any questions the committee has.

Ms Corona Joyce

On behalf of Age Action, I thank the committee for the invitation to speak with it today. I will focus my remarks this morning on the issue of the State pension and specifically changes that occurred and which have been proposed since the publication of the committee’s report in July 2017. An increasing number of older people are experiencing fear about retirement due to worries about income adequacy. Less than half of those aged between 20 and 65 have a private pension. Three out of four private sector workers have no pension apart from the contributory State pension. A fair State pension enables older people to age with dignity and independence, keeping them out of poverty.

A substantial percentage of older people are reliant on the State pension for the majority of their income. For those over 65, more than three-quarters of their income is made up of public transfers. Latest CSO SILC figures show a largely unchanged at risk of poverty and consistent poverty rates for the over-65s and that one in five people aged over 65 who lives alone experience deprivation. The at risk of poverty rate stands at €12,358. A full State pension is slightly above this figure and stands at €12,651. A State pension for those with an average of 39 or fewer contributions is below the at risk of poverty rate.

While the State pension remained largely unchanged in times of austerity during the recession, vital secondary income supports for older people were devastated. Between 2009 and 2015 an older person on the State pension and household benefits package lost over €13 each week. Some of the cuts to secondary income supports have been partially restored and we are very grateful for that but a lot more progress is needed, particularly for those in receipt of the fuel allowance. There has been a 200% to 300% increase in prescription charges. There have been new taxes on water and property and rising energy and medicine costs. These new taxes, charges and rising prices in recent years can have a greater impact on older people who are living on a fixed income.

A key issue we are seeking to have addressed this year is the change introduced in September 2012 to the eligibility criteria for the contributory State pension. An extension of band rates and minimum qualifying contributions saw the top rate for the contributory State pension left alone but it became harder to qualify for it and easier to qualify for the lower payment rates. While those with a full PRSI contribution record and entitled to a full pension were unaffected, many of those with a reduced record lost out. Research commissioned by Age Action on this issue and discussed here previously shows that this change, combined with the averaging rule used to calculate contributions, is punishing women who took time out to care for their children or for other reasons.

Of the 36,000 - now estimated to be more than 50,000 - initially affected by these changes between September 2012 and June 2016, more than 62% were women. They will continue to be affected in the years to come, receiving smaller pro rata increases in the pension. In the October budget, Age Action is asking the committee to support two specific proposals. First is an increase in the top rate of the State contributory pension of €5 per week and, second, to reverse the 2012 cut to the State pension.

We welcomed the announcement in January 2018 by the Department that those affected by the 2012 changes would be offered the option of reassessment under the total contributions approach, TCA, including a home-caring credit of up to 20 years. At the time of announcement, it was noted that the TCA 2012 system will address anomalies from the yearly averaging scheme. Age Action welcomes the genuine efforts made by the Minister and the Department to resolve the pension cuts imposed by the 2012 changes and the averaging system. In particular, the new home-caring credit will have a real impact on people’s lives and enable many more people to avail of a contributory State pension while also recognising the valuable contribution they have made to Irish society.

The announcement of the TCA 2012 scheme saw a commitment to target the benefit at those who had periods caring without undermining the contributory nature of the pension scheme. However, thousands of people, both men and women, lost out because of the 2012 changes and will not benefit from the announced initiatives.

Among this group are people who worked in countries without bilateral agreements and the self-employed, who were not required to pay PRSI contributions before 1998. Changes in 2012 saw an increase in the minimum level of contributions required for a State pension from 260 to 520. This change meant that many people are now excluded from the contributory pension and in some cases this happened overnight. We continue to be contacted by those affected by the 2012 changes who are angry there is no backdating of lost pensions to 2012.

Much uncertainty exists regarding implementation of the total contributions approach. Callers to our information line frequently express confusion as to how the new system will operate and whether there is an onus on them to contact the Department. We understand that the drafting of legislation is under way, with letters to those affected expected in the autumn and payments expected to begin early in the first quarter of 2019, to be backdated to March 2018.

We urge that the burden of proof for those applying for home caring credit is light, recognising that it may be difficult for people to obtain documentary proof going back over 30 years. We welcome the commitment we recently received from the Minister, Deputy Regina Doherty, that this will be the case.

Promotion of the scheme in clear and accessible language should be a priority to alert those affected and offer a degree of security and certainty to those awaiting correspondence. The wider implications of the total contributions approach and, in particular, back payment from March 2018 remain unclear, specifically the ramifications under the fair deal scheme. Clarity is also needed on the reassessment inclusion of those not having the minimum 520 contributions.

Age Action believes reversal of the 2012 changes is the simplest and most straightforward way to deal with the loss of income inflicted on tens of thousands of pensioners. However, we recognise a simple reversal of these changes would not benefit people who took time out from work to provide care at home or those affected by the remaining anomalies mentioned earlier. Therefore, we are calling for a reversal of the 2012 changes that also includes concession of the extra 20 years of homemaker and carer contributions, along with a ten-year contribution for reasons other than these. A reversal of the 2012 changes would also do away with the requirement to put in place a new system to assess people throughout the State at the stated 40 years of the total contributions approach. Reversal to a pre-2012 pension calculation would negate the necessity to write to the estimated 50,000 people, await their response and process applications.

Consultation is under way on the overall total contributions approach due to be implemented in 2020. The final look and implementation of the total contributions approach remains undecided. There is no guarantee the final total contributions approach will be as proposed, or even introduced at all but this is how the cohort of the people in question will be treated. Instead of assessing them using a new system that may or may not be implemented in its current proposed form, Age Action suggests it is more sensible to reverse the 2012 changes, as the Dáil voted for last year, and simply restore the income of those who have lost out.

We would not like to see a new set of anomalies created under the total contributions approach. A requirement for 40 years of contributions to get a full State pension would mean people with fewer contributions could be worse off than they are today. For example, today somebody with 50% of the required number of average contributions gets 85% of the State pension. Under the new system this will fall to 50% of the State pension rate. We urge particular consideration of the situation of those due to retire in the coming years who entered the system under one set of rules and may be disproportionately disadvantaged by changes introduced just before they retire. How the self-employed will be dealt with under the system remains unclear, as does any possibility of purchasing additional credits.

To date, Ireland has been unusual in setting the pension rate in the budget every year without using any particular formula. We welcome the commitment in the roadmap for pension reform to benchmark the State pension to 34% of average earnings, with future increases to depend on the consumer price index or average wages. To ensure those reliant on the State pension would not fall into poverty, the national pensions framework committed to sustaining the value of the State pension at 35% of average weekly earnings. We recommend a roadmap to get to 35% to reach this commitment. CSO figures for the first quarter of 2018 indicate that average weekly earnings are €742.19. This would indicate a State pension of €259.77, which is substantially higher than the current rate. Taking current figures, this would provide older people with an additional €846 per year.

Indexing of current and future pension rates will facilitate proper planning. It will provide peace of mind for older workers and, crucially, it will depoliticise the budget process. Clarity is also needed on any implication for the non-contributory State pension arising from indexing the contributory State pension and whether any protection for the non-contributory State pension will be applied.

Departmental figures show the State pension system cost approximately €7.3 billion in 2017 and payments to more than 600,000 people over the age of 66 were made every week. Demographic changes alone will lead to an increase of approximately €200 million per year in the State pension. Even with the retirement age due to rise to 68 by 2028, there is a legitimate question on the sustainability of the State pension system. People are living longer, healthier and more active lives. We need to develop solutions to fund the State pension that enable people to age in dignity and to support older people who wish to continue working but who fall victim to ageism and discriminatory mandatory retirement clauses.

We welcome recent guidance on longer working lives from the WRC and the Irish Human Rights and Equality Commission. A more flexible approach to retirement age is needed in the context of living longer and increasing pension ages. If they could, many older workers would choose to continue to work. As we highlighted to the committee last July, this desire and ability to continue to work for longer varies according to sector and an individual's circumstance. We hope to see movement through the Oireachtas of both Bills on mandatory retirement. We would like to see progress on the 2017 Bill to abolish mandatory retirement clauses and for it to move to Committee Stage. Age Action's information line frequently receives calls from public sector workers who are due to retire but who wish to continue to work. The delay in the progress of the Bill is leaving people in limbo and, in some cases, is forcing them to retire against their will. A fair State pension would enable older people to age with dignity and independence, keeping them out of poverty. We look forward to working with the committee to make this a reality.

I thank Ms Joyce. I remind members to confine their questions to five minutes.

I thank the witnesses for their presentations. I have one or two points on Mr. Duggan's presentation. The intention, as he has reiterated, is to have this in place for payments by the first quarter of 2019. He has told us the letters will go out towards the end of the year, and approximately 51,000 letters are to go out, and payments, including arrears, will start from March 2019. Is Mr. Duggan confident of achieving the objective of this being in place by the first quarter of 2019? A total of 51,000 individual cases must be looked at and processed. I got the initial impression from the Minister that the letters would be going out much sooner, but it looks like they will not be going out until towards the end of the year.

Mr. Duggan said the homemakers credit will be paid up to a potential maximum of 20 years and that those on social welfare could claim other credits of ten years. Let us assume somebody has more than 20 years between both. Is the maximum for both 20 years or is the 20 years confined to homemakers credit?

Ms Joyce referred to the great deal of angst about the change from 260 contributions to 520 contributions for a basic qualification. Are there any plans to look at this? The statements emanating from the Department and from interviews the Minister has given indicate it is not up for discussion. Could we find out what exactly the position is on this?

What has been said on auto-enrolment indicates the Department is up for discussion on consideration as to how exactly it will be implemented, by which I mean whether it will be done separately by the State or farmed out to some of the private pension providers. I am not opting for one or the other; but note that according to friends in the UK, when the auto-enrolment system there was set up, the initial cost of establishing it and developing all of the technology was pretty horrendous and a multiple of what was anticipated. I suspect if that is the case here - as a smaller country, proportionally the costs could be even higher - ultimately, the pensioners will be those who will pay for it.

Mr. Tim Duggan

I am as confident as I can be that we will progress the initiative sufficiently this year to start making the payments in the first quarter of next year, as promised. We have always said we would start issuing the invitations in the fourth quarter. The reason is that we knew we had to build processes and procedures. We had to get legislation drafted and enacted, and we had to get a complicated IT system developed. We always knew it would take more than six months to get all the preparatory work done and, therefore, the fourth quarter was when we could start issuing letters to people. We want the systems to be ready and we do not want any delays being once people are invited to seek a review. Many of them will be simple and easy to process. There will be no big issue trying to work out whether they are entitled. It will be a simple calculation, particularly with the system I mentioned. Consequently, once we are able to issue invitations I am confident we will get payments going for all those cases quickly. Hence, the first quarter is realistic.

There will be some cases where we will have to do exploratory work. While we are keen to ensure we do not put a heavy burden or onus of proof on anybody, we are obliged to protect the Social Insurance Fund and taxpayers' money and, therefore, we will have to do certain checks to comply with the Comptroller and Auditor General's requirements and obligations. Aside from that, we will make this as simple as we can for people. I am confident we will get payments going in the first quarter of next year.

The home caring credit of 20 years is new. There has not been anything similar to it previously. A disregard was introduced in 1994, but that is not a credit. It is a disregard and it only works in a yearly averaging system. It would not work in a system that is reliant on counting the number of contributions rather than an averaging approach. There has always been a limit on the number of credits people could claim for pension calculation purposes. In this case, we have set the home caring credit at the maximum limit. A person can claim 20 years of credits in whatever way the person wishes that pertains to the person's life and the circumstances in which he or she found himself or herself, but there is a limit of 20 years. We did not put the same limit on home caring as is on all the other credit systems. We allowed it to be at the maximum, and the maximum has been maintained.

The move from 260 to 520 contributions is not new. While it was introduced near the beginning of the decade, the reality is that it was introduced in legislation in the 1990s, not in 2012. It has been flagged for 20 years and came from a significant volume of analyses and reports carried out over the years. The legislation has been on the Statute Book for a long time.

With regard to the automatic enrolment system that was introduced in the UK, the Deputy is correct that initial costs were high. A number of aspects in the UK are different. First, the scale is significantly vast compared with here. That does not mean we do not have high costs but that there is a proportionality element to it. Second, the UK felt it had to introduce a backstop arrangement, if I can use that phrase. My UK colleagues do not appear to like it much. It had to introduce a contingency in the event that the market did not provide a service to low income individuals, in particular. That has resulted in much of the significant cost the Deputy mentioned. It will go out for consultation so we are not being definitive about any aspect of the design but we will be particularly interested to hear people's views on that matter and whether there is a necessity for a State default. However, there are also alternatives that would not require that and thereby would not incur the type of costs the Deputy mentioned. I am hopeful that we could steer it in that direction.

Deputy John Curran resumed the Chair.

I have a few questions. Deputy O'Dea referred to the changes to home caring and so forth. Specifically on the T12, I acknowledge the Department will write in the fourth quarter to the 51,000 individuals it has identified, but there will be others outside that who clearly would like to have their cases reviewed. What process is in place for that? Will there be a way for them to contact the Department and ask for their cases to be reviewed? In terms of the evidence that people will have to provide, I am interested in getting clarity on that for the many women who took time out of their working lives to look after their families. I understand the Minister corresponded with Age Action Ireland. Could we get some specifics on what type of approach will be taken if people cannot provide evidence? What evidence will be sought?

With regard to the overall total contributions approach, Mr. Duggan said no figure has been put on it. However, it has been widely circulated that it will be up to 40 years. It would be alarming if that was to the case but we have to hear officially what it is. It is thought that it will be between 30 and 40 years. The self-employed have been identified as a cause of concern and returning emigrants will be another concern. Many people have been forced to leave these shores against their will to find employment elsewhere. What provision will be made for them?

The pension age will increase to 67 years in 2021 and it will go up again in 2028. There is a serious anomaly currently where people are forced to resign at 65 years due to the nature of their contracts and then must sign on for jobseeker's payment for a year until they get the State pension at 66 years old. What thought has been given to this by the Department? Is it expected that people will be forced to sign on for jobseeker's payment for two years when the pension age increases to 67 years? The Department will be aware that I have introduced legislation on this but, like many other legislative measures tabled by the Opposition, it is caught in the red tape the Government has brought forward and is waiting on a money message. As Age Action Ireland has said on numerous occasions, many people would like to remain in the workforce for a multitude of reasons. That should be progressed. Again, I call on the Government to issue the money message and allow that critical legislation move to Committee Stage and, if amendments are required, to allow that to happen.

The other concern is that the pension age will then go up to 68 years in 2028. Contrary to what Mr. Duggan said with regard to other OECD countries, Ireland far exceeds any of its European counterparts in terms of how fast we are moving to increase the pension age and the timeframe for progressing it. The UK, for example, is only increasing its pension age to 67 years in 2028. At the same time, we will increase our pension age to 68 years.

Germany will not increase the pension age to 67 until 2031. It is also frightening that, in 2035, we will review this again with the possibility of increasing it further. I have serious concerns about this. This was part of a deal struck with the troika with no consultation and it far exceeds the rate of change in any of our European counterparts.

I have a few questions for Age Action. Is the organisation satisfied with the total contribution approach being put forward by Government and the continued reliance on contributions? What pension system would Age Action like to be introduced? Should it be a basic or a universal pension? What are its views on auto-enrolment? Is the increase of €5 the main issue for the people it represents?

Mr. Tim Duggan

The Deputy is correct that, other than the 51,000 to whom we will write, there are people are on reduced rate pensions who may do better under the new system but will not be captured by our mass invite. At the same time, we will publish a great deal of information about how the system works, how it will be calculated and so on. Lots of information will be provided publicly so that people can look for themselves. We will issue a general invitation, with advertisements on radio, in newspapers, on social media and so on. We will provide a briefing to public representatives, such as committee members, to make sure people are as informed as they can be that this is available and may be relevant to them, in which case they can send in a request for their pension calculation to be reviewed. It will be nothing like those numbers but there will be some people and we will provide a means by which they can seek a review. We will concentrate initially on the ones we know about.

As I said in reply to Deputy O'Dea, the evidence people have to provide will be simple and easy. The degree of evidence they will have to provide will probably be nil. If somebody is on our system as having received child benefit for the period in question and was not been in employment at exactly the same time, it will be an easy calculation to make and we expect that many of them will be in that category. Other than that, it will depend on what they are claiming credit for. If it is for childminding or caring, it means they were not in receipt of child benefit in this jurisdiction so we may seek some proof that they had it in some other jurisdiction. That is easy enough to get from the systems in other jurisdictions and it will not be particularly onerous.

It is a little more difficult for people who were not looking after children but were looking after others and we have not yet teased out precisely what type of evidence we will seek in those cases. We are more than happy to take suggestions from anybody, including the committee, on that. We will discuss what the audit expectation is from the Comptroller and Auditor General. We have not made any firm decisions on that. That is part of the design work we are doing.

I can be definitive that no decision has been made on the number of years of contributions required for the TCA and we have said this on every occasion we have spoken publicly on the question. In the consultation document we launched, one of the main questions relates to people's views on the number of years of contributions that should be required to achieve a full contributory pension. The confusion arises from the fact that T12 is based on 40 years but that is an interim solution to deal with a very specific problem and does not necessary dictate how the full implementation of TCA will be dealt with from 2020 onwards. It is very much an issue to be decided and we genuinely want to hear people's views.

I have a technical point to make. There is concern because the 2020 solution provides for a 40-year pension life and Mr. Duggan is correct that this is not necessarily the same as the post-2020 total contribution scheme. He then suggested people make recommendations but the problem with that is that we are blind when we make them. Age Action said somebody with 20 years' payments in the new scheme would have a higher average on the current scheme than the 2040 scheme. The problem is that we do not know the cost of any of the moves. If we decided that total contributions should be a 30-year scheme, we have no means of determining whether that will increase the total budget by 10%, 20% or 50%. We can objectively look at the issues as they arise but it is difficult to know what the cost of implementation might be.

If the Department introduced the 2012, 40-year, total contribution scheme across the board today, what would it cost? That is the challenge for those who wish to make recommendations. We are all concerned about the fact that 20 years is long and that somebody who has only paid in 20 out of 40 years will be on a half pension. As a committee and as individuals trying to make recommendations, it is problematic because we do not have a calculation to base them on.

Mr. Tim Duggan

The actuarial review of the social insurance fund which we published has a number of models, to which we refer in the consultation paper. That sets out the costings for each of them. The information is available but-----

Perhaps the committee might send Mr. Duggan a number of examples so that he could let us know what outcomes there would be in terms of costings.

Mr. Tim Duggan

Yes, I will not be able to be definitive because it does not just depend on the number of years of contributions.

That is the point I am trying to make; it depends on the other elements of the scheme.

Mr. Tim Duggan

We want to hear from people what they think the shape of the scheme should be and how many years of credits for various things should be facilitated. I do not buy the argument that somebody on 20 years of contributions will get half a pension under a TCA model. If that is all they have in their life it will be true, but the vast majority of people on 20 years of contributions in a 50-year working lifespan probably have other elements to attract credits. Consequently, few people will end up on a half-rate pension purely on the basis of the number of paid contributions. It would be difficult for us to give definitive answers to examples committee members might send us because of this. We can only base them on what we know.

I take that point but Mr. Duggan can see what we are trying to do.

Mr. Tim Duggan

Yes. At the same time, we are trying to see what people think about all the individual elements, which is why we have produced a comprehensive paper setting out all the issues.

We then asked a series of questions to get people's views. We would like to try to achieve a balance. The Deputy is suggesting that a requirement for 40 years of contributions for a full pension is too long. I do not buy into the sense of alarm because that must be balanced by the fact that people are living much longer than in the past and the likelihood that an extensive and reasonable system of credits will be provided that will also be available for a range of contingencies. When these factors are combined the 40 years of total contributions is not as long as it may seem. It should not be viewed in stark terms but in the round. Rather than taking the figure of 40 years and saying it is horrendous, we must look at what else is part of the package. The introduction of the new home caring credit, which is unlimited in the sense that it has no start date and is for a full 20 years, is a significant development. This option did not exist previously and makes a great difference to the calculation of the 40 years. A range of credits is also available to people, depending on their contingency, that will also significantly mitigate the 40 years' requirement. Notwithstanding that, no decision has been made on whether the period will be 40, 30, 32 or 35 years, for that matter.

Mr. Duggan has made that clear.

Mr. Tim Duggan

We genuinely want to hear what people have to say about the package in the round. Furthermore, no decisions have been made on how people in self-employment will be treated under the total contributions approach, TCA, model. We are acutely aware that self-employed people only came into the system in 1988 and, consequently, the maximum number of years of contributions they would have if they were to retire in 2020 under the new TCA approach would be 32. If the model was 40 years, they would end up with a 80% pension but if it was a 30-year model, there would be no problem. It depends on the final model. In addition, if the final decision is that the years required will be in excess of what the self-employed could attain in the period available since 1988, we will have to introduce some transitionary measures to deal with the issue. The consultation paper asks respondents what these measures should be or what shape they should take. We genuinely want to hear what people have to say on this, not only public representatives but also self-employed persons and those who represent them.

It is not the case that we are on our own regarding the increase in the pension age. The difficulty with making comparisons across Europe is that it is almost impossible because Ireland is one of the only countries that sets a definitive retirement age at a definitive full year age. It is 66 years now and will be 67 in 2021. A large number of countries have adopted crazy pension ages, for example, 66 years and five months, and use complicated formulas for determining what the pension age will be in future. At least ten of the existing EU member states use formulas based on life expectancy to determine what the pension age will be in future. As a consequence, it is impossible to do a direct comparison with Ireland. I will give a few examples. The pension age in the Netherlands is now 65 years and nine months and the age is increasing by three or four months each year. Next year, it will be 66 years and one month and the following year it will be 66 years and five months and so on. It is expected to reach 67 years by the end of 2021 or beginning of 2022 and it will continue to increase based on life expectancy. There is no doubt that, under the Dutch model, the pension age in the Netherlands will exceed 68 years by 2028. Numerous other countries have similar types of systems. In Greece, the pension age is now 67 and the country has introduced a life expectancy element that will increase the pension age by a number of months each year. It will have increased considerably by 2028. The pension age in Italy will reach 67 years in the near future and it has also introduced a life expectancy calculation that will increase the pension age by several months each year. We believe the pension age in many countries will exceed 68 years before Ireland reaches a pension age of 68 years.

Mr. Duggan has probably picked out the European countries with the more complicated systems. In Austria, for instance, the pension age is 65 years for men and 60 years for women and will move to 65 years for both by 2033. I have already given the example of Germany, where the pension age is moving to 67 years for men and women in 2031. There is no complicated methodology or procedure in those cases and no link to life expectancy. We are moving further and faster than any of our European counterparts.

I will stop this for a moment. My Duggan has various examples and these should be circulated, rather than going through them individually.

Mr. Tim Duggan

It is all public information.

It would benefit the committee to have them circulated, rather than having Mr. Duggan read them out individually.

Mr. Tim Duggan

I have a more comprehensive document.

I thought Mr. Duggan might have one, which is the reason I asked.

Mr. Tim Duggan

There is no difficulty with that.

I am not disputing what Mr. Duggan is saying but I would like members to have full sight of the document.

Mr. Tim Duggan

The main point is-----

I take the point Mr. Duggan is making.

Mr. Tim Duggan

-----we are not the only country increasing the state pension age or increasing it to the level we have proposed. Many European countries are doing exactly the same as we are but they are doing it in a more complicated way. It is a pretence that Ireland will be alone in reaching a pension age of 68 years by 2028. That message is misleading and I would not like it to go out.

On the mandatory retirement age, we have always said that there was no such thing in Ireland. If people retire from an occupation at 65 years, that is a matter of the contract between them and their employer. There is no statutory retirement age and there never has been. The reform plan sets out a number of measures to extract people from what has become a societal norm. European law does not necessarily support this norm and objective justification is now needed for setting retirement ages in employment contracts. Employers must consider very carefully how they will deal with the law in this area, which changed in 2015.

As my colleagues noted, the Workplace Relations Commission, WRC, has issued guidance for employers on that particular area and the European Human Rights Commission, EHRC, has issued guidance on fixed-term contracts. We hope the combination of European law, the WRC guidance and the EHRC guidance and the consultative forums undertaken by IBEC will result in employers grasping this issue. If they do not do so - and the roadmap sets this out - towards the end of this year or at the beginning of next year, we will start a process of assessing other measures that could be introduced. These may include some of the measures to which the Deputy referred. However, we want to give employers the opportunity to get to grips with the issue.

It is not fair that people who, by virtue of their employment contract, are forced to retire must go to the WRC and fight to remain in employment when that is their wish. The evidence is available. The relevant legislation received cross-party support to facilitate its progress. We are now caught with red tape. All the evidence is available and people want to stay in work. They are being forced to sign on for a jobseeker's payment for a full year because they cannot get their State pension at 65 years.

The Deputy has made his point. He addressed several questions to the witnesses from Age Action Ireland and I want to afford them the opportunity to respond before I call Senator Alice-Mary Higgins.

Ms Corona Joyce

I will begin with the point made about mandatory retirement. We would welcome more efforts and work being done to have a greater discussion and quicker movement on the issue because it is creating significant uncertainty in people's lives. As I mentioned, some people will choose to work longer and some may not, while others will have to work longer.

We receive many calls about jobseeker's allowance. Psychologically, it can be difficult to have to retire from work and then go on the dole. People receive a reduced rate for a period of time which they find particularly difficult, given the rising cost of living.

The most recent OECD work on pensions recommends looking at flexible contracts and retirement dates. Flexible retirements dates have not worked, for example, in Germany. A combination of a flexible retirement date and allowing access to a proportion of a pension payment seemed to be a greater incentive and resulted in a higher take-up. Throughout the OECD area 50% of people aged over 65 years engage in part-time work. Some further work could be done on that issue.

On the specific question of whether we are satisfied with the TCA or the universal pension, my colleague will comment on that issue, but the options are worth exploring. Anything which would give greater certainty to older people coming up to and in retirement would be positive. There are options which are worth exploring. We would have more of a focus on something which would provide a greater rate and more security. Mr. Scully will talk about that issue.

On auto enrolment, we welcome anything which will lead to greater security in retirement and older age. There are a few questions we and others have about the implementation of such a scheme, including fund administration and the privatisation of risk, a matter the committee has previously discussed. The UK example was discussed. I understand early on the scheme was found to be affecting women disproportionately because of the rate and age at which it was set. A slight tweaking and modification of the scheme took place in the United Kingdom. We should be mindful of the lessons learned in other countries.

On whether the amount of €5 is our main concern, there is a €16 gap with the State pension. Indexing it at 35% of average earnings was a commitment given in the national pensions framework. Our concerns also relate to secondary income support because that is where people are finding that day-to-day living has been affected. We welcome the changes to the fuel and telephone allowances, but there is a need for progress and a restoration of these allowances.

Mr. Gerard Scully

In principle, we accept and welcome the TCA. The move from averaging is long overdue. Averaging was iniquitous and penalised almost everybody. People were affected by the changes made in 2012. The total contributions approach is what should be used in the future. I accept that the 40-year period is up for discussion.

That has been made very clear.

Mr. Tim Duggan

It was never off the table.

I support Mr. Duggan.

Mr. Gerard Scully

The problem is a 40-year benchmark is being imposed on people who were affected by the changes made in 2012. People who will retire after 2020 may have a much lower benchmark to meet, which is very unfair. It disadvantages persons who retired after 2012 and will do so before 2020.

My understanding which Mr. Duggan can confirm is that when the new scheme is introduced, persons in receipt of existing pensions will be able to transition to it and not be disadvantaged by the implementation of the new scheme. Is that correct?

Mr. Tim Duggan

Yes. I will be absolutely clear. The Government considered our report which has been published on the website for anyone who wants to look at it. It states that if the final design of the TCA is more favourable than the 2012 interim model for those pensioners who opted in to it, they will be allowed to transfer to the final scheme in 2020. They will be not be disadvantaged at all.

I apologise for interrupting Mr. Scully.

Mr. Gerard Scully

I thank Mr. Duggan for the clarification which we obviously welcome.

I thank the delegates. There were two main issues dealt with in our report which featured in the debate on the changes made in 2012. I remember debating this matter in 2012 in my former capacity as a member of the National Women's Council of Ireland. There was the historical injustice represented by the averaging system and the injury added to it by the changes in bands and contributory requirements. To be clear, the proposals which have been brought forward under the TCA12 scheme address one of those issues, but they fail to address and possibly compound the other. Everybody was happy to see the issue of averaging being addressed. I was was very happy when the Minister made commitments on care credits because it was something for which I had advocated for years. It is an important recognition of the contribution made by carers. I have a number of specific questions about the care credits before I come to another issue, namely, the changes in bands and contributory requirements.

Those questions can be answered before the Senator asks her next question.

Are there plans to allow care credits to also serve as re-entry credits? Will those who may, for example, have accumulated five years of care credits be able to use them to access back-to-educaiton schemes which may have onerous requirements to be met? If one did not work in the two year period prior to becoming a carer, one will not have contributions towards a pension. Will the contributions count and will they be separate from the tenure periods mentioned such as the times in receipt of jobseeker's allowance rather than the time spent providing care?

There is very real concern that a large number of those in receipt of care credits may not always have been providing caring, but they will be affected by the scheme because we know that many were affected by measures such as the marriage bar and the culture surrounding it. They may have left a job on marriage, but it would not be classed as providing caring. In that regard, has consideration been given to how we can ensure those years will be captured, as they are in the case of the homemaker's disregard, perhaps by considering things such as the qualified adult payment? Will those who were relevant persons in the case of the qualified adult payment be considered?

We will get answers to those questions and the Senator can then come back in.

Mr. Tim Duggan

We are looking at carer's allowance. There are also a number of other issues being considered. We hope to do what the Senator suggests. We have to consider the matter very carefully because wrinkles are caused in other areas. We have to be sure that when we address the issue, we wil not create yet another anomaly which will have to be dealt with by some other measure. The issue is being looked at favourably. We do not intend to use the payment in the case of re-entry credits.

The final question on the marriage bar confuses me considerably. The marriage bar primarily affected people working in the public service and with some larger employers. Persons who were in such employment would never have received a State pension had they remained in that employment. I am always confused when the marriage bar is raised as a significant issue in the context of the State pension. My mother-in-law was such an individual. She might have received an occupational Civil Service pension, but she would never have received the State pension. I fail to see how it is relevant in the calculation of the State pension.

It is relevant because in the middle of their working careers people were cut off. While I recognise Mr. Duggan may not see it as such, politically, even the Minister and others have recognised it as being relevant.

The key point is that there were a number of people who were accessing the homemaker's disregard because of a culture which prevailed in the 1970s and 1980s which made it difficult for married persons to work. Effectively, they were homemakers. In the transition to care credits which is positive overall I want to ensure those who were contributing through a homemaking role during that period will not be disadvantaged because, for example, they may not have had children in the home. There will be a small cohort for whom this is important. Perhaps I might follow up with others with whom we have worked on the issue, or perhaps we might follow up on it because I have a number of other issues to get through.

The issue of re-entry credits is one to which we need to return. If someone has spent five years caring and wants to go back into the workplace, he or she may end up with a very onerous number of contributions to make up. It is important that people are facilitated in re-entering the workplace. I am surprised that the issue has not been considered and that it was dismissed by the delegates outright. Perhaps it is issue to which we might come back.

The Senator had other questions. Does she want to raise them now?

I wish to address the contributory thresholds. I credit the Minister for Employment Affairs and Social Protection, Deputy Regina Doherty, for introducing the care credit. I believe she has embraced and recognised the contribution those provide care make. However, the other thing that happened in 2012 was that the bar moved. I will come to the issue of signalling the move. The number of contributions moved from 260 to 520 and a large number of people found themselves falling down the bands to reduced rate pensions, particularly, as it happened, women. The change had a huge impact and created a lot of the concern in 2012, yet the solution makes the same mistake. Where previously there was a move from 260 to 520 contributions, people are now required to have 1,040 credits and contributions alongside the 20-year requirement, presuming that they will the maximum of 20-year care credit, which will be difficult.

The Senator needs to say it specifically because I think she has lost-----

As there are two related points, I would like to ask a set of questions.

Mr. Tim Duggan

I can answer the question, if it is based on-----

The Senator needs to clarify the comment she made about the position in 2012.

If someone is required to have an overall 40-year record, of which care credits account for 20 years, there is still a period of 20 years for which they need to account. Is there something I do not understand?

Mr. Tim Duggan

That is right, but they do not need to account for those 20 years in order to qualify for a pension. The Senator is confusing two things.

For a full-rate pension.

Mr. Tim Duggan

The issue of a full-rate pension is totally different from qualifying for a pension.

No, that is my exact point.

Mr. Tim Duggan

The Senator was talking about the movement from 260 to 520 contributions. That relates to qualifying for a pension, not a full-rate pension.

Is Mr. Duggan saying the threshold which moved from 260 to 520 contributions is the minimum? Is he saying there is still a 20-year requirement?

Mr. Tim Duggan

A person will have to have 20 years of paid contributions out of a possible 50.

Will Mr. Duggan say that again? I ask him to leave aside the reference to a possible 50.

Mr. Tim Duggan

No, I am sorry. It is important. I am not going to forget it. To receive a full-rate State contributory pension, a person must have worked or paid contributions for 20 years out of a possible 50. Bearing in mind that it is a contributory system and has been since 1961 when it was introduced-----

Mr. Tim Duggan

-----20 years out of 50 does not seem to be that onerous to qualify for a full-rate pension.

We are not looking for an opinion on the qualifying requirements. I accept Mr. Duggan's clarification, but here is my point. There is still a 20-year requirement. There is an issue with the recognition of care. Effectively, it still functions as a disregard. It is not a situation where care provision is fully recognised. For example, somebody who has worked for 20 years will not access the same pension as somebody who has worked for ten years and provided cared for ten. In the long term it is good that the care credit is being recognised as an element. However, persons who have provided cared for ten years are not going to benefit from it as an active care credit in the calculation of pension. Their position has not been made better by much. Those who happen to have 20 years of contributions will be fine, but there will be those who will be on a reduced rate.

Mr. Tim Duggan

It is ludicrous to suggest it has not been improved.

I did not say it had not been improved; I said it had not been-----

Mr. Tim Duggan

It has been improved remarkably. It did not exist before the Minister brought forward the measure in January.

Excuse me, I must be clear. I have been clear that the care credit is an improvement. What I am pointing out is that there is a danger in moving the goalposts. The 40-year threshold is a concern because there is a wider frame. There is a moving of the goalposts in moving to a 40-year period instead of 20. That is a concern and it will mean that potentially not as many will benefit.

Mr. Tim Duggan

I am sorry, I have lost the Senator. I do not understand.

Let us move on. We will move on to the 40-year requirement. Mr. Duggan indicated that there had been a signalling for 20 years, from the 1990s until 2012, in advance of the change in the threshold from 260 to 520 contributions. My concern is that potentially we are talking about a two-year period of signalling if we bring forward the total contribution approach in 2020, whereby the requirement will be doubled from 20 years to 40. I know that Mr. Duggan has said no decision has been made, but he is seeking an opinion. As such, I think doubling the requirement with a two-year lead-in period is completely unfeasible, unacceptable and dangerous.

Mr. Tim Duggan

Again, that is not accurate. In 2010 the national pensions framework proposed a total contributions approach in the calculation of the State contributory pension. It set out a 30-year model. However, it only set out a requirement to have ten years of credits. Also they were only allowed from 1994 onwards. As such, there have been at least ten years of notification during the 20 year period about which the Senator is talking.

No. To be clear, this is the same thing. Care provision is being added to the mix, but when it is added, the requirement goes up. We are not saying we are going to add it and give it equal status. If we were to be consistent, we would be looking at a 30-year requirement in line with the original vision for the total contribution approach. We would then accept 20 years of care credits as part of the 30-year requirement. That would represent care provision being given equal value as working contributions. Mr. Duggan is saying that because we are taking care into consideration, we have to expand the threshold and move the goalposts by an additional period of ten years. That does not give adequate recognition to care provision, which is why I am saying the requirement should be 30 years. These are opinions. As Mr. Duggan says, nothing has been decided, but I am putting forward this point.

Mr. Tim Duggan

I disagree with the Senator and the reason I disagree is that if my understanding of what she is saying is correct, she is suggesting we should have a 30-year requirement in the calculation of the State pension and that we should facilitate 20 years of home-caring credits being part of it.

Mr. Tim Duggan

That means that in a 50-year working lifespan someone would only need to work ten years to receive a full-rate State contributory pension.

That is exactly what I am suggesting.

Mr. Tim Duggan

I-----

Excuse me. Mr. Duggan has given his opinion. He has said nothing has been decided, but it seems that ideas are set in his mind. He has made his opinion and preference very clear. However, it is for public consultation and us, as representatives of the public, to put forward perspectives. I do believe that if we are genuinely serious about recognising care-giving as a contribution, as I believe the Minister is, it must be so recognised.

Mr. Tim Duggan

The Minister is also very serious, as are the Government and the Department about the need to have a sustainable system. The generations currently paying for the State pension are as entitled to expect to receive it as those who are currently receiving it. The generations that will come after them will be equally as entitled.

That is the extended opinion of Mr. Duggan, whereas I want to ask questions.

I take the point Mr. Duggan is making about the system being sustainable.

That goes back to the first point I made on the importance of the committee knowing the costing of the proposals when making recommendations. I acknowledge the 2010 document, which was based on a 30 year cycle. We changed to a 40 year cycle only because of addressing the 2012 anomaly. It is worth acknowledging that up to the 2012 issue being addressed, the total contribution had always been considered over the 30 year cycle or that was the main proposal.

On the issue of care, and caring, we can as a committee agree to differ. The old system would have allowed one third of the total time to be accounted for caring, under the new system the main proposal is for half. As individuals on the committee, we can make our recommendations on the proposals based on that.

Has the Senator other questions?

Before asking questions I wish to make two very brief points. The sustainability of society as recognised in our Constitution, depends on home life and care which is part of the common good. The question of sustainability is not simply an economic exercise, it is more substantial.

We need to look at the intergenerational question to a wider degree. There is a wider section of intergenerational relationships, for example those who will reach pension age at different stages will by the time they reach pension age, have contributed to the education, free third level education, jobseeker supports and other social welfare supports as is only right. It is not a simple one way chart of payment

Senator Higgins.

Because it was an opinion, I needed to respond to it.

Does the Senator have a question?

I am very concerned about the 40 years. Those who have insecure employment, returning emigrants and immigrants have gaps in contributions and the lead-in to the change of adding ten years will really affect anybody between the ages of 40 and 50 years. In that regard, I will ask all my questions now.

What are the changes in respect of voluntary contributions? The threshold for making voluntary contributions was raised from an income of €260 per week to €520 per week. If we were to see a change in the requirement, we would need to be absolutely assured that people could make voluntary contributions. I would be concerned if we saw a raising of the threshold. Can we be reassured that the threshold for making voluntary contributions will not be raised if people potentially are to be meeting new targets?

A question was asked previously on the indexing of the non-contributory pension. I welcome the indexing of the contributory pension, I would like an indication of the intentions in respect of the non-contributory pension in the future. Is it planned to index the non-contributory pension, perhaps at a slightly lower rate, so that there would be some level of a similar guarantee and predictability in respect of the non-contributory pension?

On the supplementary system scheme, how is it proposed to recognise care in the scheme? In terms of contingency funding and the backstop, if the market did not provide in the United Kingdom, I do not believe that we can expect that the market will provide in Ireland, given that market pensions have lost 30% of their value in one year in very recent memory. I think we can anticipate that we will need a backstop. Given that the supplementary pension system is coming through, is the Department in active engagement on the issue of marginal rate tax relief at present, which we know ties into cost? As mentioned, the troika recommended that we make changes.

Chairman: Senator.

Women are 40% less likely to have a private pension. They do not tend to benefit from that tax relief. There is at least €3 billion there.

I thank Senator Higgins. I want to get some answers to the questions.

That is fine. I thank the Chairman.

I call Mr. Duggan.

Mr. Tim Duggan

State Pension, contributory, SPC, indexation is not particularly referenced and it is not intended to do that. It has always been the case that it has effectively marked the SPC. We do not see that changing. Any indexation of SPC is likely to result in the SPC continuing to mark it, unless a Government changes a policy in that respect.

The voluntary contributions will continue. There is no change in that respect, but I cannot give commitments in respect of thresholds. That is obviously a Government policy matter and will probably be dealt with in a budgetary context. I could not possibly give a commitment on that.

I will ask my colleague, Mr. Robert Nicholson to speak on automatic enrolment because he has studied the UK system in particular and he is heading up our programme office dealing with it.

On the question of tax relief, there is a study under way spearheaded by the Department of Finance on tax relief generally and on tax relief on pensions in particular. Any decisions in that respect will be Government decisions arising from that interdepartmental study by the Department of Finance.

Is there a timeline on that?

Mr. Tim Duggan

The group is already working. They are hoping to conclude by the end of this year.

Is it likely to affect the budget? I know that is a political decision.

It is unlikely, if it is to be concluded by the end of 2018. I now invite Mr. Nicholson to make his contribution.

Mr. Robert Nicholson

I will now address the queries on auto-enrolment, including those raised by the witnesses from Age Action.

On the question of the target membership and who will be enrolled, that needs to be defined by the objective of the system itself. Usually supplementary second pillar pensions are concerned with consumption smoothing, so avoiding reductions in living standards at retirement. That is generally an income-based measure to prevent those reductions. If that is the target membership, one is then in the space of the level of pre-retirement earnings of the individual. For example if the State pension is €12,500 or €13,000 per annum is it legitimate to enrol somebody in a pension who is earning less than that when they will get a higher replacement rate from the State pension than they would from their earnings? It is then balancing the question of the cost of those contributions to the individual with a limited discretionary income in terms of short-term demands as against long-term gain. The question is where is the balance to be struck in that case.

I think in the reform plan, a figure of €20,000 was given as an indicator because we know definitively at that level of income that individuals will suffer a material reduction in living standards when they retire even with the State pension, so they should be enrolled. The space below that begins to be more challenging for the reasons I have mentioned but also because, typically speaking, it would proportionately affect certain groups more, for example, women, because they work part time - and as the ESRI has highlighted a greater number of women are on the minimum wage as are people from the ethnic minorities and people with disabilities. We need to look at those issues and again no decisions have been made, but it is a fundamental for auto-enrolment.

On the questions of fund administration, privatising risk and so on, traditionally in pensions policy there is the multi-pillar system, where the State, through the social insurance system guarantees a minimum level of income and poverty avoidance in terms of the State pension and then adequacy is around what the individual needs in order to maintain his or her living standards. Again that is an earnings-related indicator. The framework as to how that is to be managed in terms of an auto-enrolment system is yet to be decided. There are major questions around a public service obligation on the State structure, as in the United Kingdom or does one move towards a structure where there is State involvement but a regulation of the number of providers or does one just roll out the existing retail structure. The key question Ireland has to answer relates to population because we have a far smaller population than the UK in terms of generating economies of scale. In the United Kingdom, there is the National Employment Savings Trust, NEST, which Deputy O'Dea referred to earlier and it has 7 million members. We estimate the population in Ireland for such a scheme would be between 500,000 and 800,000, but we absolutely believe they need to go into a small number of large, efficient pension schemes. What that small number is has to be defined - is it one, two, five, ten? We do not believe that the existing infrastructure is fit for purpose. We believe it is very difficult to provide services to lower income earners at a cost that makes it economical to do so, unless one generates scale and the impact then is on the member outcomes because they pay more for the service. We know scale creates the capacity to deliver services to these individuals.

If it is to be an earnings related system where an individual in investing to work their income to generate retirement income, there will be an element of risk. That is about getting the default options right. We know that in the UK, 90% of people are defaulted into a choice quality assured investment package and that 90% of them stay in it. The design of that package and how it should be structured is crucial. However, again, that has not been looked at in detail yet.

Tax relief is a matter for the Minister for Finance in the annual budgetary process. We talked to over 50 sectorial interest groups representing all strands on auto-enrolment. There have been two broad arguments. First, it is argued tax relief, as it stands, is more beneficial to higher earners which is unfair. Second, it is claimed that the first argument does not consider the amount higher earners contribute to the social insurance system, which is then redistributed to provide State pensions to lower earners. It also does not recognise the proportionately greater level of tax that higher earners pay and tax in drawdown. I am not taking a position on these but those are the two ends of the spectrum from our discussions.

From an auto-enrolment point of view as a policymaker, the question that has to be answered is what the policy objective is. In this case, our policy objective is to enrol middle and lower income earners into a product which will generate a reasonable retirement income. Is the financial incentive, as it is structured, suitable to ensure those people stay in the system and save? That is a question for which I do not have an answer. One must look at the potential behavioural impact of change. We need to recognise that people of modest income levels, €32,800 and above, are receiving marginal rates of tax relief on those pension contributions. Effectively, a change to that system would be a pay reduction for those individuals and may result in the opposite behaviour we want. It may encourage them to opt out of pension saving rather than opt in. It is absolutely not an easy question to answer. It is fundamental to the success of auto-enrolment and a key one for our consultation process, as well as for the review the Department of Finance is undertaking.

Ms Corona Joyce

On the link between the contributory State pension and non-contributory State pension, we did bring up in our submission the point about having protection for the non-contributory pension. It is currently linked at the top rate of 95%. We would like to see a categorical and stated link between both contributory and non-contributory pensions. It gives clarity to people and a little bit of security.

Another point which has come up in discussions is that the proposal is linked to the CPI, consumer price index, increase and then average wages. What will be the impact if that decreases? What will be the knock-on effect for the non-contributory State pension as well? We are talking about a minimum protection for both, particularly for the non-contributory pension.

Is there any room for discussion for the 520 contributions threshold? We get calls on that quite frequently. People are unsure if they will be included in the TCA 2012 and we would welcome clarity on that. Regardless of whether 30 years or 40 years is decided in the consultation process, we would like to flag that a clear transitional timeline needs to be put into effect to allow people to acquire voluntary contributions and to make appropriate plans for the future as well. We are looking within two years for that to come into effect.

On auto-enrolment, €20,000 was mentioned as a base figure for opting into the system. For those who may be underneath that income threshold but may wish to avail of auto-enrolment, will it be possible for them or can they expect a State contribution for that? We would welcome more clarity on this.

We have talked about risk management and the State’s role in regulating this area. The more certainty and regulation that people can have for these schemes, the better.

On the extension of the age, for example, France recognises the age people start work. It was stated some measure may need to be looked at around facilitating part-time workers. Should we be requiring full-time availability for work in those later years or have a measure such as jobseeker’s transitional where the requirement is waived to facilitate part-time working attachment?

Mr. Tim Duggan

Colleagues from Age Action referred to Q1 average earnings figures for this year and how the SPC State pension (contributory) is €16 of that back. We would never try to index link on the basis of a quarterly return. That would be dangerous because one could end up in a situation where earnings come down. Any index linking system we devise must have a period of time in it, as well as number of elements and smoothing effects. Accordingly, it is not as simple as taking one quarter of earnings and comparing it to the State pension. It will be significantly more sophisticated than that. That is why it requires a degree of study and so forth.

Eligibility for SPC is set at 520 contributions. That has been the case since legislation was introduced in 1997. There is no change to that, even with this interim measure to deal with the 2012 rate line changes. There is no proposal to do that either. It has to be remembered that there was a period of 20 years when those numbers of contributions changed upwards over time. That was to reflect the fact that more people were in the system for much longer and that the number availing of it was increasing apace. That is fairly typical across the spectrum of EU countries.

Auto-enrolment for those earning under €20,000 is being actively looked at. We set out in the reform plan, by way of example, that €20,000 could be the floor. If something like that were to emerge, then those who earn less than that would be allowed to opt into the system. Accordingly, it would be the opposite of those over €20,000 who can only opt out. No decision has been made as Mr. Nicholson said. It is under active consideration. When the straw-man document is published, we will be seeking the definitive views of people on how we should deal with earnings of less than €20,000. We are conscious of how someone earning under €20,000 can afford to put some of their income towards a long-term savings package. At the same time, why should such people be denied an opportunity to get the employer contribution and the State incentives that will accrue from that as well? Accordingly, we want to make this as available to people on their own terms as we possibly can.

There is no doubt that a system like automatic enrolment where people will be compelled legislatively to enrol - they will be able to opt out - will require significant regulation, regardless of the model which ends up being chosen to provide for it. There will undoubtedly have to be a significant regulatory vehicle underpinning it. That is also one of the measures which will be part of the design of the system as we take it forward. One of the elements of that will be reflected in the straw-man document when we publish it.

Ms Corona Joyce

On the part-time work issue, most of the research indicates that part-time working is positive for older workers. It reflects their choice and, perhaps, their individual circumstances. We would welcome further investigation in this regard, particularly in the context of full labour market participation.

Mr. Gerard Scully

I am confused. My understanding is that 260 was the benchmark in 2012, but that changed.

Mr. Tim Duggan

No. It was 520.

It increased to 520 in 2012. There was a three-stage increase which brought it to 520 in 2012.

Mr. Gerard Scully

There are people without 520 contributions, which means they will not be eligible under the T12 proposal.

Mr. Tim Duggan

They are not eligible under the current system. The eligibility has not changed. It remains the same as it was when those people came into pension.

Mr. Gerard Scully

I am receiving calls from people who say they were told they would get a pension with fewer than 520 contributions. They were told that in 2012.

There were changes to the bands in 2012, in particular the shift to 520 contributions, which raised concerns. There were people who in 2010 believed they would be accessing at least a minimal pension or would be somewhere on the pension bands who, following the shift to 520 in 2012, had fallen out of the system.

Mr. Gerard Scully

Yes.

I think the point Mr. Scully is making is that there are people who still have concerns and that while some of the 2012 concerns have been addressed, this one has not.

Mr. Tim Duggan

It is a contributory system. The State already has an income support for people who fall out of the band and have an income need. There is a non-contributory pension for people who have an income need but do not have sufficient contributions to get on the contributory pension ladder. It is a two-tier system that we have developed for the State pension such that income need is always dealt with regardless of the particular circumstances or contingencies that people have to deal with.

I thank Ms. McDonald, Mr. Duggan, Mr. Nicholson, Ms Joyce and Mr. Scully for their attendance today. I also thank Mr. Duggan for his clarity on the 30 and 40 years issue which, because of the temporary arrangement in respect of those impacted by the 2012 rate band changes, became the talking point for a total contributions system. That clarity is important.

The joint committee adjourned at 12.45 p.m. until 10.30 a.m. on Thursday, 28 June 2018.