Vol. 567 No. 1
89 Mr. O'Shea asked the Minister for Social and Family Affairs if concerns expressed by an adviser from the World Bank as reported in a newspaper (details supplied) that people may be forced to work an extra ten years or see their pensions cut in half if state pensions around the world are to be sustained in the long-term, have been drawn to her attention; and if she will make a statement on the matter. [13555/03]
I am aware of these views and, in fact, I spoke at the same conference, which was held recently by the World Pension Association in co-operation with the Irish Association of Pension Funds. Many issues were discussed at this conference in relation to pensions systems both at the broad macro and at the more detailed level.
Pensions are an international issue and most countries in the developed world face the same challenges going forward as to how to provide pensions that are both adequate and sustainable in a context where our populations are ageing fast. Overall, the combined effect of large numbers reaching retirement age and increasing life expectancy will be a doubling of the old age dependency ratio. In 2000, the over 65s were equivalent to about one quarter of the working age population in the EU; by 2050 this is projected to rise to nearly 50%.
Ireland stands out from other EU countries in that just over 11% of our population are over age 65. This does not mean that we will be exempt from the difficulties faced by other countries. Ireland faces the same challenges, the only difference being that these appear later. The future of national pensions systems has been the focus of an in-depth analysis at EU level over the past year or so through what is known as the "open method of co-ordination". Under this process, agreed objectives in the area of adequacy, financial sustainability and modernisation were set out. The aim is that member states learn from each other while remaining free to develop their pensions systems in accordance with their own traditions, values and priorities.
As part of the EU process, we have presented a clear strategy to achieve the common goals of adequacy, sustainability and modernisation which was well received by the EU. Our overall strategy for the future in the area of adequacy includes a continuation of our policy of significant increases in State pensions and increasing the number of people with supplementary pensions cover from its current level of about 50% to 70% of those at work aged over 30.
In relation to ensuring the sustainability of our system, the Deputy will be aware that the Government has set up the national pensions reserve fund which will be available to part-fund pension expenditure from 2025. A high level of workforce participation among all sectors of society is also an important element of any policy to ensure the sustainability of our pensions systems. In this regard workforce participation of older people in Ireland is above the EU average and very close to EU targets set for 2010.
Overall, the EU considered that Ireland had made good progress in ensuring the financial sustainability of our pensions system while at the same time increasing the level of our pensions.
Pensions will remain an important issue for this country, and the EU as a whole, and it will be necessary to monitor closely the situation on an ongoing basis in the years ahead.
I thank the Minister for her comprehensive reply. I think she is aware that Mr. Richard Hinz, a World Bank adviser, indicated at the World Pension Association conference that the extent of demographic changes would mean that in some countries – probably not our own but we nevertheless have to take cognisance of European and world events – pensions would have to decrease by 50% or the retirement age would have to increase by about ten years to make the current systems financially viable in the long term.
The Minister has stated that the proportion of the EU population over the age of 65 will almost double between the years 2000 and 2050. This obviously raises questions about the sustainability of existing state pension funds. Would the Minister agree that although we have a younger population, we are not immune, isolated or cocooned from those events and demographic trends that will certainly impinge upon the sustainability of pensions? Does it give the Minister cause for concern that Irish managed pension funds sustained significant losses in 2002 – I think they were in the region of about 18% or 19% – and we have been subject to volatility in the pensions market for the past three years or so?
Is the Minister satisfied that the national pensions reserve fund, which her Government set up to pre-fund State and public service pensions from 2025, will continue to invest heavily in equities despite the losses over the past number of years? We need a huge level of worker participation and contributions to make the PRSA system work. Is the Minister satisfied that in this environment we will get the level of participation which is so vital to ensure the sustainability into the future about which we speak?
I agree that every Minister with the same responsibilities as I will be very concerned about the issue of pensions. Luckily, we are not in the same position as our colleagues in Germany or Sweden, where very difficult decisions have had to be taken. On that basis, we learn from those who have to take action before us because we are very much at an early stage when it comes to pension provision. We are not immune from any of that market volatility either, and the management of the national pension fund saw a loss of 18.9%. I am happy with the way in which pensions are being managed at present through the pensions board. This House gave the board flexibility to look at how the fund is managed. These are long-term provisions but we have taken short-term action to address the failure of pension funds to mature here as compared to other parts of the EU. Through the open method of co-ordination, we have learned a lot from what other countries have done.
The actuarial review has indicated the timescale within which we must address those concerns. That is why we introduced the national pension reserve fund and PRSAs. If we are not happy with the performance of PRSAs, which is good at present, we may have to look at other issues. While I am happy at present, I am very aware of the concerns that exist about pensions, as is my colleague, the Minister for Finance.
