Dáil Éireann Debate, Tuesday - 5 February 2013
409. Deputy Thomas P. Broughan asked the Minister for Social Protection her plans for the reforms of the pension sector here; the estimated time frame for the publication of her plans; and if she will make a statement on the matter. [5225/13]
View answerSecure and adequate finances are one of the fundamental components of a happy and active retirement. The sustainability of the pension system is a particular concern because of the demographic challenges Ireland faces, the associated increases in pension (and other age related) costs, and the deterioration in the public finances. This means that, in the future, the task of financing increased pension spending will fall to a diminishing share of the population as demographic projections indicate the ratio of working age to older people will decrease from 5.3 to 1 at present to 2.1 to 1 by 2060. Life expectancy in Ireland is also increasing and whilst this is very welcome development, it also presents very real and obvious public policy challenges. Compared to the rest of the population, older people in Ireland have the lowest poverty rates (at 0.9%) and are least likely to be at risk of poverty (pointing to the adequacy of the State pension), nonetheless significant reform of our pensions systems is necessary to safeguard future sustainability and adequacy.
A number of significant reforms to pensions have been introduced in recent years. In 2014, the State pension age will be standardised at 66 which will see the abolition of the State pension transition. Thereafter State pension age will be increased to 67 in 2021 and 68 in 2028. In September 2012, a number of changes to the State pension rate bands came into effect for new customers. A move to a ‘total contributions approach’ for determining eligibility for the State pension is planned in 2020 to replace the current averaging system.
These reforms will ensure that the level of pension paid will be directly proportionate to the number of social insurance contributions made by a person over the working life. Aligning the rate of pension paid with the contribution made ensures that those who contribute more during a working life benefit more in retirement than those with lesser contributions.
Discussions on long term pension policy have identified the need for a short and focussed examination on the direction of pensions policy to ensure a modern, sustainable, and adequate pension system. In this regard, the OECD has been commissioned by the Department of Social Protection to review long term pension policy in Ireland. The review will take account of the Programme for Government commitments in the pensions area, including universal coverage, and is being informed by developments at EU level in relation to both pensions and increasing the labour market participation of older workers.
The particular aspects being considered by the OECD include:
- the sustainability of the pension system in the light of demographic and investment challenges;
- the adequacy and coverage levels, in order to ensure adequate income in retirement with a particular focus on the lower and middle income group;
- the modernity of pension systems to ensure flexibility in the labour market and supporting mechanisms for longer working;
- equity within the pension system.
The review is expected to be finalised in the first quarter of 2013.
Significant developments have taken place in relation to defined benefit supplementary pensions. Legislation enacted in 2012 strengthened the Funding Standard by introducing a requirement for schemes to develop a risk reserve from 2016 and to meet the reserve requirement in 2023. In August 2012, the National Treasury Management Agency (NTMA) announced details of the sale of over €1 billion of Irish Amortising Bonds which were purchased by pension schemes and welcomed pension funds into the economy. Providers have also been introduced into the sovereign annuity market. The overriding priority in this area is to ensure that members of pension schemes are protected and the future viability and sustainability of their schemes is ensured and made safer.
Last October, the Department of Social Protection, working with the Central Bank and the Pensions Board, published a report on pension charges which looked at whether charges are reasonable and transparent to members. I invited interested parties to submit comments and observations regarding the report in the period to the end of January 2013. Comments and observations submitted will inform considerations in relation to any further policy or regulatory action that may be required.
