Dáil Éireann Debate, Tuesday - 24 June 2014
273. Deputy Terence Flanagan asked the Minister for Social Protection the measures contained in the OECD review of the Irish pension system she intends to implement in the short, medium and long term; her plans to look at the age of retiring to take account of greater life expectancy; and if she will make a statement on the matter. [26744/14]
View answerThe OECD Review of Pensions in Ireland, which was published last year, 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 in the key parameters of Irish State, occupational and private pension schemes and outlines options for more profound structural reforms of the retirement income system. In considering these alternatives, the OECD highlighted that it should be kept in mind that each of the national schemes and reforms discussed in the review was adopted in a specific national economic, social and political setting and that there is no blueprint for future reform which Ireland could take off-the-shelf and implement directly. As was expressed by the OECD, any solution has to fit the Irish situation.
A key recommendation made by the OECD is to improve the adequacy and sustainability of pensions by increasing coverage in the supplementary part of the pensions system through a universal mandatory or quasi-mandatory employment-based pension system and/or through improving existing financial incentives. This recommendation is in line with the Programme for Government commitment to reform Ireland’s pension system to progressively achieve universal coverage, with particular focus on lower-paid workers.
The fundamental policy rationale in this area is to ensure that those who do not currently have a supplementary pension are assisted and encouraged towards having one. As I have previously stated, 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.
With respect to OECD recommendations about Defined Benefit schemes, legislation has recently been introduced to provide for minimum guarantees for scheme members in the case of double insolvencies. This legislation removes the absolute priority order for pensioners and facilitates a greater degree of risk sharing across all members of DB schemes.
In relation to the State pension, reforms will continue with the current PRSI system and, as highlighted by the OECD, to strengthen the link between social insurance contributions and benefits received. In this regard, a number of significant reforms have already been introduced and further reforms are scheduled for the years ahead.
Firstly, 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.
Secondly, with effect from April 2012, the number of paid contributions required to qualify for a State pension increased from 260 paid contributions to 520 paid contributions.
Thirdly, it is 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.
Finally, recent reforms to the pension system include a gradual increase in State pension age to 68 years and the abolition of the State pension (transition). 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. These reforms were introduced in the context of changing demographics and the fact that people are living longer and healthier lives.
In relation to the issue of retirement age, I would like to clarify that there is no statutory compulsory retirement age for employees in Ireland. The setting of retirement age is a matter for agreement within the employer/employee relationship and the contract of employment. Arising from changing demographics, policy reform will continue to support longer working lives and to focus on the need to provide for sustainable and adequate pensions.
