Seanad Éireann debate -
Thursday, 18 Nov 2004

Vol. 178 No. 16

Pension Provisions: Statements (Resumed).

Mr. Ryan

I am severely tempted to comment on what Senator Brian Hayes has said but if I did the Chair would remind me to speak on the topic under discussion.

Like any lay person I do not possess the analytical or the actuarial skills to look 40 years into the future. We have to do our best to forecast what will happen. I read an article in the Irish Banking Review a few years ago about the pensions timebomb which was based on a number of assumptions, namely, that the population would decline and that economic growth would be approximately 2% in perpetuity during that period. The problem with all of this as any Minister for Social and Family Affairs, or any Minister who is as economically literate as the present Minister, will be aware is that if there are two trends which are only marginally diverging now they will be very far apart in 50 years. If the population shows any tendency to increase and if economic growth shows any tendency to increase at a greater rate than used to be presumed to be our natural level of growth, the crisis may not be as real as we imagine. That is not an argument for not making an intelligent assessment of how the markets operate efficient provision for pensions. I wish to tell the Minister an anecdote.

A young woman in her mid-20s not on a huge income decided, because she had heard so much, she should speak to a bank about a pension. The first thing the financial adviser from one of our major banks said to her was that she was too young to be worrying about a pension, that instead she should take out a long-term savings scheme. It is time we created a fairly unbreachable consensus that when one starts work it is time to start thinking about a pension. However well-intentioned the individual was, there should not even be a hint that it was a somewhat less than sensible thing to do. It is the first thing one should do and Senator O'Toole has referred to it.

Every year people work they contribute to a pension fund which is theirs for life and which is integrated in a way where they are guaranteed 34% of the average industrial wage. I consider that 34% is too low, 50% would be a much better objective and it would give people a decent income in order to have a decent life. We do not want people in their old age simply guaranteed they will not die of hunger, cold or lack of any of the basic necessities of life. We want people who are able to enjoy whatever good health they have when they retire. What is the argument against compulsion? Is it simply the political argument that it would be described as a tax, as many do, including those in the trade union movement who should know better and who describe social insurance as a tax? It is not a tax, it is an insurance contribution for which people in many areas of life are well rewarded.

Another issue is that of pensions in terms of benefit-in-kind as well as in cash. I watched my mother enjoy free travel for the best part of 25 years. Whatever the travails of the individual who introduced it, free travel was one of the most remarkable contributions to the quality of life of older people. The sheer pleasure of the mobility it gave people, particularly parents who were separated from their children, was enormous. It is anomalous that while most of the population retire at 65, they have to wait until they are 66 years of age to qualify for free travel. I suspect it would not break the Government to adjust the year of entitlement to the year at which people legally retire, which is 65. These little issues which do not cost an enormous amount of money are enormously important to older people who have the capacity to get around.

In regard to the myopia that gripped many in the 1990s when the view of the stock market boom was that it was different this time and would last forever, many tried to argue that meant we did not need a State substructure to protect pensions and that the markets would look after us. We now know that would not have happened. What is needed is a skilful integration of what the markets, the State, individuals and employers can do through their contributions. Members are always talking about employers and being employers. As it happens I am the director of a company, the Simon Community, which has at least 20 employees. The company has had to worry about their pension provision. Most voluntary organisations are substantial employers of people who must have pensions like everyone else so that the same issues arise. I do not believe an employer can simply walk away and say the pension fund is not his or her problem. It is an individual responsibility but an employer has some responsibility also. I do not have a problem with employers' social insurance and I have no problem with employers making a contribution towards people's pension funds as well, but it should be possible to integrate the three.

I invite the Minister who has a major influence on the Government to think about this issue. The reason the US will not run into the same pension crisis that Europe may run into is that it has a very liberal immigration policy. An article in today's edition of The Independent refers to the projected growth of the workforces in the US and the EU and indicates that the trends for both regions are going in different directions. It was interesting to watch the pre-election debates in the US in which both presidential candidates, Senator Kerry and President Bush, were asked what they would do about illegal immigrants. Their responses were so different from those one would hear anywhere in Europe. They referred to different ways of regularising the status of illegal immigrants because people in the US have come to recognise that immigration, far from being a burden, is the single most important phenomenon that has enabled the country’s economy to be so dynamic, in terms of both individual output and hourly productivity. Hourly or worker productivity has increased so dramatically in the US because so many people are at work, partly because of the country’s liberal immigration policy. It is time that we in Europe began to move away from our fortress Europe mentality and realised that to sustain our standard of living, we will not only have to tolerate immigration but also actively encourage it.

Mr. Leyden

I welcome the Minister for Social and Family Affairs, Deputy Brennan, and congratulate him on his appointment to this very important portfolio. He has considerable experience in politics and in Government, which he can bring to it. It is one of the most important Ministries because it involves looking after those who need assistance and support.

That this Government is left of centre and has socialist leanings is demonstrated by the fact that it looks after the elderly, disabled, handicapped and widows so well. Compare the Government's approach to that of the Workers Party and Democratic Left when Proinsias De Rossa was Minister for Social Welfare and when there was a Labour Party Minister for Finance. They gave the lowest possible increase to pensioners, amounting to approximately 2%. We have increased pensions by 69% since 1997, and rightly so, and we looked after pensioners so well. What better judgment is there of a Government?

Senator Ryan mentioned the great benefits introduced by a former Minister for Finance and former Taoiseach, Charles J. Haughey. He introduced the unique schemes providing free travel, free electricity and free telephone rental. He once told me that when he first conceived the idea, the Department of Finance made every effort to prevent him from announcing it, to the point of trying to convince him not to do so until he reached the very door of the Chamber of Dáil Éireann. He was convinced of the merits of the schemes.

He conceived the idea of free travel for pensioners at a train station through which he saw a very empty train passing. He asked why the train should not be filled with people and why pensioners should not be given a chance to travel on it. This should be placed on record because sometimes people are vilified and not recognised for the contributions they make to Irish life.

I welcome the commitment by the Government to increase the pension rate to €200 per week by 2007. This will be realised even before this date if the Minister has his way. I believe it is his ambition.

When one reaches retirement age at 65 or 66, one receives a contributory or non-contributory old age pension, possibly in addition to a pension from another source, be it from CIE, the ESB, a county council or a local authority. A constituent of mine expressed strongly to me the view that one's pension should be exempt from income tax. This is not the direct responsibility of the Minister but he should consider it nevertheless. If one considered the contribution to Irish life of pensioners and calculated their contributions to the pension fund during their working years, one would surely conclude that pensioners should be relieved from the responsibility of paying income tax on their pensions. While the costs of doing this would have to be calculated by the Minister and his officials, it is a very worthwhile proposal.

The constituent in question, a very active Fianna Fáil supporter, made the point that he had spoken to many retired people who felt it was grossly unfair that, on reaching a point in their lives at which they should be free to enjoy their remaining years, the State would make them liable to income tax on their pensions. Will the Minister, given his influence in Government, consider taking old age pensioners out of the tax net, although they may not be paying a great amount of tax at present? The constituent stated that the extra funds that are now available present an opportunity to the State to allow pensioners to enjoy their social side of life more fully and perhaps pay for some home help.

I understand the period of operation of the national fuel scheme is between April and October and that claimants under the scheme are entitled to approximately €12.90 per week. To fill a 1,000 litre tank of kerosene or diesel costs approximately €500 to €530. The price of oil per barrel dropped last week but the effects of this will not be realised for some weeks at the petrol pump or in terms of delivery prices. The period of operation of the national fuel scheme should be extended to cover the full year because our climate is such that elderly people need heat all the year round. Most houses of retired people that I visit have solid fuel or other forms of heating. The Minister should consider this proposal.

It has also come to my attention that the difficulties associated with refuse collection impose a particular burden on elderly and retired people. Would it be possible to have a voucher scheme for pensioners to assist them in paying for refuse collection? There were exemptions for qualifying candidates when the councils were responsible for the collection of refuse, but these no longer apply.

On pensions generally, I welcome the fact that we have brought about increases over the years. They are very worthwhile. The former Minister for Finance, Deputy McCreevy, established the national pensions reserve fund, which currently stands at €10 billion. It is a great achievement for the State to have this money invested for people in the future. The first action of the Opposition parties, had they got into power after the general election in 2002, would have been to raid this fund, and this is one reason they did not get into power. The people felt there would be no security in the future if there were a coalition comprising the Labour Party, Fine Gael and the Green Party. We decided not to raid it although it was not politically beneficial for us to do so. It shows great commitment and maturity on the part of the Government to retain it and refrain from drawing it down, even if only to spend on infrastructure programmes.

I note the Minister's approach to the special savings incentive account scheme. He has been forthright concerning exemptions in this regard. People have been putting money into special savings accounts and are looking forward to their being able to reap the benefits without affecting their pension rights.

Let us consider another issue that has come to my attention, and I am sure to the attention of the Minister given that he is a very active constituency worker. A widow of a county council worker in Roscommon told me that her husband informed her that she would be fine financially after his death, that he had signed up for the council pension. He was very happy to tell her this but unfortunately he never signed the dotted line pertaining to the widow's contribution. Local authorities gave an option to employees to make such a contribution. The issue does not concern the Minister's Department directly as it is the responsibility of the Minister for the Environment, Heritage and Local Government. One should not give anyone an option to deduct money to look after his widow in the future, but this is what happened. The widow was disappointed and also disappointed in her late husband, who did make a widow's contribution.

The Government, in its wisdom, should exempt widows such as this constituent, whose husband worked for approximately 40 years for the local authority. The number of people in her position is not great. The reasons widows' husbands may not have paid a widow's contribution are varied. Perhaps they just forgot about it. They should not have been given the option. A contribution should have been deducted from the fund to ensure the widow was looked after. I will raise the matter with the Minister for the Environment, Heritage and Local Government, Deputy Roche, who may be in a position to bring about a change in the system.

I thank the Leader for allowing the debate to take place. It is timely given that the Estimates are being published today. I am confident the Minister has received a healthy increase in his allocation for 2005. I know he will deal with the anomalies raised whereby a widow caring for a disabled person does not receive an increase because there is no carer's allowance for such a person. It would be worthwhile providing an increase for these people.

I wish the Minister, Deputy Brennan, every success in his new portfolio. I know he will endeavour to do an excellent job and will make a great contribution throughout the country. Given his experience as general secretary of the largest political party in Ireland, the Minister knows every town and village in the country. He knows the people for whom he is caring deserve the best and will ensure they receive it.

Mr. Browne

I welcome the Minister to the House. I would like to reassure Senator Leyden that the world will continue when Fine Gael gets back into power. Fine Gael has a unique role in Irish history, as witnessed in the recent documentary on Kevin O'Higgins, capturing a sad time in Irish politics. We should not forget that we are all in a privileged position today, thanks to people like Kevin O'Higgins and others on both sides of the political divide involved in the foundation of the State. Fine Gael has a proud record in looking after the marginalised in society and much work still needs to be done in that area.

It has been brought to my attention by health board officials in my region that many supplementary budgets have been under-spent, which is a reflection of the unrealistic limits set on them. I ask the Minister to examine this issue. It is worrying that supplementary budgets allocated specifically for people on the margins of society have been underspent. Following his appointment, the Minister acknowledged this aspect.

I wish the Minister well in his new appointment. I was not here on the week of the Cabinet reshuffle because I was in Carlow attending the National Ploughing Championships. I was dismayed when I heard Deputy Brennan had been moved from the Department of Transport. I was spokesman on transport and had a very good working relationship with him. I have been moved to health so I know what it feels like. Many of the decisions he made in respect of transport were correct, particularly regarding Aer Lingus. I made it clear in this House that Fine Gael was in favour of his plan to examine the option of privatisation, which will come back to haunt the Government. The recent resignations of the three executives of the company have thrown a spanner in the works. Perhaps it is a reflection of the Minister's absence because he appeared to be making decisions, unlike what is happening at present.

I wish to express gratitude to Senator Leyden for speaking here today. He lost his voice yesterday during the debate on the Hanly report. We were all waiting for him to make a contribution.

Ms Cox

We are debating pensions.

Mr. Browne

I am pleased the Senator is back in full flight. I do not know whether he was muzzled or sin binned.

Ms Cox

Let us concentrate on pensions.

Mr. Leyden

I wish to confirm that I was not muzzled in any way. I am still opposed to the Hanly report.

Acting Chairman

The Senator without interruption.

Mr. Browne

It is a pity he did not say that yesterday when the Minister for Health and Children was in the House.

I will not even try to compete with Senator Terry who made an excellent presentation. A pension issue which arises relates to people who have been working for years and who may marry either for the first or second time after they retire. I am aware of the case of a widow who, following her husband's death, received a letter from the company for which he worked sympathising with her and explaining that she would receive the widow's pension. A few weeks later, she was informed that she would not receive the pension because she was not married to her husband while he worked for the firm; he married her after he retired. The case is currently with the pensions ombudsman and I am not sure what the outcome will be. This is something, which arises quite a lot. It is probably a reflection of the fact that people are living longer, going into second marriages or perhaps marrying late.

Senator Leyden correctly referred to free schemes. I recently spoke to a lady whose husband was much older than her. If her husband had lived past the age of 66, he would have been entitled to avail of all the free schemes but because he died before reaching the age of 66, she was not entitled to avail of the free schemes. This is an area which should be examined. This woman would have been entitled to avail of the free schemes in theory, but because her husband died a year before reaching the age of 66, the entitlement did not apply. Perhaps I am confusing the Minister. If a woman marries an older man, and he turns 66, she is automatically entitled to all the benefits of free travel, free electricity and so on. However, if a woman is 60 years of age and her husband dies at 65 and a half years, even though she would have been entitled to avail of the free schemes six months later had he lived, she loses her entitlement. This is a serious issue, particularly if one has friends who can avail of these free schemes.

I have a couple of queries regarding the backdating of social welfare benefits. I am aware of a person who was awarded family income supplement. He should have applied for it a year earlier, but he was not aware that he was entitled to it. The Department acknowledged that he was entitled to the benefit and he received it from a certain date. However, the Department would not backdate the payment. Obviously if the man had been aware that he was entitled to claim the benefit, he would have done so. It was a mistake on his part. I understand a rule applies not to backdate payments, except in the case of pensions. This aspect should be examined because, if people are entitled to benefit, they should receive it from the correct date, not from the date they make the claim. This is very unfair in the instance to which I am referring because the man is in severe financial difficulty.

I raised the issue of children's allowance with the previous Minister, Deputy Coughlan. I understand there are different rates for the first, second, third and fourth child.

Ms Cox

There are two separate rates, one for the first and second child and a second rate for the third and subsequent children.

Mr. Browne

I understand that when the first child reaches the age of 18, the rate changes. If someone with four children is receiving a certain rate for the first and second child, and a second rate for the third and fourth child, if the rate for the first and second child changes, the rate for the third and fourth child also changes, which means people lose money. Perhaps the Minister will examine the different rates under the children's allowance scheme. The point I am making is that the children continue to require financial support, even though their parents are no longer entitled to children's allowance for them.

Minister for Social and Family Affairs (Mr. Brennan)

I thank Senators for a worthwhile and fascinating debate and for their candid contributions. I am pleased that Senators acknowledge the size of the challenges ahead. As I said at the beginning, 75% of workers do not have adequate pension provision, which cannot continue. I must bring forward whatever initiatives are possible as soon as possible.

I thank Senator Terry for her list of recommendations and her positive approach. I understood her to say that it is all very well paying billions of euro into pension funds, but how does one know they are safe? When we hand money over to pension fund managers and they invest it in the Stock Exchange, in property or in Government bonds, how do we know we will get it back? The Senator was particularly opposed to any element of compulsion regarding the provision of pensions, not for social reasons but because if people were compelled to make private provision there would be no guarantee, given the nature of the market and the domination of equities as part of the portfolios of pension funds, that they would get their money back, even as a pension. I understand her concerns.

The Pensions Board has a number of mechanisms in place and it is required to try to ensure the health of pension funds by what is called the funding standard. Such funds must operate in accordance with the prudent person principle. I acknowledge, however, that there seems to be an undue reliance on equities. I take on board the Senator's concerns regarding the safety of investments in the hands of pension managers. The Pensions Board has significant responsibilities in that area. Nevertheless, there seems to be a very strong reliance on equities in the portfolios of pension managers. They are, therefore, exposed to the marketplace. Senator Terry called for a guarantee from the State to back up those funds. That is a major question and one at which I would not snatch. However, I acknowledge the difficulty the Senator has pointed out and thank her for putting it forward.

I did not suggest, although Senators may have thought I was hinting at it, that I would move to provide for mandatory or compulsory pension provision. It is one thing to make it mandatory for the State to provide a pension, it is another to make it mandatory that it be provided privately. It would be impossible to make it mandatory to have a private pension because that would require people to invest in funds, the security of which they were not happy about. However, we cannot allow the present situation continue indefinitely where people in their 20s taking up jobs make no pension provisions. I have children who are that age and I do not believe they have given any thought to the issue. Some Government will have to require, in some way, that they take account of their pension needs. That is as far as I will go on that at this point.

Senator Cox described very well the particular vulnerability of women in this area. I agree with her. Senator Leyden also gave an example. I am very conscious of that situation. Senator Cox also stressed the voluntary nature of pensions and the aspect of competitiveness regarding any move towards compulsion in that area. It should be remembered that the PRSI system is compulsory. People pay PRSI on their income and that entitles them to a basic State pension. The principle is not something about which we argue. We have already accepted it. All we are talking about now is the amount. It cannot be stated that it is a principle that one cannot be required to provide a State pension for people.

Ms Terry

As long as it is protected.

Mr. S. Brennan

The question revolves around what is done with it, how it is collected, how it is managed, who invests it, whether it goes into shares, property, bonds and so on. I appreciate that these are real issues. However, one cannot argue the principle because we have accepted it for many years and we apply it every day. We deduct PRSI from people's incomes and it goes into the social fund which is invested with the help of the NTMA. It shows a surplus in the social fund at the moment. The principle is well established. The issue for future generations, for future Governments, for this Government and for me is whether to expand that, whether to roll that out or to have a mixture. In that regard — Senator Ryan put it very well — there is no single solution. We have the social insurance fund, PRSAs the national pensions reserve fund and non-contributory pensions which come directly from the State. There are at least four mechanisms for providing pensions and what we need is a combination.

I acknowledge what Senators have said and confirm I am working on their suggestions. Senator Cox reminded me how vulnerable women are in the area of pensions. I propose to examine that issue. Senator O'Toole emphasised the importance of flexibility and part-time working. I will examine the system from that point of view. He makes the point that people work for 30 or 40 years until one Friday they go home and the following Monday they have nothing to do but look at a blank wall. The Senator argued for more flexibility regarding part-time working and ensuring that it does not interfere with the person's pension if he or she goes back to work for the company he or she left. We are trying to introduce that kind of flexibility into the system. I will also examine the idea the Senator put forward regarding home savings.

Senator Morrissey elaborated on the awareness idea. He particularly asked me to examine the retirement pension anomaly that exists for people between the age of 65 and 66. On the surface it seems anomalous that at the age of 65 a person can get a pension but is not allowed to work but at the age of 66 he or she can be in receipt of a pension and be allowed to work. I will examine that in the context of the budget. I understand the cost involved is approximately €13 million and approximately 1,500 people are affected.

Senator Leyden referred to the fact that since 1977 there has been an increase of almost 70% in the value of pensions. There is obviously much more to be done in this area. At the same time we must be conscious that the average spend on pensions by the 15 European Union Governments is 12% of GDP. Here it is just under 5% of GDP. Our older population is a smaller proportion of the population as a whole at this point but, allowing for that, while we have made enormous strides in this area we still have many more strides to take. I reiterate that I am committed to providing at least €200 for old age contributory and non-contributory pensions by the end of this Government's term of office.

I thank Senator Browne for his kind comments regarding my time in the Department of Transport. I genuinely hope to bring the same kind of determination to this Department. We deal on a weekly basis with hundreds of thousands of people. More than 1 million people receive some type of communication or benefit from the Department, which I have the honour to lead. I hope I can work to remove anomalies to bring about a fairer system and improve the lives of the hundreds of thousands of people who look to this Department for support every day. I look forward with some excitement to trying to make a difference.

I thank Senators for their contributions. This debate on pensions has been very timely. I wanted to hear what Senators had to say and have taken it on board. I am conscious, as Senator Ryan said, that we have come a long way in the area of pensions since the days of Bismarck. I am also conscious that too high a proportion of our workforce are making no provision for pensions. The State has a responsibility to encourage people to make provision. It also has a responsibility to step in and fill gaps where they exist. I thank the House for a very good debate.

Acting Chairman

When is it proposed to sit again?

Mr. Minihan

Next Wednesday, at 10.30 a.m.

The Seanad adjourned at 1.30 p.m. until10.30 a.m. on Wednesday, 24 November 2004.