Pension Provisions: Statements.

I thank the Cathaoirleach and Members of the Seanad for organising this debate, which is timely. I appreciate the opportunity to again discuss pension provisions, which we have discussed in the House on a number of occasions in recent months. I look forward to further discussions today.

I welcome the report from the ESRI, entitled Pensions, Incomes and Replacement Rates, and pay tribute to the excellent work of the ESRI in its production. I am interested in Senators' views on how to structure a pensions system for the future that guarantees all citizens a better livelihood and ensures people can enjoy an adequate income in their retirement years. I will listen carefully to what is said in the House today.

My Department commissioned the ESRI report so that its findings can feed into the national pensions review, which is currently under way by the Pensions Board. This review was due in late 2006, but I have asked the Pensions Board to bring it forward to this year. I now expect an interim report in June and a final report by September. I ordered the acceleration of the review because of the urgency of the pension challenge this country faces.

Before dealing specifically with the ESRI report, I want to outline briefly what that challenge is. The reality is that Ireland has a pension problem, but it is not unique to this country. Internationally, including in Ireland, governments are grappling with meeting the challenge of funding pensions for an older population who are generally living longer and healthier lives.

In some ways Ireland is fortunate because the problem has not yet become a crisis, as is the case in a growing number of countries. If left unchecked, however, the consequences in the years ahead for hundreds of thousands of older people in retirement could be quite alarming.

Put simply, a century or so ago pensions were introduced for those aged 70 and over, at a time when life expectancy was around 60. Therefore, it was not going to cost them too much money. Today things are different — people generally retire at 65, while life expectancy is well over 80, so the gap is bigger.

The facts speak for themselves and I regard them as stark and worrying. I am glad to have an opportunity to place those facts on the record of this House. Out of a current national workforce of some 2 million people, it is estimated that over 900,000 workers do not have a private or occupational pension. Unless speedy and targeted action is taken soon to address this unacceptable situation, most of those 900,000 people will end up relying on the basic State welfare pension in retirement.

The pension situation is particularly serious for women. I have raised this matter on a number of occasions. Only 46% of women in the workforce currently have pensions. When one takes away those on public service pensions, the percentage falls further. Only one third of working women outside the public service have pensions and many have pensions that are far from adequate.

Having said that, however, we have made some progress. For example, State welfare pensions have increased by over €80, or 81%, which is 50% above the rate of inflation, over the period and they are well ahead of earnings. We are close to achieving the Government's commitment to take old age pensions to €200 a week by 2007. I am working hard on that project.

The Pensions Board's strategies to increase awareness and coverage are delivering results. More than 50,000 personal retirement savings accounts, or PRSAs, which are tailored for the individuals needs, have been taken out. That is good progress.

The national pensions awareness and action campaign is helping to firmly plant pensions high on the agenda of more people. As Senators will be aware, this is national pensions week. An action campaign is under way and the Pensions Board deserves our appreciation for organising this week to focus on the issue of pensions. This debate is timely in that it falls in the middle of national pensions week. The recent Social Welfare and Pensions Bill included significant legislation on the operation and supervision of pension schemes.

However, despite the hard work of all concerned, including my Department officials, the Pensions Board and many groups around the country, we are failing to mobilise the general public and employers to start contributing in the numbers required. We cannot leave 900,000 people, many of whom are vulnerable and unsure as to what their later years will bring, in an uncertain situation.

The ESRI report which prompted this debate confirms much of what we already knew. It must be factored in that the report is based on statistics from 2000 and Ireland has changed considerably in the intervening five years. Overall, however, the report has added a depth of research which is valuable and will assist and influence the national review under way.

Senators will be aware of a number of the report's findings. These include, for example, that the average income of a pensioner in 2000 was slightly more than half of average industrial earnings; approximately 33% of pensioners have an occupational or private pension and this accounted for about 25% of total retirement income; pensioners' incomes are lower at higher ages, particularly for women; all sources of retirement income other than social welfare benefits fall in importance as age increases and are less significant for women than men; and the percentage of persons aged over 65 years who have incomes below 60% of median income and experience relative deprivation increased from 5.9% in 1994 to 38.4% in 2000.

Income from occupational and personal pensions is concentrated in the top two fifths of the income distribution of pensioners in 2000. On this basis, the ESRI concludes that tax expenditure on pensions produces inequitable results and calls for this issue to be examined further. Replacement rates for pensioner couples were 51% in the period between 1994 and 2000 and 43% for single pensioners. This can be compared against the Pensions Board's national pensions policy initiative income replacement target for retirement income from all sources of 50% of gross pre-retirement income.

The report finds that younger persons are more likely to expect an income from occupational and personal pensions, while older people expect their retirement income to come primarily from the social welfare pension. It also notes that 63% of those aged under 35 years expect income from occupational and personal pensions, whereas CSO data indicates that only 37% of this group have coverage.

State pension increases are well ahead of both prices and earnings and, as the ESRI report points out, the welfare pension is replacing a greater proportion of gross earnings than it did in previous years. However, other developments such as income tax reductions and increased numbers at work are serving to improve overall household disposable income. In this regard, one aspect of the report's findings of particular concern is that which shows that pensioners are at a higher risk of poverty than many other groups in society. This is unacceptable and must be specifically addressed.

Overall, Senators will note from the report's findings that retirement income expectations are — correctly — high. People who devote a lifeline of service to the country, irrespective of the service or occupation in which they are employed, are entitled to expect to be looked after in their later years and their contribution recognised.

While I have already broadly outlined the significant progress being made on pensions, its pace and delivery are not sufficient. Decisive, determined and targeted action on pensions is needed. There are no easy solutions because this is a difficult area involving complex issues. We must factor in a growing belief that the future return on pension investments may not be as high as forecast a decade or so ago. I have addressed in the House on previous occasions on the role of pension funds, their returns and the level of trust and confidence in such funds and many Senators expressed a view on the issue.

We must continue to monitor the importance and impact of tax reliefs on pensions which currently amount to €1.5 billion per year, roughly equivalent to what the Government spends on State welfare pensions. As currently structured, the reliefs may not be achieving the wider pension coverage we need. It must be stressed, however, that these tax concessions are an investment in the retirement incomes of those currently at work. In the years ahead, the coverage figures we are aiming for should result in a significant improvement in the numbers of older people with supplementary pensions. Above all else, we need a radical approach which will require considering alternative solutions, devising new and attractive products and setting out to fundamentally change the pension landscape.

The Pensions Board, as part of its national review, will examine progress towards current targets and general strategy, including the supports and incentives offered through the tax system to encourage private pension provision. It will also examine alternative models for providing pensions based on best practice from other countries.

I stress again, however, that if we are to make significant progress we must consider radical alternatives. In this regard, I have requested the Pensions Board to urgently examine a number of possible new routes, including whether we need to introduce more mandatory provisions into the system. One possible way forward could be to introduce a mandatory scheme incorporating an opt-out clause. The scheme could be split three ways with the employee, employer and State making a contribution. In my judgment, few people would opt out of such a scheme, particularly if the State and employers were also contributing.

I have asked the Pensions Board to examine ways of tapping into the valuable savings habit solidly established by the innovative SSIA savings scheme. The SSIAs will begin maturing by mid-2006 and €15 billion or more will be available to account holders by the end of 2007. Although this offers a unique opportunity to encourage investment of SSIA savings by individuals in pensions, to do so will require the devising of an attractively packaged product.

I have also asked the Pensions Board to assess the pros and cons of making retirement at 65 years a choice for individuals, in other words, the possibility of giving people options to work longer if they so wish. Men and women are living longer and lead more active lives in their later years. Working a few years after retirement age can make a real difference to income in retirement. I want to examine innovative ways of encouraging and allowing people to work longer if this is what they want and rewarding their decision with a bonus system when they eventually retire. People want to have choices and do not necessarily want to have to adhere to a set of inflexible rules. As I have noted many times in the House as regards social welfare in general, a one-size-fits-all regime is not the best way to reflect the needs and wishes of people in the 21st century. This is equally true in the case of pensions. Those who through their toil and effort have contributed to the continuing evolution, growth and prosperity of this country have a right in retirement to be recognised for that effort and share in the fruits of prosperity. The way in which we achieve this will be a mark of how we have progressed and matured as a nation.

Fundamental questions, including issues of a philosophical nature, must be asked and debated. The responsibility to ensure our aims are delivered rests with all of us. The State will play its part through regular increases in the State pension, incentives to save for retirement and planning and legislating for necessary changes. Employees must face up to their responsibilities to plan ahead for retirement, while employers also have a central role to play. I was disappointed by comments made on Monday by one employer organisation which appeared to distance its members from any responsibility in the drive to provide all citizens with adequate pensions.

The Minister and the organisation in question are very close.

I did my bit for it, as did Senator O'Rourke.

Ireland, with its new found wealth and relatively young population, still has sufficient time and opportunities to plan and structure a pensions system. As I noted, philosophical issues arise in this context, which is the reason I am interested in hearing the views of Senators and Deputies on pensions policy. There are those, including the organisation to which I referred and Members of both Houses, who take the view that it is not the responsibility of the State to ensure everyone has a pension. This view holds that it is the responsibility of employees to provide for themselves and no one else has any significant responsibility in this regard. There are also those who take a contrary view, namely, that it the responsibility of employees, employers and the State, in a three way partnership, to ensure every citizen has a decent income in his or her retirement years.

Notwithstanding the facts and figures, the issues at the heart of the pensions debate are philosophical in nature. This is not just taking place in Ireland but also around the world and I am keenly interested in the views of Senators on this central issue. To what extent do the State and the taxpayer insure people have an income or to what degree do we leave it to people themselves? It is a philosophical as well as a practical discussion.

I welcome the Minister to the House for this debate and I appreciate the time he has put into it since he moved to the Department of Social and Family Affairs. While I have some hard things to say, I hope the Minister will make a difference. Until now things were in poor shape but the Minister has the will to make a difference for every pensioner and everyone saving for a pension. I agree with much of what he said but I take issue with and will address some of his comments. I will not say anything I have not said before.

I thank the Minister for commissioning the ESRI report, which is independent and gives and unbiased view of the pension situation. It has not been influenced by the Department or any vested interest. Many suggestions I made previously are included therein — I am glad to see I am not on my own when I say what I think. This report backs up the stance I have taken in previous debates and I hope the Minister will take time to look at my suggestions.

Pension provision is about ensuring our pensioners have sufficient income to live on and do not fall into a poverty trap. This report shows that many of our pensioners are living in poverty and neither the Minister nor I want to see that happen. The problem, which has arisen for a number of reasons, must be tackled. This is national pensions awareness week and there are many reports available. The OECD report on pensions shows that workers on average earnings in OECD countries can expect their post-tax pension to be worth just under 70% of their earnings after tax. Ireland, however, is at the bottom of the league of 30 countries, with a net replacement rate for those on average earnings of 30.6%. That is appalling but it does not surprise me.

The Pensions Board must examine how other countries deal with pension provision and ensure pensioners have sufficient income to maintain the standard of living they expected. There are good practices in other countries and the pensions industry in Ireland should examine them.

I have been critical of the pensions industry on many occasions. It was brought to my attention yesterday that a member of the Pensions Board had a letter published inThe Irish Times in December referring to statements I made in this House about the board. I take it as a compliment because it demonstrates that I had irked the board. This person stated that she had been on the Pensions Board for two decades. If I were her, I would hang my head in shame. If all the board can come up with is the PRSA, it is a poor day’s work.

I am surprised the Minister has patted the board on the back for the PRSAs because they have not worked. When the Minister complimented the board, he stated that 50,000 PRSAs have been opened. Why not give the percentage of the work force who have taken them out? A total of 1.3% of employees have taken out a PRSA. The Pensions Board set a target of 60% by the end of 2005 but the PRSAs have been a disaster because they are simply more of the same unsecured pensions that guarantee nothing. All the Pensions Board refers to is getting people to take out a pension, it never mentions the risk that they may not get an adequate pension on retirement because they are not guaranteed and can switch from defined benefits to defined contributions.

I called for the risks and fees to be publicised but that suggestion was not accepted. Current rules allow ordinary occupational schemes as well as PRSAs to be wound up without paying any benefits at all. Employees have no confidence in the pensions industry and the Pensions Board is not doing anything to ensure people will have adequate pensions when they retire.

I have read the entire ESRI report and the section on who benefits from the saleable tax treatment of private pensions is extremely important. The Minister, however, has given us conflicting figures. He qualified them by stating that the statistics are from 2000 but the tax forgone to support the private pensions system in 2000 and 2001 was €1.5 billion, amounting to almost as much as direct expenditure on the public pension system for the elderly, €1.6 billion in 2001. In November 2004 and March 2005, however, the Minister told me in this House that the figure for the tax forgone to occupational pensions was €2.5 billion. The Minister is giving us misleading information and he should correct that in his response.

On a subsequent occasion in the House, the Minister reiterated that in 2004 the State contributed €2.5 billion to occupational pensions while contributory and non-contributory pensions cost it €2 billion. Many of those pensioners are living in poverty. I have already suggested to the Minister that if he were to withdraw the tax reliefs on occupational pension scheme contributions, overnight he would double the old age pension and still save €0.5 billion. What is happening with the occupational pension schemes? The Minister understands this because he has spoken on the matter on two occasions, as recorded in the Official Report. I am concerned that he did not give accurate information to the House on those occasions.

I go along with the conclusions of the ESRI report, including giving tax relief as a tax credit rather than at the marginal rate of tax, phasing out the tax-free lump sum, lowering the income cap and contributions allowable for tax purposes and tax on the returns on pensions and investments. Many countries have introduced these recommendations. These suggestions from the ESRI must be examined. I hope the Pensions Board will get its act together to deliver a proper pension for all and encourage people to save. Ireland is a nation of savers, as shown by the SSIA scheme. However, the pensions industry simply wants to get it hands on the SSIA money, which the Minister stated amounts to €15 billion. He must not let the industry get its hands on this unless it can guarantee the money will be preserved, not spent on management fees and feeding the fat cats.

Hear, hear.

That is what has happened to date. I wish the Minister well in this regard as I believe he is on the right track.

I am pleased to welcome the Minister for Social and Family Affairs to the House. The ESRI report makes interesting reading. I recognise Senator Terry's knowledge and valid concerns in this area. However, coming from a business background, one issue of concern to me is the taking away of tax reliefs on pension saving schemes or PRSAs for those working and contributing part of their salaries to matched company funding. If this cannot be provided for in future partnership, people will quite rightly revolt. Several years ago, the Tánaiste stated that if a level of expectation has been built up among people, one cannot pull the rug from under them. I pay money into a pension fund on a personal basis and provide for a pension contribution for my employees, matching it from a company point of view as part of benefits. However, if suddenly the Government tells me that such contributions will no longer be tax free, forget all talk about partnership. It will have gone out the door.

That would not need to happen. The system is inefficient at present.

Unless there is a better way to market this, it will not work. Most people do not understand that for every €10 put into a pension scheme, this is subsidised by the non-taking of tax by the Government to the extent of 20% for those on the lower rate and 40% for those on the higher rate.

It only benefits the well-off.

It does not.

This was shown to be the case in the ESRI report.

Everything benefits those who have money.

No, it does not.

This is a rerun of the relative poverty argument of the people with more money versus those with less. The problem will be that those with more money will feel hard done by and they will stop making it. We will then become a country of little widgets with no entrepreneurial skills and people feeling there is no need to strive to do better for their children, their children's children, their country and their economy. We must continue to foster a competitive environment, a sense of recognition of success and entrepreneurship and a sense that it is equitable to provide for the less well off. We must strive to be all inclusive. Our systems must not be just for the wealthy and not just for the poor. If we cater only for the poor, there will not be enough money to look after them.

Some women start working at 18 years of age, while those who go to college might get their first job and make a lot of money a little later. At 29 years of age, many women begin to have children, and may choose to job-share or leave work altogether. They contribute less in PRSI and pension funds but make their contributions in another way by looking after the family for which they receive no recognition. On reaching 65 years of age, many may be dependent on a spouse. In other cases, such as those of divorcées, there may not be enough provision for old age. More concentration on this aspect of women's pensions is required, as is greater recognition of their contribution in this area.

From an employment point of view, the compulsory and mandatory nature of new provisions to provide for pensions in the future must not be perceived to be or become a tax on employment. Our country faces competitiveness challenges on a daily basis. We are moving away from a country where it is easy to run a business, and people are encouraged to do so, to one where businesses are forced to fight daily with the bureaucracy and regulations forced upon them. It is impossible to run a small or medium-sized enterprise, creating employment for five to 40 people, and not be driven crazy dealing with this and that Department or regulation and paying tax. The proposed solution to the pension problem will be perceived as a tax on employment and will result in no employment and, therefore, a bigger pension problem.

While I did not read the Small Firms Association's comments on this issue, I read those of the Irish Small and Medium Enterprises Association. I also know about this from my experience as owner-manager of a small company with a turnover of €6 million, 50 people employed and an annual wage bill of €1 million. On top of the 10.75% PRSI contribution, I may now be expected to pay more money for employees' pension provisions. This is not my responsibility. It is my responsibility to participate in it but not, as an employer, to be the main provider. If this tax on employment is introduced, the multinationals will go out the door. Most multinational employers provide fantastic pension schemes for their employees in terms of contributions. I will not get into the argument about how pensions are managed. However, if asked as an employer to provide for pensions, my reply will be that I already pay my wage bill, PRSI and a pension contribution of between 5% and 10% of wage costs as part of my employees' remuneration package. To have additional mandatory costs would not make sense. Organisations must be allowed to choose what to do in this area and should not be forced on a particular course. If companies are not forced to do this in Switzerland, Scotland or China, then they will choose to locate in those countries.

A mandatory scheme will not work but packaging and marketing will. Let us produce a documentary, send a copy to all tax-registered companies and ask them to play it. A CD could be sent to every house, just as we sent out iodine tablets, registration forms from the Adoption Board and so on. The CD could be sent to everyone with a PPS number. People should be told about the reality of reaching the age of 65 and having only €200 weekly. People aged 40 should be told how much they will be able to buy in 20 years time, in 2025, even if they have some sort of pension arrangement. Matters should be spelled out more clearly for people, so that they understand what is at issue. I do not know what it will cost to have the lifestyle I want when I am 65. I have not thought about that because I am too busy rearing a family to worry about it. I would like to sit down on a Tuesday night at 8.30 p.m. and watch on prime time television a half-hour documentary, paid for by the State. It could be paid for through advertising, as long as people are shown the reality.

The means in which pensions are organised should also be made clear. If a sum of €10 is deducted weekly from my wages towards my pension, that is State-subsidised by means of taxation and by the 10.75% PRSI paid by the employer, as well as the 8.75% PRSI I pay as an employee. All that needs to be outlined.

Regarding SSIAs, a great number of people have found over the past four or five years that they can save €254 monthly. As a couple, my husband and I have been saving that. I did not even notice it gone from my income. I am now thinking about what else I can put that money into because I do not want to stop saving it when the SSIA scheme ends. I might have great fun spending the €19,000 I will get in my back pocket but I want to keep saving €254 monthly. However, the savings scheme must be marketed to me as something worthwhile for me and my future. Marketing is the essence.

The Pensions Board is doing a reasonable job in some areas but it needs to make people aware of problems. As an owner-manager of a small business providing employment, I ask the Minister not to make the contributions in question mandatory because if that were the case it would not be worth doing business in this country. We must provide for a proper economy in the future.

I wish to share time with Senator O'Toole. I welcome the Minister to the House and I welcome the vigour with which he has addressed the subject before us. It is typical of his approach to any ministerial portfolio he attracts. He addresses difficult subjects with a great deal of energy. I hope however that the results here will be more successful than in his last portfolio. Although the Minister has hit the right buttons by seeking a report, I suggest that more radical efforts are needed, as is more immediate action if he is to fulfil his promise.

I will take up some points well articulated by both previous speakers. The Pensions Board is a pretty sick, inadequate body. We have a problem currently with pensions because we have a fairly sleepy Pensions Board. The board is made up of political appointees who represent various vested interests in the pensions industry. They are the last people who should be on the Pensions Board. The pensions industry is a sick and greedy honeypot. It involves a mountain of money in which people have had their greasy paws for a long time, and they do not wish to remove them.

Hear, hear.

The Pensions Board is a failure because the members want to maintain that situation without change. The first thing the Minister should do is fire them, because they have vested interests. The board is fundamentally flawed and has failed. It has been inadequate and has failed on PRSAs and on radically tackling the pensions industry. A structure should be set up whereby politicians can no longer appoint political powers to a vital industry of this sort because, otherwise, board members will continue to take decisions which inevitably led to utter inertia. That is one the problems we face in the pensions industry. If the Pensions Board were replaced, we would have a much healthier industry.

One need only look at the number of consumers on boards of this type. It is characteristic of State agencies and of this nation that the number of consumers on semi-State bodies or State agencies of this sort is negligible. I am open to correction as I did not check this matter before arriving in the House, but I think there is only one consumer representative on the Pensions Board. Millions of consumers are affected by pension issues while only one of the 12 members of the Pensions Board is a consumer.

The Pensions Board is not run by pensioners, who have a pitiful input, but by the industry and by those who want to keep it going. It represents those who have their hands in the pie. Unless the Minister fires the board members, or sets up a new structure into which pensioners have an input, he will not solve the problem. He will have the same old problem, with the board members playing games.

I was shattered to read the Minister's speech and find out that the pensions review being carried out by the Pensions Board is not due until the end of 2006. What on earth is this going to be — theEncyclopaedia Brittanica? Why can the board not produce the review in five or six weeks? These people are supposed to know the business. They spend years identifying what is wrong with it. They have been making decisions on it — mostly wrong ones — yet when it comes to reviewing the industry, it seems it will take them over two years to do so. That is ludicrous.

The ESRI report is very welcome because it seems to ask most of the right questions. It makes some quite constructive suggestions, not all of which — in the nature of things — the Minister will take on board, although hopefully he will accept some of them.

The problem identified in the report which has attracted the most attention relates to people in the private sector who can put away large sums of money and obtain very substantial tax relief. Undoubtedly, this is the last of the great tax breaks, and we must decide if this is good or bad. The €1.5 billion cost to the Exchequer is phenomenal. I will leave that issue aside for the moment, although it is very unfair on the lower paid that the better off should benefit from this arrangement. All of us who can take advantage of it do so, as it is legal, but it discriminates in favour of the better off.

There is one particular wrong which the Minister might address, and on which he need not wait for the Pension Board to report. I refer to the position of proprietary directors. Every week at this time of year, we see annual reports arriving from big business — the worst offender being Cement-Roadstone Holdings — showing directors annually contributing sums of over €1 million of company money to their pension funds. There is no restriction on proprietary directors doing this quite legally. As the Minister knows, directors paid on the PAYE system must restrict such investment to approximately 30% of their incomes. Some proprietary directors have built up personal pension funds of more than €10 million. This is a gross social injustice. It is wrong that this can be done by very rich people to make them even richer in their retirement. However, it is widespread and everybody who can is doing it. It would be simple for the Minister to introduce a straightforward capping mechanism whereby nobody can put more than X amount per annum into their pension scheme. If there is one flagrant social injustice, it is this one.

The Pensions Board is doing nothing about this situation. It is just sitting on this extraordinarily lucrative industry and people are exploiting it fully. I refer not just to the people on middle incomes who are exploiting the 42% tax break but also to proprietors and the industry itself. I will name the industries who are doing so well out of this. Stockbrokers are making a mint out of other people's pensions by turning them over. Fund managers are making even more money out of other people's pensions by losing money and performing extraordinarily badly for them. There are fund managers who take hundreds of thousands of euro in income from the industry but who are losing pensioners' money. Lawyers, bankers, actuaries and all sorts of other bogus professionals are doing well out of it because a mystique has built up around this industry.

I thank Senator Ross for sharing time with me. I wish to dissociate myself from the negativity he heaped on the Pensions Board, an easy target for the Senator.

The Senator will get another quango. I believe it will be his fourth.

It was beneath the Senator. The Pensions Board is composed of hard-working people with a hard-working chief executive who do their best under extraordinarily difficult circumstances. If I had the time, I could speak further on this. However, I agree with Senator Ross about the people who are making money out of pensions, particularly about his crowd, that is, the stockbrokers, actuaries and investors. He was right in that regard but wrong about the rest.

The quango king speaks; he is the champion of the quangos.

Senator O'Toole without interruption.

I congratulate the Minister on generating a significant debate on pensions. It is a job well done. This issue has been discussed in the House previously and certainly with the Minister, Deputy Brennan, present on one occasion.

I only have time to make three fundamental proposals. It might be worthwhile if the Minister's public relations or media consultants telephoned RTE to ensure that the next time somebody in RTE discusses with pensioners how hard it is to live on a pension, he or she asks the pensioners if they made any arrangements for their retirement pension. The debate has gone too far to one side. I am one of those who will argue that the Minister should increase the old age pension. It should be larger and I will fight for and demand that. However, I also demand that people make provision as well. For that reason, I support the concept of compulsory pension arrangements. I have argued for it within the trade union movement for many years.

The establishment period before people get involved in such arrangements should be short but any period of employment longer than six months should have an equal and opposite level of pension contribution or pension arrangement. I will argue with anybody who takes a different view. How that is done, who should pay into it and what the responsibilities of the employers, workers and the State should be are matters for negotiation and argument. That is about implementation but the general principle must be accepted.

In my first couple of years as a Senator in the late 1980s, I took great satisfaction in negotiating the right of former Members to get their pensions back. Many Members who lost their seats cashed in their pensions. This is the quickest cheque people will get from the Department of Finance. If people seek to cash in their pension, the money will be sent almost by return post in case they change their mind. The Department wants to be rid of them. Now, anybody who is a Member of the House for more than a year must have preserved pension arrangements. It does not apply for lesser periods.

That is the compulsion issue. The second requirement is the introduction of significant flexibility in pension legislation. We need to examine the issue of "bridge" jobs. I could have predicted the response the Minister got last week because I have been there and dealt with it. The first response of people is: "I do not want to work until I am 70". It is an instinctive response. However, one of the groups who demand pensions is teachers, the people I represent most of the time, and they will be the first to say that although they do not wish to work until they are 70, they do not want a situation where they work full time to a certain day and are retired the following day. We must introduce flexibility. This has been done in the United States, where the legislation has been changed.

There must be flexibility for both social and practical reasons. Take the example of people who work for the ESB and who reach retirement age. They have built up a huge store of experience and knowledge in that industry. They would like to contribute more but not on a full-time basis. As they are drawing their pensions, they can no longer work for the company because the legislation does not allow them to draw a pension and also be employed. They therefore go to work for Veridian or some other company. In other words, they can bring all their experience to the opposition because we do not provide the flexibility to allow them to work for half the year, day or week. People should be able to go on reduced pension. They could continue to draw that pension and a salary and have a proportion of the salary apportioned back into their pension to allow it to grow. In other words, people would slide out of work into retirement.

My final proposal is the introduction of inflation-linked Government bonds. The case for doing so is compelling. I am aware of the arguments for and against their introduction and I have studied the issue for some years. We must introduce them. It would reduce the cost of private sector pensions by at least 5%. The Minister need not waste his breath talking to the Department of Finance because it will only offer reasons for not doing it. There are solid arguments against it but the arguments in favour are overwhelming and compelling.

Ireland is probably the only Western European country that does not have Government inflation-linked bonds. We have the old bonds which were issued in 1970 to mature in 2015 at a certain percentage rate. The cost of buying them simply increases or decreases to reflect what is happening in the marketplace or with interest rates. We need inflation-linked bonds which will attract investment and have more flexibility. I am aware of the pressures they put on governments but they are a reality in Canada, the United States and even Italy, of all places, which has a huge pensions problem. Between 20% and 30% of their government bonds are inflation linked. This creates a huge new market and one that is worth examining. We need to take that decision.

I have gone over my time and I would welcome another opportunity to discuss this with the Minister. I have made three proposals. The first is compulsion, where everybody should be required to pay into pension arrangements. The second is the introduction of legislation which would allow bridging, where people could bridge the period between full-time employment and full-time retirement. The final proposal is that the Government introduce Irish inflation-linked Government bonds.

Poverty in an affluent society is a serious and pressing issue across the developed world. Poverty persists and the causes of poverty and child poverty must be pursued and addressed. The issue before the House today is the ESRI report on pensions and the effectiveness of the pensions system in preventing poverty in old age. Although this is not the main purpose of the report, it is the aspect on which I wish to focus.

The most pertinent finding in this regard is that the average income of a pensioner is just over half the average industrial income. The main source of retirement income is provided by the State. State pensions provide an income for more than nine out of ten pensioners. Occupational personal pensions provide an income to only one third of pensioners. These provide perhaps one quarter of the average income during retirement. The fact is that older people depend on the State for old age pension and personal or occupational pensions which are not providing significant incomes. The report does not find that a significant income is provided to older people who put their money into investments. The finding was that investments provide an income for only a minority of pensioners during retirement. The average amounts received are quite small. There is considerable variation in pensioners' incomes. The report found that the upper category of pensioners received approximately five times the income of pensioners in the lowest group. As a result, our pension policy must be progressive.

The Government has a record of improving income support for pensioners. I am proud that in an area on which we have concentrated, the personal rate of old age pensions was increased in the last budget by €12 per week, an increase of over 7%, which brought the old age pension to €179.30 per week. We promised to increase the State pension to €200 per week by 2007 and we are well on the way to meeting our target.

Let us see how far we have come. In 1997 the old age pension was just €99 per week. In 2005 it is €80 per week higher than that, which is an increase of over 80%. We are making great progress on our promise. Old age pensioners will receive deserved improvements in their living standards. However, as I said, our pension policy must be progressive. State pension schemes pay benefits on a flat basis.

The report found that the average amount paid in State benefits is broadly the same for each group of pensioners, regardless of income. The difference between high income and low income pensioners is that those with a high income have an occupational or personal pension and, to a lesser extent, earnings. We must work to ensure that people are aware of possible future problems and are encouraged to take action now.

I welcome the Minister, Deputy Brennan. I also welcome his initiative in opening up a debate on pensions. As one of the youngest Members of the House it is particularly important that I contribute to this debate and provide an insight into the mindset that exists in regard to participation in pension schemes.

I wish to focus on a point referred to by Senator O'Toole and other speakers, namely, the issue of compulsion. The Minister is aware of this matter as he has asked the Pensions Board to conduct a review on it before September.

It is difficult to explain to people in their mid to late 20s the importance or economic necessity of taking out a private pension scheme, which takes more of their gross income. We are paying enough for cars, mortgages and child care. We must find a way to convince people to give more of their earnings to pension schemes. The current approach is in some way responsible for the low take-up of pension schemes, especially among young people.

The figures released by the Minister in recent days show that 900,000 people do not have supplementary pension provisions in addition to the State pension. That is most worrying, not least because of the cost of living and lifestyle choices. We have become accustomed to certain luxuries. That people are living longer will create a difficulty in terms of their financial resources when they retire.

The Minister's initiative of exploring the possibility of allowing people to stay in the workforce after the age of 65 is interesting. In some cases that may be economically necessary but in other cases people will consider they have done enough — worked hard enough, reared and educated their families, built houses, paid mortgages — and they will not wish to remain in the workforce for an additional five or six years. That in itself has its own difficulties.

The nub of the problem goes back to the mindset that exists in regard to pension uptake. We must establish the factors underlying why people are slow to get involved in pension schemes. The slow uptake in PRSAs is a case in point. We must find out the reason for such a low uptake. If compulsion is the solution to the problem then we should consider it.

I welcome the proposal to tap into the savings culture that is evident from the significant uptake in the SSIAs. Many people have become involved in that scheme and developed a habit of saving money. Senator Terry made this point in her contribution. SSIAs have helped to foster a culture of saving which should be extended to pensions.

We live in an age where the workforce is mobile. People often go abroad for a number of years and return. People who have paid PRSI here for 20 years and then go abroad for whatever reason discover when they return at pension age, that they do not have enough contributions for the contributory old age pension although they may qualify for a reduced non-contributory old age pension.

The State encourages people to get involved in pension schemes but it gives with one hand and takes away with the other. If, for example, one has a private pension scheme which would provide €150 per week but one does not have enough contributions for a contributory old age pension then the private pension will militate against one receiving a non-contributory old age pension. This matter must be addressed. It may be worthwhile to give a person with 50% or 75% of the required number of contributions a corresponding amount in pension entitlements. It is necessary to overhaul the present arrangement.

It is important to ensure there is an incentive for people to take out private pensions. If people think that investing in a private pension scheme will inhibit their ordinary entitlement they will not be interested in investing in private schemes. At present there is a vicious circle which is not productive.

I would be slow to dismiss the ESRI report. The tax break issue is an important one, albeit that the position is contradicted by the Irish Association of Pension Funds. Tax relief is costing the State upwards of €1.5 billion and this should be examined.

The greatest difficulty relates to people's mindset. We must penetrate the mindset of people in their mid to late 20s who are in the workforce. That is the point at which people need to invest in private pensions. If an element of compulsion is necessary, this is worth considering as it would lead to a satisfactory financial situation for people when they retire.

I accept what the Minister is trying to do and I welcome the fact that he has opened up a debate in this area. I wish him well in his endeavour. I hope the review he has sought from the Pensions Board by September will be worthwhile. I look forward to the opportunity to debate the issue again at that stage.

I congratulate the Minister on highlighting the serious issue of pensions and concur with what he said about SSIAs. Senator Cox referred to the benefit of SSIAs in terms of creating a willingness to save. We are not good at saving but the SSIAs showed that we can do it. I do not include myself in that category as I am a spender rather than a saver.

The Senator can change.

No, I am not going to change. The pattern has been set. People are looking forward to the cash they will get into their back pockets. A challenge exists for the Minister to market pensions and to involve the Pensions Board in that endeavour.

When this issue appeared on our work programme last week I met with Gerard Hughes and Dorothy Watson from the ESRI in order that they could explain the background to this significant document. The way forward presents a serious challenge for the Government. At present, there are 460,000 people over the age of 65 years in Ireland. By 2036 that number is projected to be 1.2 million because based on births to date, there will be a certain trajectory growth in the numbers of those aged over 65. That puts the problem in perspective.

Reforming pensions is one of the biggest challenges of the 21st century. All OECD countries must adjust to the aging of their populations and rebalance retirement income provision to keep it adequate and ensure the system is financially stable. Every country has this problem, not just Ireland. Modern medicine——

According to the OECD, Ireland has the worst record in that regard.

I will come to that. It is no harm to reiterate the questions raised in the ESRI report. What are the sources of income during retirement for pensioners? How effective are the public and private components of the pension system in providing income during retirement? How do pensioners' incomes compare to the incomes of the working population?

I had given no thought to this until it was put on the Seanad agenda for this week and I had read the report by Dr. Gerry Hughes and Dr. Dorothy Watson of the ESRI. Most people in Ireland do not think about the problems presented by pensions in terms of dealing with what their lives will be like when they are no longer working. The results of the ESRI study show that the average income of a pensioner in 2000 was somewhat more than half of gross average industrial earnings.

The main source of retirement income is provided by the State's pay as you go pension schemes, contributory and non-contributory. The study shows how much income pensioners have and how effective are the public and private components of the pension system in replacing income from work. The key word is "replacement" of income from work. The State pension provides an income for more than 91% of the population. Occupational or personal pensions provide an income for only one third of the population. The ESRI report shows that between 1994 and 2000, the average growth replacement rate in the first year of retirement for pensioner couples was 51% of pre-retirement earnings, while for single people it was 43%.

What is the purpose of the State pension scheme? It is to redistribute income towards low income pensioners and prevent poverty or destitution in old age. It is also to help workers maintain living standards during retirement by replacing income from work at an adequate level. However, as Senator Terry has indicated, there is a large variation across countries in achieving a balance of emphasis between these two objectives. Irish pensioners get the worst deal in Europe. An OECD policy document of March 2005 shows Ireland at the bottom of a list of 30 countries, in terms of gross replacement.

I do not seek to justify why we are at the bottom of the list or to explain why other countries are doing better. However, while there are many reasons why countries such as France and Germany have problems with their economies, one of them is the huge social welfare payments they provide. I am not saying one approach is better than another, but it is part of the reason there is so much unemployment in those countries. There is a good deal of taxation and high pressure on costs and companies. Looking at it in a barefaced manner it is sad to see this trend but it is a component of these countries' economic problems about which we constantly hear. We are getting richer while they are getting relatively poorer. Our economy is growing at 5%, while their economies are not. At the same time they are paying out a great deal. From an equity point of view such matters must be addressed.

According to Dr. Hughes and Dr. Watson in the ESRI report, the system requires serious reform. Further examples of replacement income may be gleaned from the OECD charts. Luxembourg's replacement rate after retirement is 100%. Austria, Hungary, Italy, Spain and Turkey provide high pensions to lifetime workers. Average replacement earnings in Austria, Hungary and Italy are 75%.

The Senator's time has concluded.

I am not finished yet. The Chair has to be somewhat——

The Senator has eight minutes, according to this morning's agreed Order of Business.

How much time each Senator gets depends on who is sitting in the Chair.

The issue has been raised as regards tax relief on private pensions. Looking at the €1.5 billion a year it is costing at face value, there is no doubt that a pension of €200 a week, the target rate for 2007, is a totally inadequate income for anybody to live on. Imaginative inducements must be provided to people to take out private pensions. However, to reduce the high rates of tax relief for those who pay into private pension schemes, would be a no-go area as it would remove an incentive which would not be appreciated. We want to encourage people to save, work or do whatever they do. It would be wrong to lower the income tax relief rate from 42% to 20%, especially in the context of seeking to encourage people to make an effort to address pension provision.

Pensions is a complex issue. I agree with Senator Ross's comments about the greed of people in large corporations, whom we constantly read about in the newspapers, for whom contributions are provided by the companies for their retirement. That is totally unjust and wrong.

This issue is a major challenge for the Minister for Social and Family Affairs, Deputy Brennan, but I am confident he will take it on. People are pleased to hear him airing this issue. They listen when they are told of approximately 1 million people doing badly in terms of their pension provision, something they find difficult to believe.

I wish the Minister continued success. It will take some months to devise a correct policy and it will not be easy. However, the bottom line is how people may be encouraged to participate in private pension schemes. They must realise they must prepare for the time when they are over 65 year of age to avoid disappointment that they cannot have the same standard of living in retirement. I apologise to the Acting Chairman for speaking beyond my allocated time.

I welcome the Minister and his officials and I also welcome the debate. Notwithstanding the statistics that have been cited, we can be quite proud of what we have done in Government over the past 20 or 30 years to improve pensions. In the late 1970s and early 1980s there were significant disproportionate increases in pensions and since 1997 there has again been a policy of detaching pensions from other social welfare benefits.

It also needs to be borne in mind that a wide array of free schemes are not reflected in the comparative statistics while generous tax exemptions are provided, which have been steadily increased. However, I fully agree that even €200 a week is tight for anyone to live on. There is an underlying recognition that the State can only do so much directly and people need to be encouraged to make other provisions for themselves.

This is a major economic problem in many European countries. When I lived in Germany in the mid-1970s, the administrators saw the pension problem looming but did not quite know what to do about it. That is probably still the case. Ireland is fortunate in having a better demographic profile and we have an opportunity to make decisions before we are under pressure. There are so many demographic uncertainties that it is hard to say what precise pressure we will be under. The social costs are crippling the French and German economies in many ways. We must be careful in our desire to improve the position that we do not land ourselves in a situation from which others are trying painfully and without much success to extricate themselves.

The Minister raised a few questions at the end of his contribution. He referred to whether there should be mandatory private schemes. I would be inclined to be cautious about going that far. Every encouragement should be given but, once such schemes become mandatory, they will add to the fixed costs of an employer. Many employers are in a position to respond to an enlightened policy but, equally, others operate at the margin of profitability.

The ESRI raised the equity question in terms of whether pension payments should be deductible at the 42% tax rate. I was a supporter of providing for mortgage interest and VHI relief at the standard rate. I would be more cautious about doing this for pensions because of the effect it could have on the pensions industry. It also comes down to the philosophical question of whether one is levelling down or levelling up.

Is it half empty or half full?

I would be cautious about going down the ESRI route. People have statistical arguments regarding equity and suggest, for example, that Germany is a more equal society than Ireland. They would like to return to 11% unemployment to have more equality. One must think about the macro-economic effects, which translate into human consequences. We are fortunate to have a very buoyant economy in which unemployment as of yesterday has reduced to 4.2%. We must be careful about doing something that will send us headlong into problems. That is why I have reservations about aspects of CORI's approach, Inchydoney notwithstanding.

One must also consider the level of equity. The head of the Combat Poverty Agency once said a little sadly that things were much better in 1986 and 1987, even though the unemployment rate was 18% because things were more equal than they became when we had a dynamic economy and full employment. There are uneasy trade-offs in this issue.

People who are able bodied and in reasonable health want to work and contribute, but not necessarily at the same intensity, after the age of 65. The trend of loosening and becoming more flexible in working arrangements has much to be said for it. Perhaps older people are a little like the student population in that they are anxious and willing to contribute on a part-time basis. People who supplement their incomes in that way should be encouraged given that they are needed. In these days of full employment, many shops and shopping centres might not have too much to do if pensioners were not available to staff them during the day. The income of the post-65 age group is an important factor in our economy. We naturally need to encourage people to provide for their income. Perhaps the tax system can be refined, building on the SSIAs, but there has not been a significant take up of PRSAs. However, exhortation, encouragement and, perhaps, incentive rather than compulsion are the way forward.

I had not intended to contribute but I observed from my office that the numbers were a little scarcer than I thought and I would like to make a few comments.

The Minister deserves to be complimented because he has kicked out a ball and forced people to debate issues such as compulsion that they were circumnavigating. I am not sure we will be as laudatory when he proposes his solutions. It is extremely important to separate the issue from the propaganda of the pensions industry.

I do not need to remind a member of the present Government about the folly of ignoring a problem in the hope that it will disappear. The Government faces a bill of between €.5 and €1 billion for nursing home charges because various people ignored it in the hope that it would go away.

We have time to deal with this problem and avoid a number of undesirable consequences. We must be careful not to create a culture in which older and retired people are perceived as a burden. This issue requires management but it is not unmanageable and will neither overwhelm us nor disappear. There is a feint underlying suggestion in much of what has been said that for people on a low-wage income retirement means movement from moderate poverty to worse poverty and that is not acceptable. We must, and can, work out a system to ensure adequate provision for everybody.

This country claims to be able to provide a new model of partnership for the rest of the world using a method of doing business whereby the Government has a role, individuals have a role and, unequivocally, employers also have a role. I was astonished to hear one of my colleagues suggest that employers could not be required to have a role in ensuring their employees had security of income in the longer term. I am open to suggestions on how that should be done. Employers in this country have one of the lowest levels of employer's PRSI in the EU. There is no PRSI in Denmark and I am unsure about the levels in the accession countries. However, the level of taxation in Denmark would horrify any Irish employer. We also have low levels of corporation tax, and there are other issues involved in this matter that are not within the hands of Government.

I am tired of the rhetoric about the burden of regulation, and that once people get something it becomes the norm and they want more. In language that I dislike, every international evaluation describes Ireland as one of the "freest" economies in the world. According to various indices where the United States is rated first, we are second or third along with Singapore. If there is a burden on employers in this country, it is one of the lowest in the developed world. If we are to sustain a partnership economy, everybody has an obligation to take responsibility for these issues.

The costs are among the highest in Europe.

I accept many of Senator Mansergh's corrections but I do not want him to leap up yet again. In one of the richest countries in Europe in terms of——

Particularly his poetic ones.

——in terms of current income per head it is inevitable that costs will rise as, otherwise, 25% of the population will be forced to sit still while everybody else gets rich. To have any fairness in society people on lower wages must advance.

It is not just wages.

That will push up the costs. Other costs are due to appalling inefficiencies in our society because of the lack of competition in areas such as banking, insurance and the failure to invest in infrastructure, but I do not wish to be diverted.

The fundamental issue, and I do not understand the hostility to this, is that the only way to provide for people in their retirement is by funding it from the day they start work. When I started work, 6.5% of my salary was deducted for my pension. If I had been given a choice I would have postponed it for a year, and then for another year and another year after that.

I have no ideological baggage and I am open to persuasion on how this can be done. However, we need independent evaluation of the efficiency of the use of any money used to fund pensions in the future. I share with Senator Ross the view that the Pensions Board is not qualified, competent or able to win confidence to do that. My union, the TUI, has a long-standing dispute involving retired members about the advice they got on pensions from allegedly competent and qualified fund managers. Much of this kind of thing goes on and there is much confusion and uncertainty.

None of this gets away from the fact that pensions must be funded from the day people start work. That cannot be done by persuading people to voluntarily hand over money. It must be part of their social obligations. If it is compulsory people will see it as a tax and if it is optional they will not, but we should not make the idea of having a pension optional.

There is an intermediate position on extending working lives, whereby those who want to continue to work are allowed do so for a marginal financial benefit. A blanket decision to change retirement ages is neither economically necessary nor socially desirable. Some people are unable to continue, some would love to continue and some would need a transitional period of time between work and retirement. This question will only be solved if everybody, including employers, accept their responsibilities, if it is compulsory and if State and private pensions are integrated in a way which gives people maximum flexibility in securing a reasonable income in retirement relative to their working experience.

I welcome the Minister to the House and suggest that he can forget about airport terminals and Aer Rianta as if he does this correctly it will be a lasting monument to him. He has the innovation, energy and ingenuity required to deal with it, as we all know that a Minister will never have a "one-size" solution to fit or please everybody. We are not yet demographically in a crisis situation but we will be, as many people will reach a certain age at the same time, so early planning is important.

I do not know enough about the Pensions Board to characterise it in a particular way but I have heard enough said in this House by people I regard as extremely able and trustworthy to believe that it is worthy of severe criticism. Senator Terry has made strong statements on that issue on several occasions.

The issue that most vexes people is that of people over 65 who wish to stay at work. I heard the Minister state clearly on television that it is entirely a matter of personal choice and that he will not lay out rules that a person must work. Senator O'Toole spoke on that earlier and stated that people do not want to go from full employment to no employment in one fell swoop. The availability of part-time work withpro rata payments might solve that. I made the point when I spoke on the pensions debate that there are many people who are alive, well, strong, in full possession of their mental faculties and well able to work beyond 65 years. Why should they not do so? It is quite amazing. Lloyd George introduced a state pension to commence at 70 when life expectancy was 60 years. Now one is not expected to die until 85.

If one is a woman.

Fair enough. Why not allow people to work by choice until 70? I concur with Senator Ryan that there is an underlying theme in the ether, though it is not perpetuated by the Minister, that older people will become a significant bother. One feels almost like saying, "If that is the case, why not bump them all off?" People tut and indicate that they will have to take strong measures to address the problem of an aging population.

I take my cue from the telephone calls I receive and according to them, the Minister can continue to talk about his initiative. I have had many calls from people saying "three cheers" since the Minister spoke on television about allowing people to choose to work after 65. They are fed up hearing on retirement, comments like, "It is time to put your feet up, dear". They want to put their feet on the ground rather than up and continue to be part of the working population. The Minister has done me a great favour and I will say around Longford-Westmeath that myraison d’etre in standing for election is to obey him.

Go Mary, go.

I do not intend to obey people who say, "Put your feet up, dear" while I have strength, energy and know-how. I hate the use of the word "dear".

Hear, hear. The Leader is a role model.

The people who called me said they never thought they would cheer the Minister but they are doing so. He may take it as a compliment or not. The Minister's initiative is a very positive one and I will be his pin-up woman for it. I will adorn his next book if he wants me to.

The Minister spoke also about SSIAs. We speak in the House from a position of privilege as we are all in State pension schemes. I do not know how long such pensions will continue because while the fund is guaranteed, the bill is growing significantly. We will all receive quite generous pensions and glad we will be of them. The SSIA scheme has strongly fulfilled the wish of former Minister for Finance, Mr. McCreevy, that it would encourage people to save. An attractive product will have to be formulated for SSIA holders because people are looking forward to the splurge. Certainly, I am. While I do not know what I will do exactly, I guarantee that I will not put my feet up. I will be busy whatever I am at.

I do not know how the Pensions Board can target young people. When one tells a young person that one hopes he or she is thinking of his or her pension, one is gawped at as if one were a heretic. They say pensions are for people like me but they are wrong. Pensions are for people who are earning a living, but they continually have to contend with the expenses of a lively life such as mortgages, cars and having children. A very attractive product will have to be formulated to encourage young people entering their first jobs after college to take out a pension. I would be inclined to adopt a compulsory approach to pensions as they are for people's ultimate good.

Not unless the return is guaranteed.

I accept that. Strong language will have to be used to encourage young people to take out pensions. A combination of Government employees and individuals are involved. I was horrified by the comments of the nice man who is head of the Small Firms Association who said pensions had nothing to do with his members. While one would think from his comments that employees were robots, they are real people who will need pensions. The Minister should forget sexy images and the physical, tangible results of his tremendous work and make a success of his pensions brief. If he succeeds, people will still be singing his praises in 40 years.

I am glad to have the opportunity to speak on this important matter. I approve very much of the prudence the Government has shown over the years in making provision for pensions in the long term. It is unusual behaviour for a Government as parties in power tend never to think outside the five-year electoral box. As there are no guaranteed political rewards for acts which will benefit citizens in 30 years time, the establishment of pension fund contingencies by the Government is very interesting.

Like the Leader, I agree with Senator O'Toole's proposal to introduce a compulsory element in our approach to pensions. When people are young they feel invincible and fail to consider the matter.

They are never going to get old.

Yes. They do not realize they may have family commitments or fall into a poverty trap. A great many people are outside the pension system except for the State pension, which can be a great burden to them. It is not easy to live on the State pension.

Over the past year or two, a couple of specific matters have been drawn to my attention. The first is Army pensions, which may be only marginally relevant to the debate. We ought, as a matter of principle, move away from the mean-minded, cheese-paring attitude which leads us to subtract the old age pension from other State pensions. It is neither fair nor right. I remember raising on the Adjournment the matter of a postgraduate student at Trinity College who on being awarded a scholarship to complete a PhD had the amount subtracted from his local authority allowance for being blind. It is not the way to encourage people to work but rather to encourage laziness. People will take State benefits if they see no point in acting when their intellectual initiatives are discouraged.

A similar scenario has developed in the context of Army pensions. I received a letter last Christmas.

It was read out on Joe Duffy's radio programme.

Then the Leader knows what I mean. Perhaps the Minister is also aware of the case of a man who was employed as a member of the Defence Forces for 31 years. When he retired from the Army, he received a pension organised on the basis of 21 years service and an extra year for every year of extra service. He received an extra ten years worth of pension entitlement, but when he reached 66 his birthday present was to be told this was to be reduced by €344 per month. It was very wrong. The old age pension was to be taken out of the pension he had earned and paid into as a member of the Army. This anomaly, which affects a small number of people, is mean minded and should be investigated.

One of my constituents, a retired Church of Ireland clergyman, lived and paid taxes in this State for more than 30 years. He and his wife, upon suffering ill-health in their 70s, moved to the North of Ireland in order to avail of that region's superior social services. Due to the couple's ill-health, they cannot drive south to visit their two children living in Dublin and Wicklow. The clergyman believed that he could retain his entitlement to free travel, which was introduced precisely because of this type of situation. Our all-Ireland ambitions are put into question if one of our citizens, upon moving to the North of Ireland, is rewarded for residing on territory which we claim and among citizens whom we try to protect by the denial of free travel. The clergyman knows of wealthy people living in the North who, by virtue of affording holiday homes in Donegal, retain their entitlements to free travel because they can supply an address in this State. That does not appear fair. People in the North of Ireland who have paid taxes in the South throughout their careers might not expect free television licences or fuel allowances but should be entitled to free travel. Connections between the two parts of this country would be improved by this means. I also ask the Minister to explore the anomalous situation where €344 is deducted from an Army pension due to old age. That is mean spirited and, given the present state of the economy, unnecessary.

I compliment the Minister for tackling a time bomb which many people would like to ignore. The dictum that old heads cannot be placed on young shoulders contains an element of truth in the context of pensions schemes. Some years ago, an exceptionally lucrative pension scheme I offered to a young lady was refused. Due to our difference in age, I could not understand her refusal. Her response is typical of young people. If the special savings scheme of the former Minister for Finance, Mr. Charlie McCreevy, was constructed on the basis that the scheme's unbelievable benefits were not accessible before the age of 65, it would not have been successful. One of the reasons for the scheme's success was that light could be seen at the end of the tunnel. People could envisage accessing their money. We must factor a change of culture into our actions. If attitudes do not change, we will continue to face this problem. I had the mischievous thought that, even if a scheme is successfully put in place, the Minister will win little political kudos from a certain age group. We live in affluent times and disposable incomes have been committed to mortgages or second cars. Thought is not given to providing for a rainy day. This cultural problem must be investigated. People will have to step back from their methods of spending. I have repeatedly spoken on the absence of a thrift culture among young people. I am of a similar age to the Leader, although I will not mention the number of years.

Not at all.

President Reagan was 76.

I am not 76.

I was not talking about Senator O'Rourke.

Allow Senator Ó Murchú to continue without interruption.

People will not mind if we reminisce in this House. I grew up in an era of relative deprivation. I remember that in my home money was placed near the Child of Prague for the milkman and for insurance and other bills. A sense of thrift existed and a small sum was always left over. Everybody likes to discuss his or her first job and the wages that it brought. In my first job as a law clerk, I received 35 shillings per week. I managed to put savings into the post office and to pay instalments on my auto-cycle. When we were less well off a greater culture of saving existed because we remembered the bad old days and the challenges which arose when least expected. We saw these challenges in our homes and communities. Senator Ross made a valid comment on invincibility. We seem to believe that, because we are well off, difficult times will not lie ahead. We should have used the money released from the saving scheme as a kick start in some way.

A great difficulty exists in discerning between employee and employer. I have outlined the situation as it pertains to employees. Senator Mansergh was correct to point out that good tax incentives are available for pension schemes. That in itself will not persuade people to action. On the other hand, an employer who scrutinises every outlay is not prepared to spend more and will look to the State to make provisions. Unsustainable economic pressures will result from the State providing extensive support. I do not know how to make people interact. The solution does not rest with employer, employee or State alone. A partnership approach must be involved.

Since I was young, I have believed that mandatory retirement at 65 is wrong. It represents a death sentence for many people, not only at retirement but also during preceding years. Anecdotes are often told of people going downhill after retiring at 65 because they were unprepared for the end of a routine and structured lifestyle. This is not a humane situation. Early retirement was introduced for economic reasons. There were high levels of unemployment and people wanted jobs.

We are now in the position of being unable to fill certain jobs. The economy needs people with expertise. While I concur with Senator Ryan that it should not be a matter of forcing somebody to work until he or she is 70, I have no doubt the majority of people would continue working, albeit not necessarily in the same manner. Flexible options, such as part-time hours, should be available. One of the reasons we balk at this is because we see the difficulties of administering it, but we should tackle the issue. If it is necessary to look at the different requirements of people throughout their lives, then we must be prepared to do that.

To some extent, I am in favour of the mandatory approach to pension schemes. The average young person is not willing to switch his or her projected disposable income from its current direction. I do not blame young people because house prices represent a considerable burden. There must be some mandatory element to provisions for pensions but we need both a carrot and stick approach. The incentive and the compulsion must be combined. Perhaps "compulsion" is not the best term. We must be careful with language and use words that are more appealing to people. We need an element of requirement as well as incentive. If we do not adopt this approach, the possibility of making any progress on a national level will be limited.

We have no choice on these matters. There is no point in running away from the time bomb — we must tackle it. We must engage with people on the issue of adequate pension provision. However, the culture and mindset must change if we are to have any success.

It was agreed on the Order of Business that these discussions would terminate at 1.30 p.m., but I am aware that Senator Ulick Burke wishes to contribute. I ask that the time allocated be extended, if necessary, to allow the Senator to speak and the Minister to reply.

We may have adequate time as it stands, because if Senator Burke speaks for two or three minutes, that leaves over five minutes for the Minister to reply. However, if we do not have enough time, we can extend the sitting.

I appreciate the Leader's efforts to extend the time allowed for this discussion.

I wish to raise an issue that runs against the trend of all the previous contributions in this debate, which dealt with encouraging people to make pension provisions, particularly to private pension schemes. Farmers made contributions to such schemes, but with very restricted conditions relating to their age at a particular date, namely, 1968. When farmers reached the maximum age for participation in the schemes, they were not allowed to buy back their contributions or to continue with payments. They were caught in a straitjacket from which they could not extricate themselves.

I ask the Minister to consider giving the farmers a buy-back option. Teachers, for example, have had the opportunity to buy back credits over a number of years and other public service employees were also given that option under specific schemes. Those farmers who were caught out by the age restriction, who number only a few, were totally excluded. They received nothing and their contributions were refunded. At best, some farmers got a half pension. I ask the Minister to examine this issue with a view to offering the people caught in this catch-22 situation an opportunity to make contributions to the pension schemes, which they were willing to do. By virtue of the conditions of dates and age, over which they had no control, they lost out.

This has been one of the best debates I have heard on this subject, or indeed any other subject, for some time. I have listened very carefully to the contributions. We have touched many fundamental chords and scratched the surface of the question of where the country is going. I detected different trends in the discussion as it ranged across the various philosophies, if not theologies, about the role of the State in pension provision.

Given that time is limited, I will resist entering into a discussion on many of the subjects raised, although I would like to revisit them at some point. I will deal with some of the specific queries raised.

Senators referred to the Pensions Board and questioned its effectiveness, which is a matter for individual judgment. However, it is important to point out that the board is made up of representatives of ICTU, IBEC, the Department of Social and Family Affairs, the Department of Finance, the Insurance Federation, the Senior Citizens Parliament, as well as actuaries, accountancy bodies, pension lawyers, the Director of Consumer Affairs and two nominees appointed by me. The board comprises people who care about this matter who are representative of the wider population.

Senator Terry asked about the costs of the tax breaks and quoted the conflicting figures of €1.5 billion or €2.5 billion. The difference between these figures is capital taxes. The figure of €2.5 billion is correct if one includes the fact that tax relief is given to the output from pension funds. The €2.5 billion includes capital taxes, whereas the ESRI figure of €1.5 billion only includes income tax and employer contributions. Both figures are correct but if one examines the issue in its entirety, the overall relief extended by the taxpayer to the pensions industry is in the order of €2.5 billion.

Reference was made to the assertion by the OECD that Ireland is at the bottom of the league in terms of pension income. However, the OECD only analysed State pension income and did not include income from other sources, like occupational pensions. Furthermore, it did not take into account that Ireland is unique in that it has a very high rate of home ownership, unlike many other countries, which have high levels of rental. The OECD also failed to take into account the household benefits packages or free schemes. Such schemes, for example free electricity and telephone services, are unique to this country and are quite valuable.

While the OECD is technically correct in placing Ireland at the bottom of the pension income league table, it does not include three important factors, namely, home ownership, household benefits and income from other sources. Therefore, the statement that Ireland is at the bottom of the OECD league must carry a health warning. In raw terms, the placement is accurate, but the reality is somewhat different. We are not the worst by any means. The basic State pension in the UK, for example, is between £110 to £115, whereas the State pension here will be €200 by 2007. We are doing a lot more than many other countries in terms of pensions.

I agree with the Senators who argued that we should not consider elderly people to be a problem. I am in favour of getting rid of the phrase "old age pension" because it does not capture adequately the situation of a 65 year old today. At some point in the future we should examine the possibility of changing the name of the pension.

We should do that soon.

Hear, hear.

That is something I intend to do soon.

The basic principle is that people of a certain age should be seen as a resource or asset and not as a problem. People over a certain age can make major contributions to this country because they are experienced and have often learned things the hard way. To lock such people into a passive pension area, and to insist they stay there and do nothing else, is not right.

Another issue of concern is that non-contributory pensioners who are in receipt of the basic State pension are taxed on that benefit if they attempt to earn any other income. I do not have any answers on this as yet and I am always attacked for thinking out loud. All I can say is that, in many cases, thinking aloud is better than not thinking at all. It is clear that if one is a non-contributory pensioner it means one has passed a means test and has no worthwhile means. A pensioner may be as fit as a fiddle but if he or she earns some extra money the State will start to mess with the annual State pension of €7,000. I am examining that situation, although I do not want to make any commitments because I do not know the extent of the problem or what costs are involved.

For example, 86,000 people are in receipt of non-contributory pensions at a cost of approximately €600 million. In addition, approximately 113,000 people are in receipt of contributory pensions at a cost of €1.9 billion. Overall, we spend €2.5 billion on both types of pension. It may be a coincidence, but it is interesting that this is exactly the figure we give in tax reliefs. One must take an overall view of that. Tax breaks are valuable and have contributed much to the growth in the economy, including the tourism sector. Senator Mansergh was right in saying that we must be cautious in dealing with tax relief and cannot treat it lightly.

A number of Senators referred to the issue of introducing mandatory provisions to the pension system and I was heartened to hear the open-minded opinions that were expressed. I have formally asked the Pensions Board to study that issue and to let me know of its thinking before September. The matter deserves to be studied.

Senator Ó Murchú said we should choose our language carefully in using words such as "compulsory" and "mandatory". While I accept his point in that regard, we should still examine the matter. In my own extended family, there are 20 year olds whose eyes glaze over when one discusses pensions with them. They have no interest in the subject whatsoever. I have discussed pensions with many young people, including my own family's friends. They are inclined to feel that if pensions were organised, tax deductible and affordable, they would be grateful years later for having exercised that option.

Not unless it is guaranteed.

I accept the Senator's point but I wish to correct any impression I may have conveyed earlier on this matter. I have asked the Pensions Board to examine the issue of mandatory provisions in the pension system but there are a number of aspects to that. One could not make something mandatory regarding a private pension if one did not have some security of funds concerning the industry's management of it. However, we do that with regard to motor insurance, which is mandatory but where vehicle owners must obtain cover from the private sector.

The Pensions Board will also examine what role the State can play in this. I cannot see any mandatory system emerging in which the State did not play a fairly central role. At this point, however, I have an open mind on the matter and I want the board to examine the prospects.

I thank Senators for their contributions to this wide-ranging debate. I wish to thank Dr. Gerard Hughes and Dr. Dorothy Watson for their fine report from the ESRI. I have learned a considerable amount by listening to this debate. While the debate was necessary, I believe we can now move it on. I look forward to the debate coming to a conclusion when the Pensions Board provides me with its report. At that point, I will be able to bring proposals to Cabinet with a view to implementing whatever decision the Government may take. In this regard, I hope to bring proposals before both Houses of the Oireachtas without undue delay.

Sitting suspended at 1.35 p.m. and resumed at 2.30 p.m.