The Pensions Board is grateful for the opportunity to make the presentation. Deputy Healy-Rae wrote to ask me to cover four additional points and I have included those in the following statement. The Pensions Board enjoyed a good working relationship with the last Oireachtas Joint Committee on Social and Family Affairs and we look forward to maintaining that relationship with the present committee.
In this presentation I offer a brief overview of the work of the board and outline some of the key challenges it faces over the next year. I am happy to answer any questions the committee may have or, alternatively, to come back if there are particular issues members wish discussed. As the committee will know, Ireland is facing important strategic decisions about pensions and the board is happy to assist the committee in any way.
I will begin with some facts about pensions in Ireland. Out of a workforce of 2.1 million, about 55% have some pension coverage in addition to their State pension entitlement. Total pension savings in Ireland are about €90 billion. There are about 100,000 active pension schemes with about 800,000 members. These range from a small number of schemes with more than 5,000 members to more than 75,000 schemes with just one member. In addition, more than 130,000 people contribute to personal retirement savings accounts, PRSAs which represent more than €1.25 billion in assets.
The Pensions Board was established under the provisions of the Pensions Act 1990 as a representative body and comprises a chairperson and 16 ordinary members appointed by the Minister for Social and Family Affairs. The board fulfils a number of very important roles in pension matters, including the regulation of occupational pension schemes and PRSAs, advising the Minister for Social and Family Affairs on pensions matters, both at his request and at the board's own initiative, and providing information about pensions and improving awareness of pensions through its annual awareness campaigns.
The work of the board is important to a wide range of people, including pension savers, scheme trustees and those involved with the management and administration of pensions. Through its policy role, the board makes an important contribution to the development and support of pensions in Ireland.
The board published its statement of strategy in 2006, which covers the period to 2010. This statement sets out how the board intends meeting its mission statement objectives which are: to promote the security and protection of members of occupational pension schemes and contributors to PRSAs in accordance with the Pensions Act 1990; to promote the development of efficient national pension structures; to promote a level of participation in the national pension system which enables all citizens to acquire an adequate retirement income; and to provide information and authoritative guidance to relevant parties in support of pension security, structures and participation.
To give members an understanding of the work of the board, it is useful to describe our main activities in 2007. We maintain ongoing supervision of occupational schemes and PRSAs. In that year we introduced on-the-spot fines for certain offences under the Pensions Act and also undertook a review of our supervisory priorities to ensure board resources were being used most efficiently.
In policy, legal and technical areas, we provided technical support for the Government's Green Paper on pensions and the pensions aspects of Towards 2016. We undertook a review of trusteeship, including the development of proposals for the regulation of those who do the administration work for pension schemes. We also undertook a review of the funding standard for defined benefit schemes and we have participated in EU discussions on the EU pensions directive and cross-border pensions.
In the role of information provision we responded to 10,100 direct queries. We developed the board's website, www.pensionsboard.ie, to include multilingual versions of the most popular pages. These are available in eight languages. The site received 450,000 hits in 2007. We also conducted the successful annual national pensions awareness campaign.
The board's priorities for 2008 are ongoing regulation of occupational pension schemes and PRSAs, and other ongoing supervisory activity, including the introduction of the regulation for administrators, which was set out in the recent Social Welfare Act. If requested we will participate in the follow-up to the Government's Green Paper on pensions. We also offer information activities including the 2008 awareness campaign, which begins tomorrow, further development of on-line services, and continued involvement in EU pension discussions.
Regarding the additional issues raised in the Chairman's recent letter to the board, I will deal with each of these points in a concise manner, but I am happy to answer any further questions the committee may have. The first issue concerns the adequacy of current pensions targets. The current programme for Government contains a number of commitments on pensions. The relevant pension target in the programme for Government aims to secure the target of at least 50% of pre-retirement earnings from all sources including social welfare supports, private and occupational pensions, and savings and investments. In its national pensions policy initiative report, published in 1997, the board advocated a target retirement income of 50% of pre-retirement income and a coverage rate for supplementary pensions of 70% of those aged over 30. The current coverage rate for this group is around 61%. This coverage target acknowledged that upwards of 30% of the workforce would have a pension of at least 50% of pre-retirement income by relying solely on the State retirement pension. We are of the view that these targets are appropriate. In that report the Pensions Board also recommended that the social welfare retirement pension be at least 34% of gross average industrial earnings. This target has been achieved since the report was published. The Government subsequently committed to increasing the State retirement pension to €300 per week by 2012. This was welcomed by the Pensions Board.
The second issue raised was the appropriateness and effectiveness of using tax relief to incentivise pension uptake. The Pensions Board supports current Government policy of tax relief on pension contributions. There is ongoing debate and discussion on how best to structure and distribute that relief. For instance, some people have advocated a special savings incentive account-type tax relief. Members will remember the SSIA approach of one euro for every four contributed. This has been considered as part of the national pensions review published by the board and it is also raised in the Green Paper on pensions. The issue is also being considered by the commission on taxation. Specifically, the commission is considering how best the tax system can encourage long-term savings to meet the needs of retirement.
The third issue was how integrated pensions might best be reformed to ensure pensioners benefit from State pension increases. An integrated scheme is a defined benefit scheme where the pension is calculated on the difference between the member's earnings and the State retirement pension. In recent years, the size of the State pension has increased sharply with the result that the pension from an integrated scheme has shrunk as the State pension has grown faster than member's earnings. In some cases members have seen their entitlement to a pension from an integrated scheme disappear altogether, despite the fact that the members concerned have made contributions throughout their working lives. However, it is important to make clear that once a pension from an integrated scheme begins, it does not disappear thereafter. Once a member becomes entitled to a pension, he or she will continue to get it. The issue here is the pension getting smaller in the years just before the member is entitled to collect it. Under current legislation, the value of pension benefits from a defined benefit scheme must represent at least 120% of the value of member contributions.
This issue of integrated pensions has been addressed in the Green Paper on pensions and a number of questions for consultation have been posed by the paper. These include a question on whether there are problems with the current integration arrangements for defined benefit schemes. If so, what are the possible solutions? Some three suggestions were offered, namely, to prohibit integrated schemes; to restrict a reduction in pensionable pay in the last three to five years; or to have a different integration formula for lower earners, as is the case in the public sector schemes.
Given that the Green Paper consultation process is ongoing, it may not appropriate for the Pensions Board to anticipate which of the solutions would be advocated by respondents. However, any possible solution is likely to be technically complex if it is not to have unintended consequences for all defined benefit schemes.
The final issue raised in the letter to the board was a request to make the committee a non-fee paying client for updates on the consolidated pension Acts and regulations and I can confirm that the board ensured that this has been arranged.
In summary, the Pensions Board will work to support the Irish pension system in all that it does to help Irish people to look forward to a comfortable retirement. The Pensions Board will make the most of its unique position as both regulator and policy expert and the challenge will be to seek continuous improvement as a regulator; to continue to contribute to the policy making process through our work on the Green Paper and other policy work; to encourage people to save for their retirement so that they are not just relying on the State pension as their sole source of income in retirement; and to build an organisation that delivers on our responsibilities as efficiently and effectively as possible.
Finally, I have a press pack for each member of the committee which includes copies of our most popular material. I thank the committee for its time and I am happy to answer any questions the committee may have.
