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.