Terence Flanagan
Question:95. Deputy Terence Flanagan asked the Minister for Social Protection the work her Department is doing on pensions as our population starts to age; and if she will make a statement on the matter. [26517/14]
View answerThursday, 19 June 2014
Questions (95)
Written answers
Reforms have been introduced in recent years to ensure the sustainability of pensions into the future. These decisions were taken in the context of changing demographics and the fact that people are living longer and healthier lives. For example, there are currently 5.3 people of working age for every pensioner and this ratio is expected to decrease to approximately 2.1 to 1 by 2060. The over 65 year old population is also projected to increase from 11% of the total population in 2010 to 15% in 2020 and to 24% in 2060.
There are approximately 17,000 additional pensioners coming into receipt of State pension each year. In the absence of reform, it is estimated that State expenditure on pensions (including public sector occupational pensions) would increase from approximately 7.5% of GDP in 2010 to 11.7 % in 2060. In 2013, the overall Departmental expenditure figure was €20.2 billion and expenditure on pensions accounted for 32% of this.
Whilst the increase in life expectancy is a very welcome development, this also has obvious and significant implications for the future costs of State pension provision. The fundamental principle involved here is that longevity in the workforce needs to be supported if people are to achieve the income they expect or would like to have in retirement.
A number of policy reports on pensions have been completed including a Green Paper on Pensions (2007) and a National Pensions Framework in 2010. I commissioned the OECD Review of the Irish Pensions System which was completed in 2013.
Arising from the changing demographics described, these policy reports and the need to provide for sustainable pensions and longer working lives, a range of reforms have been introduced recently to the pension system as follows -
In January 2014, State pension age was standardised at age 66 with the cessation of State pension transition. The State pension age will increase to 67 years in 2021 and to 68 years in 2028.
With effect from April 2012, and as provided for in legislation in 1997, the number of paid contributions required to qualify for a State pension increased from 260 paid contributions to 520 paid contributions.
As provided for in Budget 2012, from September 2012, new rate bands for State pension were introduced. These additional payment rate bands more accurately reflect the social insurance history of a person and ensure that those who contribute more during a working life benefit more in retirement than those with lesser contributions.
As announced in Budget 2012, the period for which a claim for State pension can be backdated is six months. This change came into effect in April 2012.
From December 2013, the number of paid contributions required for Widow’s/Widower’s/ Surviving Civil Partner’s pension increased from 156 contributions to 260 contributions.
It is also planned to introduce a “total contributions approach” to determine eligibility for a State pension. The level of pension paid will be directly proportionate to the number of social insurance contributions made by a person over his or her working life. The proposed date for the introduction of a move to a total contributions approach is 2020, but this may be subject to change.
It is Government policy through the provision of generous tax reliefs to support private supplementary pension saving to allow individuals cater for an adequate income in retirement. The Deputy will be aware the Government has previously highlighted its concern at the currently low supplementary pension coverage rate of approximately 50% of workers. This is why the Programme for Government includes a commitment to reforming Ireland’s pension system to progressively achieve universal coverage, with particular focus on lower-paid workers.
The OECD Review of the Irish Pensions System provides an international perspective on Ireland’s retirement-income provision. Whilst endorsing pension policy reforms undertaken to date, the report also makes a number of recommendations for future reform. The OECD’s key recommendation is to improve the adequacy and sustainability of pensions by increasing coverage in the funded part of the pensions system through a universal mandatory or quasi-mandatory employment based pension system.
The OECD has indicated in its report that its first preference is a mandatory scheme, with its second preference being automatic enrolment, whereby people would be automatically enrolled but could opt out. I have previously stated that a soft-mandatory approach such as that envisaged by an auto-enrolment scheme, using scale to achieve greater cost efficiencies for the member, has been proven a successful and proactive way in which we can increase supplementary pension coverage. However, it is recognised that introduction of any such initiative would be best supported by a more favourable economic environment than is currently the case. The recommendations contained within the OECD report are currently being considered.