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Tuesday, 14 Feb 2006

Pension Provisions: Presentation.

I welcome the delegation from the Department of Social and Family Affairs: Ms Anne Vaughan, principal officer in the pensions division, who has come before the committee on a number of occasions; Mr. Paul Cunningham and Mr. Dan Kavanagh, assistant principal officers. I understand Ms Mary Kennedy is unavailable because she is attending another meeting.

Before Ms Vaughan commences the presentation, I remind members of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable. Members who wish to make a declaration in regard to any matter being discussed may do so now or at the beginning of their contributions. Members are also reminded that if there is a possibility of a conflict of interest, they should make a declaration of interest now or at the start of their contributions. I draw witnesses' attention to the fact that members of the committee have absolute privilege but the same privilege does not apply to witnesses appearing before the committee. While it is generally accepted that witnesses have qualified privilege, the committee is not in a position to guarantee any level of privilege to witnesses appearing before it. I invite Ms Vaughan to lead the presentation on behalf of the Department.

Ms Anne Vaughan

: There are two aspects to the written submission which I have circulated to members. First, there is the general question of modified social insurance and the role it plays in regard to social welfare pensions. The second issue relates to the insurability of the RTE workers in question and how their social insurance status was established. I propose to deal with the general question first before discussing the specific issue of the insurability of RTE workers.

The unified system of social insurance was introduced in 1953 and eligibility to contribute was based on income. In 1953 the income limit was the equivalent of €761 per annum and this was increased during the years until the limit was finally abolished in 1974. Some categories such as the self-employed and part-time workers were excluded from social insurance.

Not everyone was insured at full rates with some, mostly public sector workers, contributing at modified rates. The rationale underlying the notion of modified social insurance was that the pension and sick pay arrangements available to those workers were such that they did not require such cover under the social welfare system. The workers in question included civil servants, gardaí, Army officers, teachers, higher education staff, local authority and health board officers and staff of certain semi-State bodies, including the ESB, RTE, An Post and Telecom Éireann.

The detail of the modified rates of social insurance is contained in regulations which provide that where employment is under a public authority, the person is employed in a permanent and pensionable capacity and the terms and conditions of his or her employment provide for payments during illness on a basis considered adequate by the Minister, the rate of social insurance can be modified. While there is no legal definition of a public authority, decisions are based on legal precedent.

At the end of 2003 there were approximately 133,000 persons insured at modified rates, including almost 99,000 paying class D contributions. While public sector employees recruited after 1995 are now subject to full class A insurance, modified insurance rates are still an important part of the social insurance system. The pension entitlements of those recruited after 1995 are integrated with the social welfare pension, a common practice in most defined benefit pension schemes in both the public and private sectors. This means the occupational pension and the social welfare pension are combined to give, for example, a civil servant with 40 years' service a total pension of 50% of salary plus a lump sum.

In order to qualify for a standard contributory pension, a person must satisfy a number of basic qualifying conditions. He or she must enter insurance ten years before reaching pension age; pay a minimum of 260 contributions, which figure will be increased to 520 in 2012; and achieve a yearly average of at least ten contributions, paid or credited, from the first time they enter insurance until they reach pension age. An average of 48 contributions are required for a full pension.

We also have what are known as pro rata pensions which are designed to cater for those with a mixture of social insurance contributions made at different rates or from other countries. Generally, the standard contribution conditions must be satisfied but the pension payable is related to the proportion of full-rate contributions contained in the overall record. There is a minimum level of full-rate insurance contributions which must have been paid. At least 260 full-rate contributions must have been paid or credited since 1953, or at least 208 full-rate contributions must have been paid since that year. In addition, we operate the pre-1953 pension and the special pension for the self-employed, both of which are based on the payment of 260 contributions. In regard to the former, the contribution condition can be satisfied by a combination of pre and post-1953 contributions. The range of pensions available is sufficient to cater for most eventualities having regard to the need to uphold the contributory principle which underpins entitlement.

The RTE Pensioners' Association has suggested we should amend the qualifying conditions for pensions to take account of modified insurance contributions. It has asked that for every four modified contributions a person makes, he or she should be credited with one full-rate contribution. In approximate terms, this would qualify a person with 40 years service at modified rates of social insurance for a 50% pension which, after budget 2006, is €96.50 per week. I understand there are some 680 RTE pensioners. Assuming they all qualified for the pension and making allowances for qualified adult payments, the estimated cost could be approximately €4.2 million per annum.

As I mentioned, the RTE pensioners are part of a much wider group comprising those who were and still are insured at modified rates. At the end of 2003 there were approximately 133,000 insured at such rates. I understand from the Department of Finance that in 2005 there were some 88,000 pensioners receiving payments from public service pension schemes covering civil servants, local authority staff, the education sector and so on. The majority of this group are likely to be in the insurance category under review.

In the absence of more detail on existing public service pensioners and a profile of existing modified contributors, it would be difficult to cost a pension with any degree of certainty. However, assuming that two thirds of existing public service pensioners qualified for the scheme suggested by the RTE Pensioners' Association, the cost could be of the order of €360 million per annum, not including pensioners in the commercial State sector. These are approximate estimates but they give a good indication of the impact the suggestion might have and the numbers involved. Given the level of modified insurance within the PRSI system, unlike the pre-1953 pension such a scheme would represent a significant ongoing overhead on a pensions system that is already facing large increases in costs in the years ahead as a result of demographic changes.

The suggestion in the RTE Pensioners' Association's submission that class D insurance should be abolished needs to be considered in the overall context of the insurability of existing employees in the public sector generally. Any such decision would be a matter for the Minister for Finance as well as the Minister for Social and Family Affairs and, as I stated earlier, such a move would raise significant industrial relations issues. Furthermore, it would not be possible to allow employees to opt in or out of class A from class D or other insurance classes, as was also suggested, because that would be contrary to the contributory and solidarity principles that underpin the social insurance system. If, for the sake of argument, extending class A to existing public servants were to be considered, consideration would also need to be given both to whether the existing pension entitlement would be "co-ordinated" and to the impact that higher rates of PRSI payments would have. In summary, we believe that the proposal has been debated thoroughly in previous years and would have huge consequences.

I will now deal with the issue of the insurability of the former RTE workers from the 1960s who made a submission to the committee some while ago — they also had a meeting with me and my colleagues in the Department — and who have been represented by the RTE Pensioners' Association. The issues raised about what happened in this area in the 1960s have been used by the association to support the case for changes to the qualifying conditions for contributory pensions. Having examined in detail the Department's files for that period on foot of the issues raised, we can say the following is the position in so far as we can establish it from our files.

RTE was established in 1960 under the Broadcasting Act 1960 to operate the national sound broadcasting service and to set up and operate a national television service. From an examination of the Department's files, we understand that the staff of RTE at the time comprised civil servants formerly employed by the Department of Posts and Telegraphs. Some of these staff were established staff who were permanent and pensionable and some were unestablished. The established staff cadre was composed of general civil service grades and Department of Posts and Telegraph grades including engineers, technicians and doorkeepers. The unestablished staff comprised the general body of programme staff, actors, musicians, journalists, producers and so on.

Shortly after the setting up of the new authority in 1960, a staff superannuation scheme was brought into operation. At the time the new authority, Raidio Éireann, wrote to the scope section of the Department of Social Welfare — the scope section is the name of the section that deals with insurability issues — seeking clarification as to the insurability of its staff. The staff were divided into three categories. The first category comprised existing established staff who were transferred. They were required to join Raidio Éireann's new superannuation scheme and, in effect, they became permanent and pensionable. Their sick pay conditions remained the same as those obtaining in the Civil Service. The second category comprised unestablished staff who were offered the same sick pay conditions as those obtaining in the Civil Service. They were eligible to become members of the staff superannuation scheme. In its letter to the Department, the authority stated that it believed most of those unestablished staff would join the scheme. The third category comprised new recruits, who were required to serve a short qualifying period not exceeding 12 months, after which they would be required to enter the superannuation scheme. Such recruits would then graduate to full Civil Service sick pay conditions after three years service.

On receipt of the request for clarification of the insurance classification of these three groups, the Department's scope section first sought legal advice as to whether Raidio Éireann, as set up under the Broadcasting Act 1960, was a public authority for the purposes of the modification legislation and regulations in place at the time. The legal adviser confirmed that RTE was a public authority for social welfare purposes and, based on the legal advice received, scope section advised Raidio Éireann that, subject to the remuneration limit in place at the time for non-manual workers, the following was the position. First, contributions at the special rates — now class D — were payable in respect of established civil servants who relinquished their Civil Service status and took up employment with Raidio Éireann in a permanent and pensionable capacity and who were entitled to the prescribed sick pay conditions. Second, special rate contributions would also be payable in respect of unestablished employees who opted to become members of the staff superannuation scheme from the date on which they acquired permanent and pensionable status and became entitled to the prescribed sick pay conditions. The third group, which comprised unestablished staff members transferred to the authority when it was established who opted not to join the superannuation scheme, were insurable at the ordinary contribution rate, which we now know as class A. Finally, the ordinary rate also applied to new entrants from their date of entry up to the end of their third year of service, whereafter the special rate of contributions applied, subject to the usual conditions that such staff must be permanent and pensionable and have adequate sick pay conditions in the event of absence through illness.

From the files available to the Department, it appears there was no other contact between the scope section and Raidio Éireann or Raidio Telefís Éireann until 1970, when an inspection by the Department's investigation branch discovered that the authority had made changes to the superannuation scheme for its staff. The RTE document outlined that one of the new superannuation conditions was as follows: "The employee must join the Superannuation Scheme and pay contributions as from the first day of service". This change abolished the lead-in time for full membership of the superannuation scheme and made it effective from the first day of service. The chief inspector of the Department submitted this new situation to scope section to establish what effect it had on the insurability of new entrants. Scope section ruled that the special rate of contribution was payable in respect of each permanent and pensionable employee on the first day of service, again subject to the usual sick pay and remuneration conditions. This change came into effect on 5 January 1970.

In effect the change was not particularly significant, in that new entrants paid the ordinary rate of contribution for the first three years of their employment between 1961 and 1969 and the special rate thereafter. From 1970 onwards, new entrants paid the special rate from the first day of their employment. The pre-1970 new entrants had a maximum of only three years on the ordinary rate before they were transferred automatically to the special rate.

On the basis of the files examined, the Department is of the view that the insurability of RTE employees throughout the 1960s and 1970s was in accordance with the legislation of the time and was decided on in consultation with the then Department of Social Welfare. Apart from the decision in 1970 to admit new staff to the superannuation scheme from the day they started employment, no changes took place that affected the social insurance status of RTE staff at that time. As I said, the effect of the change was to delay entry to modified insurance for three years.

Clearly, the proposal that four modified insurance contributions should count as one full-rate contribution towards entitlement to contributory pensions could have widespread and costly implications. Modified insurance has played an important role in social insurance and it will continue to do so for the next 30 or more years. Therefore, the proposal cannot be equated with measures such as the pre-1953 pension which, although costly, has a limited application in both coverage and time.

On the general issue of insurability, I can assure committee members that it is open to any worker from RTE or elsewhere to write to the Department's scope section at any time to seek a determination of his or her historic or present insurability records. If people feel that they have been insured at the wrong rate, they can always write to us for a determination of their case. In my meeting that I mentioned earlier with the two representatives of the pensioner group, without going into individual details we went through the records to check that people were receiving their entitlements. It would appear that our records tie in with the historical files. If members think we are missing something, we are quite happy to take another look at it.

I welcome Ms Vaughan, Mr. Cunningham and Mr. Kavanagh to the committee. Pensions are an extremely complicated area. I commend Ms Vaughan on the booklet, Pensions Made Simple, the friendly guide to pensions. It appeared that the RTE Pensioners' Association raised a major issue across the public service, which Ms Vaughan alluded to in her presentation. It was suggested in her presentation that assuming that two thirds of existing public service pensioners qualified for the scheme suggested by the RTE Pensioners' Association, the cost could be of the order of €360 million per annum, not including pensioners in the commercial State sector. Is it correct to say that these people pay a class D contribution?

Ms Vaughan

They could pay a class B, C or D modified social insurance contribution.

In the main, we are examining class D contributions. When people pay a class D contribution, what benefits do they enjoy?

With the permission of the Chair, it would be helpful if we were to discuss the issue back and forth.

Ms Vaughan

I will come back to the Deputy on that point.

In their submission, the RTE Pensioners' Association stated that at the time of the changeover in 1997, the staff were not told about the consequences of the change and since then members have limited eligibility to general social welfare benefits, such as the optical and dental benefit, and have virtually no pension rights. I would be interested to know what return they get. Let us take an example of a person working for 40 years. How much does he or she pay annually for his or her class D contribution and where does that money go? I would appreciate if Ms Vaughan could answer those questions now.

Ms Vaughan

There are slight differences between class B, C and D, which are all modified social insurance contributions. I am giving the current entitlements for those paying the class D contributions, as some of the schemes were not in place in the past. Class D contributions would provide cover for widow's or widower's contributory pensions, orphan's contributory allowance, occupational injuries benefit, bereavement grant and carer's benefit. The pensioners in question at the time would have had entitlement to widow's and orphan's and occupational injuries benefit. Had he died, his wife would have benefited. The scheme was later extended to widowers.

However, if the person retired, he or she would get nothing back.

Ms Vaughan

A person would not always want to get something back because in the case of widows, somebody has to die.

My question refers to the benefit paid to a person who retired.

Ms Vaughan

The scope of the contribution covers particular contingencies. The Deputy is correct that if they reached the age of 65 or 66 years and those contingencies had not arisen, that was the end of it. This hinges on what the Department took into consideration at the time. To be in a modified class, one must have adequate occupational benefits. For example, my colleagues and I pay modified social insurance contributions because we all entered the service before 1995. The view was that the occupational arrangements were sufficient to give cover in the event of contingencies. The issue gave rise to debate which led to the extension of social insurance to all new entrants. In previous correspondence with the committee, the then Minister, Deputy Mary Coughlan, outlined the fact that different reports had recommended that full insurance should be extended to new entrants or to everybody and this was an issue for industrial relations from 1995. There was certainly a change of policy from 1995, but the argument at the time was that the occupational arrangements——

Do the moneys collected from modified social insurance contributions go into the social insurance fund?

Ms Vaughan


Is it correct to say that the fund has a surplus running into €2 billion or €3 billion?

Ms Vaughan

I am not sure what the figure is, but there is certainly a surplus at present. I can come back to the Deputy on that.

: It is very large, I think the figure is in the billions.

Ms Vaughan

It is large, but we have to consider the future. As benefits increase in value and the numbers increase, the surplus will be run off.

Apart from the contingencies that Ms Vaughan mentioned which hinge on death or carer's benefit, it appears there is no benefit to the individual from making class D contributions. In fact, it is nothing more than another tax.

Ms Vaughan

I do not think the spouse or orphans of a person who had been making class D contributions would agree with the Deputy.

I said that apart from those benefits——

Ms Vaughan

I am sorry, Deputy. The rate of contribution is reduced.

How much is collected overall per annum in class D contributions?

Ms Vaughan

I do not have that information to hand and I am not sure if we know the specific figure. We probably allocate it. I will see if I can get that information.

The social insurance fund is in the billions and growing at a significant rate and people making class D contributions receive no benefit whatsoever except in the event of bereavement. It appears that a class D contribution is nothing more than another form of taxation. At the time of the changeover, people were not told of the consequences of the changeover and had no choice. Obviously changes have been made since then and perhaps the Minister should look at this again.

If the change which the RTE Pensioners' Association suggested was made, in other words, for every four modified contributions a person makes, he or she should be credited with one full-rate contribution, what benefits would accrue to those who changed from class D to class A?

Ms Vaughan

In our submission we suggest that if a person made contributions for 40 years at the modified rate and then got one full-rate contribution for every four modified contributions, the person would qualify for a 50% pension, which is approximately €96 per week.

This would be in addition to his or her occupational pension.

Ms Vaughan

Yes. This is where the issue gets confused. This period is confusing because it happened that RTE was set up in 1960 and that this was when contributory pensions were introduced. It happened that we had an insurability limit for non-manual workers until 1974. One can see when one looks back that we were trying to get more and more people into social insurance. I am sure we have discussed before that people went over the insurable limit and went out of insurance and the question of whether they realised this had happened or whether they could have become voluntary contributors. Perhaps they could not afford it and there were short-term versus long-term considerations. When a person reaches pension age, it becomes apparent that he or she may not have realised or may not have been told that he or she could have become a voluntary contributor. The position is difficult for certain individuals on reaching pension age. With regard to the two cases examined by the Department, we checked the records, etc. In respect of the Deputy's comments regarding class D contributions, there was a change of policy in 1995 and new entrants were brought in. A new view was taken, which, at the time, had both advantages and disadvantages.

The figure of €300 million referred to by Ms Vaughan would not have continued indefinitely because the number of people is fixed and would move along.

Ms Vaughan

It would but it would also have a very long tail.

I am concerned that there are no optical or dental benefits. These benefits become very important, in terms of offsetting expenses incurred, when people reach a certain age. What would be the typical pension for someone working in RTE who is covered by the scheme?

Ms Vaughan

I do not know. I am aware of the particular cases we examined but I do not wish to discuss them in detail.

Ms Vaughan

Like any other occupational pension, it would depend on the level. I understand that up to the mid-1980s, it was a defined benefit arrangement. Under this arrangement, a person is promised 50% of his or her salary. I expect that this would be the typical pension.

It is stated in the note that, since 1995, while new entrants pay full social insurance and receive full pensions, the latter are integrated with their occupational pensions, so the promise is the same but the make-up of the promise is different. People at or around pension age in RTE have full pensions. It is not integrated so there would be a considerable amount of ravelling and unravelling if one was to attempt to go back.

I agree that this does not just cover RTE workers. It covers a wide number of workers, particularly those in the Health Service Executive and the self-employed. Ms Vaughan stated that it would also cover widows and orphans. If one takes the example of a person who retires from the Health Service Executive or RTE and dies five years later, is the surviving spouse entitled to a pension? Where does it start and stop? I know it began when the person was young but, at that level, where does it start?

Ms Vaughan

If the person has an entitlement to a widow's or orphan's pension, he or she will receive it.

Will he or she receive it regardless of his or her age? Would he or she receive it if his or her spouse was 80 years of age when he or she died?

Ms Vaughan

Yes, the person will qualify if the contribution conditions are met.

That is interesting.

Ms Vaughan

My next point will be of use to members in their clinics. Many people think they might not be entitled to social welfare pensions because their husbands were civil servants with pensions and, therefore, they might not apply. There have been cases where people simply did not know that they were entitled to social welfare pensions.

I think that is the case. Quite a number of people would not be aware of their entitlement. With regard to the current ten-year rule for the self-employed, how many years would a self-employed person need in order to obtain a part pension?

Ms Vaughan

A self-employed person must have been a member for ten years. This will entitle him or her to some level of pension. The difficulty arises for self-employed people who had less than ten years to run when we introduced the new rules for the self-employed in 1988. We refund the pension contributions.

Mr. Paul Cunningham

That particular group, whose members were over 56 when insurance was introduced in 1988, can qualify for a half-rate pension based on five years' worth of contributions.

Is this five years?

Mr. Cunningham


Must they have entered in 1988?

Mr. Cunningham


Am I correct in stating that if they did not enter in 1988, the following five years do not serve to qualify them?

Mr. Cunningham


I welcome Ms Vaughan, Mr. Cunningham and Mr. Kavanagh. No wonder we say that pensions are confusing. They are more confusing for people who reach retirement age and assume that they have been paying into a pension fund all their lives. Unfortunately, as a result of the general confusion surrounding pensions, people do not become aware of their entitlements until they retire and discover that they will not receive the type of pension they expected.

Ms Vaughan and Mr. Cunningham previously came before the committee in connection with pensions. We want to ensure that our pensioners will have adequate pensions on which to live and that they will not live on or below the poverty line when they reach retirement age. We are failing many of our pensioners in this regard. There are anomalies, such as that we are discussing, because of the way in which systems were set up. It took a number of years to get the system right and to ensure that when someone retires, he or she will receive an adequate pension.

Given the current set-up and our knowledge that arrangements were not made to provide people with adequate pensions, we can be big enough and can afford to recognise existing anomalies. The delegation provided us with information about how much it might cost to correct or address this issue. I understand the figure mentioned is over €4 million.

Tax relief for very wealthy people, which the State foregoes, was recently discussed by the committee but we were unable to obtain a number of answers. I thank Ms Vaughan for her letter responding to some questions I raised. It is staggering that wealthy individuals can walk away with tax-free lump sums amounting to as much as €25 million. I am glad the Minister of Finance tackled this matter in the budget. Large savings will be made. Instead of providing this tax-free pot for wealthy people, we should divert some of this money to poor pensioners who worked in this country when times were very tough. These people helped rear and educate the children who are now contributing to the Celtic tiger. Many people, apart from RTE workers, are in this situation. However, their circumstances may differ because the issue is so confusing in light of the different systems in place. We must address this issue and deliver the small amount of money that would address these problems and provide the people to whom I refer with the 100% pensions they should receive when they retire at 65.

We are talking about putting aside a considerable amount of money on an annual basis to provide for future pensions but we must provide for current pensioners. We do not hear much discussion about this issue. These workers are among the people to whom I refer. We have a classic example. I would like Ms Vaughan to explain to me again how much it would cost and how many would be involved in order that we could address this anomaly. If one recognises one group which has fallen outside the net, others will come to light. They must be addressed. For too long our pension system has favoured the well-off, those who are capable, as we know and have known for a long time, of providing for their retirement. Those on low wages who have worked hard all their lives must be addressed. I would like to have received this report earlier and had time to receive advice on it because I find it difficult to understand all the different systems.

We are addressing only one aspect. I will not allow a wide debate on pensions.

It is relevant that we put it in context. I would appreciate Ms Vaughan's response.

Ms Vaughan

There are a number of issues and for a variety of reasons I cannot address some of them. I understand the comments on tax relief and how we support second pillar pensions through tax enhancements. These border on policy issues and will be debated with the Minister in debate on the Finance Bill. Another issue concerns PRSI classes. I understand the focus but it has been raised to a more general issue.

Policy and the view of social insurance have changed. At the time if one was in class B, C or D, if one had modified insurance, as I have, it was thought one's occupational pension arrangements were adequate and one did not need to avail of the social welfare system. The fact that one is in class D does not mean one is inadequately supported. I am citing that as a general example because I do not want to get into individual circumstances or records. If one was in class D, B or C all one's life, it was said one's occupational pension arrangements were adequate. Whether one feels they are is another day's work, but the view was that one did not require a social welfare pension. The issue is why we have different classes.

The question as to whether full social insurance should be extended has been revisited time and again with various reports and much debate. Deputy Stanton correctly says that, particularly for people early in their careers in classes B, C and D, there can be a lacuna in optical and dental and, possibly, invalidity benefits. On the other hand, the argument was that as a civil servant would never be made unemployed, there were swings and roundabouts. This debate on PRSI, where we have come from and how we arrived here is separate from the debate on how we support second pillar pensions through tax enhancements, although they are related to the extent that overall, as the Deputy said, we are trying to provide an adequate and earnings-related pension.

When I previously appeared before the committee, a number of people presented on various pension issues and we discussed the first, second and third pillars. Leaving the second pillar aside, I do not accept that the PRSI system which has modified rates is inadequate. The rates were modified because the occupational pension arrangements were deemed to be sufficient. A person who has switched between full and modified rate contributions and who meets the minimum requirements will receive a mixed insurance pension. During the years we have tried to address the issue of asking people with mixed insurance, those who went over the insurable limit and did not know or who knew but did nothing about it by asking them to pay voluntary contributions. We have tried to fill the gaps. That is the historical position.

For the future we have extended social insurance to the self-employed, part-time workers and new public servants, all trying to ensure that in future those in the social insurance system who have a reasonable record will receive adequate pensions when they retire at age 65 or 66 years. Class D is not a bad arrangement.

What about the optical, medical and dental provisions? They seem to be the major issues.

Let me ask Ms Vaughan about point No. 16 in which she says the RTE Pensioners Association suggested in a submission that class D insurance be abolished. She goes on to say that this is a matter for the Ministers for Finance and Social and Family Affairs. If it were to be abolished, what impact would it have on those in class A?

Ms Vaughan

At one level it would have no impact because those in class A cannot do any better. I interpret the RTE pensioners to be talking about abolishing class D for existing contributors and making them fully insured. If — it is a big "if" — that happened more would qualify for full rate social welfare pensions and there would be a greater claim on the social welfare pie. That might have an impact on existing recipients. Perhaps the paragraph does not explain it well. One can see how the social welfare scheme developed during the years. Originally it was seen that one would have social insurance only if one was, in old terminology, a manual worker. The insurable limit over which one fell out of the social insurance net only applied for non-manual workers. There was a distinction that some needed to be looked after, while others could look after themselves. As the system developed, it was seen that more needed to be brought in, for example, part-time workers and the self-employed. These are obvious categories which were not included in the social insurance scheme.

The position regarding class D contributions is different. People with modified arrangements were deemed to have adequate work arrangements. One can understand why because they were public sector workers, with good occupational arrangements.

Various reports in the 1970s and 1980s, including those compiled by the Commission on Social Welfare, the National Pensions Board and so on, took different views on whether full social insurance cover should be extended to public servants in the future. I was involved in drawing up some of these reports. The argument revolved around whether public servants would ever be made redundant and the fact that their sick pay arrangements were adequate to cover any periods of illness they might suffer.

Deputy Stanton referred to optical and dental cover. These are immediate tangible benefits because people do not have to wait until they reach pension age to claim them. There was also the question of someone who might become permanently incapacitated and be obliged to leave employment early. There was a major debate over a number of years among my Department, the Department of Finance and the social partners. It was eventually agreed that, from a certain date, all new entrants should have social insurance cover. That was where the debate ended.

One can see the argument from both angles. The solution in many situations is to change matters for new entrants. Since 1995, arrangements for new entrants to the public service and Civil Service have been very different from those relating to pre-1995 entrants. These people will receive full social insurance pensions, which will be integrated with their public service pensions. They will not receive one on top of the other, otherwise there would be an argument to the effect that they would be over-pensioned. They pay more in social insurance but I do not want to go into the matter because I do not have the details at my disposal. The arrangements changed also in regard to their salaries. The arrangements for these employees are different. They pay in differently, their benefit entitlements are different and their occupational entitlements are different. If this arrangement was introduced retrospectively for everyone, including me, we would spend our time ravelling and unravelling occupational arrangements.

What would be the position of someone like me who entered the workforce in a self-employed capacity in 1986, entered the PAYE sector in 1990 and was elected to the Houses in 1992? Do Deputies make class D contributions?

Ms Vaughan

The short answer is that I do not know.

I am surprised Ms Vaughan does not know what applies in respect of Deputies and Senators.

Ms Vaughan

We can check the position.

I was a D1 contributor in 1986 when I was self-employed. I am also a barrister, which must be taken into consideration. Am I a dual contributor? I now pay PAYE. I am self-employed as a barrister and the Department of Social and Family Affairs collects money from me. I am paying two or three times and I also pay into a pension fund. Whoever collects my entitlements will be very wealthy.

The Deputy will be in the clover in another few years.

I would like to know why am I paying all these contributions because it appears I will not be allowed to collect anything on foot of my class D contributions. Are my other contributions synchronised with my PAYE contributions?

The second issue I wish to raise relates to the people such as my uncles who built this country and who later emigrated to England. The pre-1953 provisions gave them some degree of recognition, even though the British authorities seized upon it immediately and reduced their benefits in England. On a net basis, it is not worth as much to Irish people abroad as is portrayed. The DHSS contacted the then Department of Social Welfare here to secure the information required to ensure that people were not gaining significant benefits. The dual cross-transfer system made this easy. These people were very happy to benefit from the pre-1953 provision because many of them left Ireland on one-way tickets and never returned. Those who did return were not given a great welcome back by their compatriots.

Many of these people become very angry about a particular aspect. When those who left post-1953 — perhaps in the early 1960s — return to this country, the first issue with which they must deal for pension purposes is averaging. These people are immediately placed in the reduced pension zone. Let us be clear about it. Many of these individuals worked on the lump in England and did not have pension contributions. If they were away from 1965 to 1985 or 1990 and returned and paid a few stamps from then until 1998, the 40-year rule applies and averaging comes into play. These people are damned altogether if they made a contribution in 1953 or 1954, because the 40 years from 1954 to 1994 will drive them over the limit, which is a disgrace.

Those to whom I refer were driven out of the country. As families were decimated and football teams were wiped out overnight, let us not patronise anyone. These people, who were driven out because there was nothing for them here, were obliged to leave behind big families. Deputy Stagg's contribution in the Dáil on this matter was one of his greatest. He described what happened to the majority of families. When I brought the speech over to an uncle of mine, he said that man must have been at the station, which he was. That happened to many families and by hell are they annoyed because of the way they have been treated. We utter much gibberish to the effect that we want these people to return but when they do so, we subject them to averaging. How can these people account for the missing years? I did not want to stray into this issue but my colleague, Deputy Stagg, received correspondence on the matter today. We are very much in contact with the emigrants whom I visited last year. This point, about which they are greatly annoyed, was raised.

I am straying into a policy issue and I do not expect Ms Vaughan to comment on it. However, she can forewarn the Minister, Deputy Brennan, that when he introduces the Social Welfare Bill, the matter will be highlighted. It will be dealt with by way of an amendment. I will stand up for these people because I know what they experienced. My grandmother told me that six of her sons were put on a cattle boat to emigrate. Like so many matters in this country, our welcome back for these emigrants is hypocritical because the first thing we do is introduce the pro rata system. As Senator Terry said, it means nothing to people. These individuals would say that we bid them adieu. Now that they have returned, they would like to know if they are entitled to anything. We must remember that what they sent back home kept many families together. It ensured that people had clothes to wear for confirmations, communions and various events at a time when there was no social welfare system in this country. I know it is a policy issue, on which Ms Vaughan may not comment, but I intend to pursue it.

This issue crops up when our emigrants return and submit their old insurance record card. Many an Irishman carried this card in his wallet and could pull it out 40 years later. I have chased up the social insurance record of a number of people, because the first question they are asked is about their work record of 40 years. These people had no option but to emigrate. They were cast aside for 30 years. Now on their return they think these years should be disregarded. It is about time we dealt with their plight. Now we are bathing in wealth, but let us cast our minds back to the 1940s and 1950s. I think that period should not be part of the averaging system.

I feel very strongly about this issue. These people left as young men, at 20 years or 21 years of age, and are now over 50 years on their return. Why should those 30 years be put into the melting pot? If they worked initially and then returned and worked for a period of ten years, why should their pension not be calculated on the number of years they have worked in this country? That makes sense.

I agree with the Chairman.

This is as much a moral issue as well as an argument for equity and justice. Let me signal that this matter will not lie down. I will not leave Leinster House until I see something being done about the plight of these people. Members might be a little unlucky as I received a letter from such a man today and I only had time to skim over it when Deputy Stagg handed it to me at 2.50 p.m. I was a student when I worked with these lads and I know exactly what they went through. Times were also not easy across the water. I am forewarning the Minister for Social and Family Affairs, Deputy Brennan, that this issue will be raised at the next opportunity.

I too say well done to the Chairman for putting this across in a very eloquent way, because we all empathise with the plight of these men. I wonder why we keep harping back to 1953, which is well over 50 years ago. I am sure the Minister, Deputy Brennan will take this on board because concern for these individuals cuts across all the political parties. If these people who left for the chance of employment, had stamps from the time they lived at home, they should be able to spend their latter years in Ireland. They remained Irish citizens and that should be recognised.

I wonder why the RTE Pensioners' Association called in their submission for the abolition of class D modified insurance contribution. As was rightly pointed out, it does not interfere with other classes, class A, B, or C. The only impact it appears to have on the Exchequer through the Departments of Finance and Social and Family Affair is in respect of those paying class D contributions, because they would be out of the loop. Could the difference in percentage terms between the different classes be outlined?

Ms Vaughan

First, the rates are different. The PRSI system is possibly more complex than it should be. There is a large number of categories and different rates for both the employee and employer apply to various earnings thresholds. If the Chairman and members are happy, I will write to the committee setting out the benefits for each class.

That would be useful because members are confused about what benefits attach to the particular classes

Is thought being given to simplifying the PRSI classes? I have a page from one of the booklets which states that for class B, C, D or H, employees pay between €301 and €440, inclusive, under sub-class Bx, Cx, Dx and Hx. It is gobbledegook to the normal person.

I understand that at the time, RTE made it compulsory for people to transfer from class A to class D but Aer Lingus did not do that and allowed people to continue to pay a stamp if they chose to do so. There seemed to be a certain amount of flexibility. Perhaps Ms Vaughan might enlighten us as to how that was the case and why some semi-State companies took one route which others did not take and what was the advantage to them to do that? In the course of her submission Ms Vaughan mentioned that assuming two thirds of existing public service pensioners qualified for the scheme suggested by the RTE Pensioners' Association, the cost could be approximately €360 million per annum. Is Ms Vaughan assuming a double pension, the social insurance pension in addition to the occupational public service pension being paid? How did she arrive at the figure of €360 million per annum?

Ms Vaughan stated that the abolition of class D — I assume that means the transfer to class A — would have significant issues in the industrial relations area and I ask her to expand on that. It was stated that it would be contrary to the contributory and solidarity principles which underpin the social insurance scheme. I can understand the argument for the contributory aspect, but will Ms Vaughan expand on the issue of solidarity?

If the issue of extending class A to existing public servants were to be considered, then the question of whether existing pension entitlements would be co-ordinated would have to be considered as would the impact of higher rates of PRSI payments. Is Ms Vaughan suggesting that active members would pay the higher PRSI and it would not affect retired members? Originally, class D was known as the widows and orphans stamp. According to the association, the consequences of the change were not explained, which is not something that would happen today. Nowadays, people would certainly be told what a change meant. I am interested to hear about the double pension and how the figure of €380 million was arrived at.

Ms Vaughan

I will deal with some of the queries before asking my colleague to deal with the RTE issue. It is assumed that the cost is a gross cost on top of the existing pension. If all the class D contributors qualified for a full pension, it would cost €380 million. We are not integrating or co-ordinating it in any way.

It would be a double pension.

Ms Vaughan

Yes, it would, which links back to what I was saying.

If it were integrated, would there be any cost?

Ms Vaughan

Depending on the detail, there would still be a cost to the Exchequer. When we refer to integrated pensions, we are talking about defined benefits. As a civil servant, the promise is that my pension will constitute 50% of my pensionable salary. If that were integrated, the promise would be that I would get a pension worth 50% of my salary, but made up of the social welfare and occupational pension. While one might argue that from my point of view it is all State money, things are different in a private sector arrangement. I accept that there are issues of co-ordination to consider.

In referring to the contributory and solidarity principles of social insurance, "contributory" implies that one pays in and gets something out. Rather than make a payment linked to the level of pension one will receive, one's contribution is related to one's income, subject to thresholds and ceilings. It is a flat-rate payment, which includes a solidarity or redistributive element. A person with a higher income pays in more, but receives the same as someone on a lower income. The redistributive element relates to social insurance and is not something one typically finds in strict private insurance. If I want to obtain life insurance, the level of premium will relate to my sex, age and medical history, which is an actuarial focus. The issue in question was of major significance from an industrial relations perspective for many years but after much discussion a decision was eventually reached. Like all issues on which a decision has been made, there will continue to be questions at the edges which remain to be addressed. I will certainly relay the debate here, especially the Chairman's comments, to the Minister.

The Chairman asked about contributions at full-rate, self-employed rate and other levels, but I do not know what the arrangements for Members of the Oireachtas are. Leaving that aside, all contributions, be they class A or S, include a pension element. For pension purposes, self-employed persons and employees are taken together and count towards a contributory pension. When we brought the self-employed category of class S persons into insurance, it was mainly with a view to providing the old age contributory pensions. They are in for a number of other benefits, including widow's and orphan's payments, but the contributory pension is the main one. I am sure the Chairman remembers the debate.

Ms Vaughan

The issue was that many self-employed persons did not take care of themselves from a pensions point of view and were qualifying for non-contributory, means-tested pensions, with the issues that raised. After a great deal of debate, they were brought into the contributory scheme. All the contributions are added up and count towards the pension. The Department has a great deal of sympathy for people who are caught by a contribution early in their careers and I take the Chairman's point on that. However, if a person is insured in another member state or state with which we have a reciprocal agreement, the insurance in that country counts.

I know all about that.

I would be grateful if Ms Vaughan could let us have the percentages. What is the difference in percentage terms in RTE's own schemes between the contributions to social insurance in class A and class D?

Ms Vaughan

I can give the Senator the social insurance rates in class A and D.

Is that as they apply to the RTE schemes?

Ms Vaughan

I am not familiar with the detail of the actual RTE occupational pension and cannot say whether it is contributory or non-contributory. I am aware that changes were made in the nature of it in recent times. I would like to be able to confirm the percentages in the letter. Employees in the class A insurance scheme, which includes levies, pay 6% of their earnings subject to certain thresholds and floors. Employees in class D pay 2.9%.

What is the class S contribution?

Ms Vaughan

I am not sure about class S but can check.

By the sound of things, I should have another pension when I leave this place. I am very glad Ms Vaughan attended.

Ms Vaughan

Perhaps we will check the Chairman's record.

As Senator Terry has eloquently explained, many of us do not know what we have. We are so busy that we never devote any thought to ourselves.

I read somewhere that one had to trade four class D contributions for one class A.

Ms Vaughan

To answer the Chairman's question, the self-employed contribution, class S, is 3% of earnings. Alternatively there is a minimum contribution, although none of this is straightforward. The one-for-four trade relates to the RTE schemes. Employees in RTE have contributions at class D and for every four of those they propose we award them a class A contribution.

For 40 class D contributions, they would receive ten class A contributions.

Ms Vaughan

Yes. That is what I was saying at paragraph 11. A person with 40 years of contributions at the modified rate would receive a 50% pension under the proposal. Deputy Stanton's point is relevant here. If we adopted the proposal, there would be certain factors to consider. There is the cost to the Exchequer and the issue of whether they would receive both pensions, which is what we are saying. Having paid in at one class because their occupational arrangements were deemed adequate for classification in category D, they get an occupational pension. They would then swap one for four and receive a social welfare pension on top of that occupational pension. From a policy perspective, that does not make sense. It would mean that someone such as I would receive a full Civil Service pension and, on top of that, a reasonable social welfare pension. While I might like that, it does not make sense. The question is how we resolve the post-1995 situation. The two pensions are integrated in order that I end up with the same promise but from two different sources.

Perhaps Ms Vaughan might clarify that point, as it is not very clear to me. If one were to do as Senator Feeney asked and exchange four modified contributions for one at class A, giving them the 50% pension, which would amount to €96 — I take on board what Ms Vaughan said on the occupational pension — could that not be done as outlined in No. 11? Could we not raise people's overall pension to the same rate as today's contributory pension?

Assuming that we do not act as the RTE workers outlined in No. 11 and in their submission, what is the average RTE pensioner getting today? I am still not clear on that.

Ms Vaughan

I do not know the details of RTE's occupational pension, and I suspect that it differs from person to person. The Senator suggests that the occupational pension be raised to the level of the contributory one. In many cases, the occupational pension will be far higher than the contributory one, which is 32% or 33% of average industrial earnings. The promise under the defined benefits scheme, if the workers were members, will have been half their personal earnings, as well as the lump sum. I know that we are discussing RTE, but I do not want to get too specific about people.

If someone such as I has a full 40 years' service in a defined benefits scheme, I will get what is promised to me, that being either half or two thirds of my pension, depending on the rules of my scheme. If, for whatever reason, my occupational pension from my employer is quite low, and I do not qualify for a contributory pension, it is always open to me to apply for a non-contributory pension subject to a means test. When the Minister attends regarding the Bill, the committee will have the opportunity to discuss the issue. We have deliberately increased the level of the non-contributory pension, since we are trying to pick it up that way. However, individual pensions will relate to the scheme of which a person was a member and his or her service, salary and grade at retirement.

A question I asked earlier, which I believe Ms Vaughan referred to Mr. Kavanagh, concerned workers in Aer Lingus. I understand that many workers in Aer Lingus were able to stay on the class A contributions. Does that mean that people who retire from Aer Lingus paying at class A received both pensions as Ms Vaughan has just described? How was it that some companies decided not to make the change or to make it voluntary while others made it compulsory?

Ms Vaughan

Before I ask Mr. Kavanagh to comment, I must point out that we do not have any information on Aer Lingus today, and I am not keen to get into it. Every authority is different, and we must respect that caveat.

Mr. Dan Kavanagh

I will return to the issue of RTE. We are dependent on correspondence that took place between our Department and Raidio Éireann, as it was then, in 1960. Any information that we have tried to provide today has been gleaned from that, and it does not appear to us that there was any compulsion regarding insurability.

Perhaps I might recap on what Ms Vaughan said in her presentation. RTE had approximately three categories of workers, the first being civil servants transferred directly from the Department of Posts and Telegraphs. They were modified and did not change. It also had what were then termed "unestablished employees" in the Department of Posts and Telegraphs. They were at the full ordinary rate. However, when they came to RTE, they were offered access to its new superannuation scheme and given the option to enter the scheme at the modified rate or remain as they were. I do not know what option most of them took at that stage. However, in its initial letter to us in 1960, RaidióÉireann stated its view that the majority would exercise the option to join the superannuation scheme.

That leaves us with a third category of worker, the new recruits. Those were people who were not in any scheme. The system was that they joined the superannuation scheme after approximately 12 months. After three years, they would gain access to the full sick-pay entitlements of other civil servants. Owing to those arrangements, the scope section of the Department of Social Welfare, in which I worked, decided that they should go on to the modified insurance after three years, making them the same in every respect as the others on modified insurance at RTE. From about 1960 onwards, any new recruits to RTE would have joined under those conditions. There was no element of compulsion on anyone on the ordinary rate to pay the modified rate. That is my understanding from having read the correspondence.

Members have mentioned other companies. To enjoy access to the modified scheme, one had to be in a public authority and, as we said in our presentation, there is no legal definition of that. However, there are legal precedents whereby it must have statutory authority, perform public or statutory duties, carry out its transactions for the benefit of the public rather than for private profit, and be an autonomous executive body exercising powers directly affecting the public in general. I do not know the situation regarding Aer Lingus, but I presume no one could say that it exercised its authority for the benefit of the public rather than for private profit. Therefore, it may not have qualified as a public authority.

I thank Ms Vaughan, Mr. Cunningham and Mr. Kavanagh for attending today. The area is very complex, and judging from the variety of Deputies' and Senators' questions and their contemplative nature, we may have to revisit the topic. We have certainly raised several issues, and we may have strayed from the agenda somewhat to raise certain questions exercising everyone's mind. The complexity can be seen by people such as we, who find it difficult to comprehend even our own status regarding pensions. However, the exchange was worthwhile, and I sincerely thank the witnesses for attending and facilitating the committee as always. They have have usefully elucidated matters for the committee and through it the general public and the RTE Pensionsers' Association, which has been in contact to air the views of its members. Certainly they have a legitimate greivance. Some of them perceive themselves to have been compulsorily transferred from one status to another and that has given rise to the greviance they have very eloquently aired to the committee and in correspondence to the Department. The committee is very grateful for the contributions of Ms Vaughan and Mr. Kavanagh.

Ms Vaughan

One issue in the note at paragraph 8 bothers me as I do not wish to mislead the committee. If there is an error in one of my paragraphs, I will correct it in my letter. While it is not a significant issue, I would like the record to be accurate. I will write to the committee in response to all of the matters members raised today.

I am not surprised the pro rata question is a problem. It is a real headache for us all.

The joint committee went into private session at 4.40 p.m. and adjourned at 4.45 p.m. until 3 p.m. on Tuesday, 21 February 2006.