Joint Committee on Social Protection díospóireacht -
Thursday, 4 May 2017

Pension Provision: Age Action

Chairman

We are joined by Mr. Justin Moran, head of advocacy and communications for Age Action and Mr. Gerard Scully, senior information officer of Age Action. Members have been circulated with the opening statement as well as a document entitled Towards a Fairer State Pension for Women Pensioners which was originally submitted by Age Action in February. I ask the witnesses to make their opening statements. Members will then be invited to address questions to them. I ask members to keep their initial questions to five minutes and we will come back for additional rounds.

I wish to draw attention to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

The opening statements submitted will be published on the committee website after the meeting. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

I remind members and witnesses to turn off their mobile phones or switch them to flight mode.

We will first have Mr. Moran's opening statement and I will then afford members an opportunity to pose questions.

Mr. Justin Moran

On behalf of Age Action, I thank the Chairman and committee members for the opportunity to come here today. I will focus my remarks this morning on the State pension and highlight issues which we hope will be addressed in budget 2017 and then discuss what must be done in the medium to long term to ensure a sustainable and fair State pension.

Ensuring that every person who hopes to grow old has enough money to do so with dignity cannot be left to when the individual reaches retirement. Less than half of people aged between 20 and 65 have a private pension. For those aged over 65, public transfers, of which the State pension is the most important, make up almost two thirds of their average gross income. This figure is higher for women pensioners, those living in rural communities and particularly those in the lowest socio-economic group. This is what makes the State pension so critical - for those on the lowest incomes, more than 85% of their weekly income is from State supports. The State pension is the most important tool we have for preventing poverty among older people.

As members will know, during the recession the rate of the State pension was not changed. This prompted some commentators to claim that older people were insulated from the effects of austerity. While the State pension was not cut for the vast majority of pensioners, a point to which I will return, the secondary income supports of many older people, such as fuel and telephone allowances, were cut or abolished. Age Action has calculated that between January 2009 and January 2015 the weekly incomes of older people dependent on the State pension and secondary income supports such as the household benefits package and the fuel allowance fell by more than €13 per week. While the incomes of older people were being cut, costs were rising due to increased insurance rates and the introduction of new taxes and levies on the family home and on prescriptions. Research undertaken by the Vincentian Partnership for Social Justice in 2013 noted that while the overall consumer price index fell by 0.15 % in the period 2008 to 2013, the cost of a minimum essential standard of living for a lone pensioner and a pensioner couple rose by over 5 % and 7.3 % respectively. The cumulative effect of the 2016 and 2017 budgets, which saw increases in the weekly rate of the State pension, the restoration of 75 % of the Christmas bonus and an increase in the fuel allowance, amounts to the equivalent of €11.51 a week. We welcome those measures, all of which will make a difference to older people. However, even with the latest pension increase, the reality is that the income of a pensioner reliant on the State pension and the household benefits package is still below where it was in 2008. We hope that will be addressed in budget 2018.

Another issue we seek to have addressed this year is the change introduced in 2012 to the eligibility criteria for the contributory State pension. While those entitled to a full pension were unaffected, many of those who would have been in line for smaller pensions lost out. Under the old system, for example, if one had an average of 20 contributions, one would be entitled to €228.70 per week. This has now dropped to €198.60, a cut of more of more than €30 per week.

Research commissioned by Age Action, which the Chairman mentioned and has been furnished to the committee, shows that this change, combined with the averaging rule used to calculate contributions, is punishing women who took time out of work to care for their children or other loved ones. Figures provided by the Department of Social Protection as part of this research indicated that, of the 36,000 people affected by these changes by June 2016, more than 62% were women. They will continue to be affected in the years to come, receiving smaller pro rata increases in the State pension.

In the October budget, Age Action is asking the committee to support two specific proposals: an increase in the top rate of the State contributory pension; and a reversal of the 2012 cut in the State pension. In the medium-to-long term, there is a consensus that the State pension system must be reformed, including by putting in place a system to govern increases in the pension to ensure that they are fair, but also sustainable. Ireland is, as the Department of Social Protection acknowledged to the committee in December, unusual in setting the pension rate in the budget every year without using any particular formula. For example, committee members will be aware of Britain's triple lock system, under which the state pension increases annually by the rate of inflation, earnings growth or 2.5%, whichever is highest.

In 2010, the national pensions framework stated: "In order to maintain this aim of preventing poverty for older people, the Government will seek to sustain the value of the State Pension at 35 per cent of average weekly earnings". Preliminary figures from the CSO for the fourth quarter of 2016 indicated that the average weekly earnings in Ireland was just over €716. Under the framework, this means that the State pension, currently €238 at the top rate, should be €250.62. Age Action believes that the 35% target should not simply be identified as aspirational, but should be used, and supported in legislation, as the minimum benchmark for the State pension.

It is also essential that, in considering the reform of the State pension in the years to come, the committee examines the gender disparity in pension income and, particularly, the failure to backdate the home maker's scheme, which was introduced in 1994. This time limit means that, for the current generation of pensioners and many more to come, the home maker's scheme will be of little or no benefit. The refusal to backdate the scheme, combined with the 2012 pension cut and the averaging out approach, means that hundreds of thousands of pensioners - mostly women - face far smaller incomes in their old age than they had anticipated. The contribution that these carers made to society, whether by raising a family or stepping in to provide care for a loved one where the State was unable to do so, must be recognised by our State pension system.

Committee members will be conscious of discussions ongoing in the Department about the introduction of an auto-enrolled, mandatory, second-tier pension. Age Action supports any initiative that would help to deliver a secure income in retirement for older people, but we have concerns, including about the potential for this to affect the State pension system. Our first concern is that, by potentially investing this money in a private pension scheme, we will see a privatisation of risk. Individuals will see the value of their pensions rise and fall with the market while presumably being obliged to pay fees to private pension companies.

Our second concern relates to the sustainability of the State pension. While there are many different opinions about how it can be assured in the years to come, most accept that there will need to be some sort of increase in the social insurance contributions made by employers, which are among the lowest in the EU. As unpalatable as any tax increase might be, it will be made doubly so if employers are already making payments under the new auto-enrolment scheme. This potential for the introduction of a mandatory, second-tier pension to undermine the existing State pension has not received the attention that it should.

Writing in 2015, the economist Professor Colm McCarthy pointed out that Ireland did not face a demographic crisis, but a policy crisis that was a product of our collective failure to prepare and plan for the coming societal changes in age and demographics. The objective of our national pensions policy should be to ensure that growing old in Ireland does not mean growing poor.

As a first step, we should assess whether the resources that we are currently allocating could be better spent. As committee members will be aware, we spend approximately €7 billion on the State pension every year, but we also spend approximately €2.4 billion as the total cost of private pension tax reliefs according to research by Dr. Micheál Collins and Professor Gerard Hughes. In 2014, the top 20% of income earners received 73.6% of this tax relief compared with 0.6% for the bottom 20%. The national pensions framework declared that tax relief on private and occupational pensions should be set at 33%. In response to a parliamentary question, the Minister for Finance, Deputy Noonan, subsequently estimated the savings to the Exchequer of such a move to be approximately €180 million. Were tax relief to be reduced to 33%, could the savings achieved be used, for example, to pay the bulk of the €290 million estimated by the Department as the cost of backdating the home maker's scheme? Put simply, of the billions of euro in the State pension and private pension tax relief that we are currently spending on ensuring that people have a decent pension in old age, are we spending it in the most effective and fairest way to provide incomes for pensioners?

I urge the committee to play its role in planning for an ageing society by emphasising that reform of the State pension should be the first priority for pension reform, including indexing the rate to weekly average earnings; leading calls for backdating the home maker's scheme; ensuring that the proposed mandatory, second-tier pension does not undermine our existing first-tier State pension system; and reviewing the current allocation of State resources in the pension system to ensure that it is fair and equitable.

I thank committee members for their time.

Chairman

I thank Mr. Moran for his statement. Colleagues will ask a number of questions, which I will take collectively before reverting to Mr. Moran.

Deputy Willie O'Dea

I thank Mr. Moran for his excellent presentation and both him and Mr. Scully for attending and giving of their time. Regarding the calculation of €13 per week in actual loss, is Age Action taking into account the fact that normal inflation rules do not apply to people over the age of 65 years? Normal inflation takes into account luxury goods and high-end items, for example, aircraft, super cars, etc. Were one to use the pattern of stuff that people over the age of 65 years generally buy as the measure of inflation, one would probably arrive at a larger figure.

Does Age Action have a costing for a reversal of the 2012 rule change to the eligibility criteria? How much would it cost the Exchequer per annum? Two changes would be required. Obviously, the original averaging system would have to be restored and we would have to reverse the change in the criteria and move from 520 contributions to 260.

In net terms, how much would it cost to restore the retirement pension to 65 years of age? It is a net issue rather than a gross one, given that people now receive jobseeker's allowance or benefit of €193.50 instead of the €238 or whatever it was.

Mr. Moran made an interesting observation on the proposed auto-enrolment system and its capacity to undermine the current State pension system. He might elaborate on that interesting point.

Mr. Moran mentioned reducing tax relief to 33%. It is available at 20%, which is the bottom rate, and the top rate of 40%. Is Mr. Moran suggesting that the top rate - the marginal rate - at which relief can be given should be reduced to 33%? He is not suggesting that people who can only qualify for relief of 20% should-----

Mr. Justin Moran

No.

Deputy Willie O'Dea

That is fair enough and is all that I wanted to ask about.

Deputy Denise Mitchell

I thank Age Action for attending and making an opening statement. I also thank it for its continued great work in representing our older citizens. It has asked our committee to make pension reform a priority, and we all agree with it that pension reform is needed.

I will touch on a number of basic points. These changes, including to the pension bands, form one of the main issues about which constituents contact me. Over 65s have been placed on the transitional pension and people are being forced to take up jobseeker's allowance. Everyone at this meeting is singing from the same hymn sheet. I commend Age Action's report, which shows the real impact of the 2012 cuts on our older people.

We need to close the gender pension gap, which came about as a result of previous cuts. We must have a full recognition of caring roles in the home maker's scheme and a fair calculation of PRSI contributions as regards the State pension.

I will ask a few questions about the State pension. We must protect it regardless of the introduction of a mandatory, second-tier pension system.

How do the witnesses envisage that we can sustain the State pension? How do they think we can protect it while we create this second tier mandatory pension? Do they have any figure in mind for the increase in employers' PRSI? I would be grateful if they could answer those questions.

Senator Alice-Mary Higgins

I thank the witnesses for their presentation and for the work they have been doing in this area. I welcome the research that has been done to draw out some of the issues around the gender pension gap in its many forms. Women seem to be disadvantaged in the current system in two ways. The second layer almost adds insult to injury. It seems that opposing logic is being used to justify each of the two forms of disadvantage. I would like to hear the thoughts of the witnesses on this matter. The changes that were made in 2012 were justified on the basis that there needed to be a greater match-up between people's contributions and the payments they get. They were also acknowledged as a cost-saving measure. Older female pensioners were almost seen as invisible in the system because so many of them were on reduced-rate pensions. I ask the witnesses to clarify how all of this breaks down in terms of gender. Who is getting a full pension and who is getting a reduced pension?

The argument that was made in this regard was that there needed to be a link with contributions. However, the same rationale did not apply in the case of the backdating of the home maker's disregard. If I am correct, someone who has contributed the required number of contributions for a full pension over a period of work with a gap in it - he or she might have made as many pension contributions as someone who worked 20 years in a row - will not get the value for his or her contributions because of the averaging rule. It seems that two contradictory forms of logic are being employed. We have been told we cannot afford to fix it. I ask the witnesses to comment on the incompatible forms of logic used in these two cases. As I see it, both of them are adding two layers of disadvantage to women in the pensions system.

I was interested to hear about the proposal to reverse the change that was made in 2012. I would like to know whether the witnesses believe it is satisfactory that we should wait until 2020 before we bring in averaging. Do they agree that backdating needs to be done on an earlier basis in order to address this direct form of disadvantage?

I would like to move away from issues that are currently affecting people of pension age. How do the witnesses believe care should be recognised within the pension system, focusing primarily on the first system? How should care and the contribution of care be recognised in any new supplementary system that is introduced? Other members of the committee have mentioned the question of a second-tier system. Do the witnesses believe the first tier of the current system - the contributory and non-contributory pensions system - needs to be addressed first as a priority? Perhaps it should be done in this way as a means of building trust in the public mind before we introduce automatic enrolment.

The averaging of tax relief was one of the few points in our memorandum of understanding with the troika not to be implemented. The troika sought a move from marginal-rate tax relief to an average-rate tax relief. There is a gender aspect here as well. We are giving the top 20% well over €1.5 billion in tax relief - that is an approximate figure based on my calculation of 75% of €2.39 billion - and we know the people in that category are largely male. It seems that there are three or four different ways in which women are currently systematically disadvantaged within the pensions system. I agree with the witnesses that the rerouting of these moneys should be considered as we seek to address the gap that exists.

The witnesses made an interesting point about the pension target of 35% of average income. Is that the best model of linking from their perspective? How important is the target for ensuring predictability for older people as they plan for the years ahead?

Deputy Joe Carey

I thank Mr. Moran and Mr. Scully for attending this meeting, for their presentation and for their opening remarks. I thank Age Action Ireland for the work it does on behalf of all older people in the State. I am trying to get a better understanding of how other European countries deal with the home maker's model. Is it in vogue in other European countries? A figure of €290 million has been mentioned in the context of the backdating proposal. Have models in other EU countries been examined to see how they deal with this question? I think the other pertinent questions I intended to ask have been covered by previous speakers. I look forward to hearing the witnesses' answers.

Chairman

I would like to put a few points to Mr. Moran and Mr. Scully. I thank them for their attendance at this meeting and for their submissions. Mr. Moran said in his opening statement that "in the October budget, Age Action is asking the committee to support two specific proposals". I assure him that as this committee addresses the pensions issue, it intends to draw up a report with proposals and recommendations before the summer recess in the hope of influencing the budgetary process. The appearance of the witnesses before this committee today, and the presentation they have given us, are timely from that point of view. Even though we are in the month of May, we are working towards the budgetary process.

While Mr. Moran quite rightly referred to the 2012 cut in State pensions, I suggest it would be more correct to refer to the change in the averaging bands. The imposition of additional bands moved people into different categories. The witnesses are proposing that we should go back to the older system. I want to confirm that this is exactly what they have in mind.

Mr. Moran referred to "the €290 million estimated by the Department as the cost of backdating the home maker's scheme". He might explain in a little more detail the composition of that €290 million. Would it be a recurring annual cost from here on? Is that the way it is?

Deputy O'Dea spoke about the need to future-proof pensions. One of the proposals relates to average salaries. Under the British system, pensions are linked to an index like the consumer price index. Would it be more appropriate to create a specific index for people who are older, given that their needs are different? They might not have educational needs but they might have higher health care needs. Should an index be established that would reflect the actual living costs of older people? Specifically, such a system could ensure the rate of increase is relevant to the needs of older people rather than to a more general need. The witnesses might give me their views on that.

Under the current system of payment for pensions, one must have a minimum total figure initially and then a calculation is made on the basis of an average annual contribution. Most of those who have taken time out of work are women. In some cases, they qualify for a reduced pension, rather than the full payment, because of the reduction in their average earnings over their working lives. It is possible that the total amount paid by someone in these circumstances could be greater than the total amount paid by someone else who is getting a higher payment. What is the view of the witnesses on the whole idea of shifting from an annual average to a total payment contribution system? Do they think that would be more equitable? I am not suggesting that there would be no issues with such a system. Would such a system be more equitable than the current system? Obviously, it would have to be worked out exactly in terms of bands, etc. I would like to hear the views of the witnesses on whether it would be a more equitable system. I do not expect that this could be done in a single budget, but is it something we should be actively looking at?

We have come through an economic recession. While the recession may be over, there are continuing legacy issues, for example in the whole area of housing. We have a cohort of ageing people who are in private rented accommodation. Traditionally, people in this country have finished paying for their houses by the time they retire. At present, there are many people in this country who have lost their homes. Do the witnesses have a view on the adequacy of the current pension arrangements for older people who do not own their own properties as they reach retirement? Is it possible that in 20 years' time, we will be looking at a scenario that is different from the scenario we are looking at today?

That might be a more longer-term issue but we do need to be cognisant of the fact that there is a cohort of people who traditionally would have owned a property - their home - that are now living in private rented accommodation. As we know, the number of people living in private rented accommodation is higher now than ever before. I would welcome the witnesses' views on that particular cohort.

Mr. Justin Moran

There are a couple of issues that were repeatedly raised, but rather than take them thematically and to ensure I respond to all of the questions, I will go through them as they were raised. On Deputy O'Dea's point regarding the calculation, I accept that it is a blunt instrument that does not take into account some of the inflationary pressures he mentioned. However, it is important to highlight the impact on older people. There are people who say they were insulated, so it is important we challenge that.

In regard to reversing the change introduced in 2012, the latest figures we were given from the Department of Social Protection is that, since its introduction, approximately €10 million per annum has been saved, and if it was to be reversed, the cumulative cost would be €60 million.

Deputy Willie O'Dea

It would cost approximately €10 million per annum if the change was reversed now.

Mr. Justin Moran

According to the Department savings of €60 million have been made since it was introduced because every year people have come on who were not entitled to it.

Chairman

I would like some clarification on that point. If that were changed in budget 2018, without compensating for the missed years, the cost going forward would be an additional €10 million per annum? Is that what Mr. Moran is saying?

Mr. Justin Moran

That is our understanding from the Department's figures. It is an important figure.

Deputy Willie O'Dea

Is that the cost of changing the averaging to what it was in 2012 and changing the criterion to 260 contributions paid instead of 520?

Mr. Justin Moran

I am not entirely clear on that point. It is a matter for the Department. It certainly covers the changes to the rate bands. Also, the Chairman is correct in what he said.

Chairman

A sum of €10 million would have to be provided in the 2018 budget to allow for those bands to be reinstated.

Mr. Justin Moran

Yes, based on the Department's figures it would cost €10 million. The cost of reversing and backdating for people who had been on lower pensions since 2012 would amount to €60 million.

In regard to the net cost of the restoration of the transition pension to 65 and taking jobseeker's into account, regrettably, I do not have that figure but we do intend to pursue that issue. On the auto-enrolment scheme and its potential to impact on the State pension, we are talking not about a scheme that exists but ideas and suggestions around such a scheme, including, for example, the introduction of a small, perhaps 2%, contribution from employees, employers and, possibly, some sort of State support. It is modelled a little on the British system that has been introduced. My concern would be that if that system was brought in and, six or seven years down the road, it was decided that PRSI contributions needed to be increased to ensure the State pension was sustainable, we would be going back to the same pot again. We would be requiring the people paying into the auto-enrolment scheme for the second tier pension also to pay into the first tier pension. That could be a difficult ask of the people concerned. A mandatory second tier pension could be a very helpful and sensible approach to ensuring people have adequate income in retirement. The Minister, Deputy Varadkar, has stated time and again that he sees the first tier State pension as a priority. What we would like the Government to do in the context of considering a second tier system is to ensure that what it introduces does not immediately, or potentially, undermine the State pension, which is the most important.

Deputy Willie O'Dea

It should be secondary to it.

Mr. Justin Moran

Exactly. I agree with Deputy Mitchell's point regarding people at the age of 65 being forced onto jobseeker's benefit. There are more 65 year olds on jobseeker's benefit than there are people of any other age, which we hear frequently from a lot of our members and supporters who would not only be in receipt of a smaller payment than the pension but who in many cases find it dispiriting to be told that despite their having worked their entire lives, they now have to go on the dole. This is, in part, linked to the issue of mandatory retirement, which was raised by Deputy Brady and in respect of which Deputy O'Dea has also introduced legislation. The fact is many of those people were forced to retire at 65 when they would have liked to continue working, not perhaps for ten, 15 or 20 years but until State pension age.

On the point regarding how we sustain the State pension and make it more sustainable, as a first step, we need to have that debate and to identify ways of doing it. The proposals that came forward from the national pensions framework were around increasing the retirement age. I would view that as an ask of older people to continue working for longer to get a State pension to make it more sustainable. Perhaps it is time we looked at other asks that could be made. For example, could we consider how to make the State pension more flexible? Some people would like to put off getting the State pension and to continue to work for longer while other people would like to continue to work for longer but they cannot do so because of the mandatory retirement clauses. If we enabled them to do that, not only could they continue working, they would continue paying tax. Currently, older workers pay no PRSI and employers pay only a small amount of PRSI for them. Perhaps that could be looked at in terms of trying to increase the amount of money that would be going into the Social Insurance Fund.

When talking about the State pension we need to move away from the very black and white and fixed concept of a person being entitled to a pension at 66 years. As I said, some people might want to put off getting the pension to a later age and others might want to get it earlier. In a number of European countries particular classifications of workers are entitled to claim the full state pension a couple of years earlier because they work in very physically demanding areas, including construction, heavy industry, home care and so on. In France and Belgium people who work in those areas are entitled to a full state pension a couple of years earlier. Consideration could be given to the introduction of a similar model here. I am not talking in that regard about making the State pension more sustainable but it is worth bearing that in mind. I have worked in offices most of my life. When it comes to retirement, the demands in terms of the wear and tear of my body will be very different from those of friends of mine who have worked in construction and continue to work in that area. I agree with the point regarding the need for full recognition of the carer's role. In that regard, the homemaker's scheme needs to be addressed.

On Senator Higgins's point regarding the breakdown in gender, in terms of the contributory State pension, 64% of recipients are men and 36% are women. These are figures from the Department in relation to 2015. Regarding the non-contributory State pension, 62% of recipients are women and 38% are men. The figures we got in terms of the impact of the 2012 changes are that 62% of people affected by that were women and 38% were men. In terms of the new rates that were brought in, the biggest cut was to the rate that had the highest proportion of women. It is almost 2:1 for women in general but in terms of band 4, which is the one that lost around €30, the cut is higher there. That needs to be borne in mind. As stated, these are people who were doubly discriminated against. In many cases, the people who approached us were forced out of employment because of the marriage bar. In other cases, people believed that they had difficulty getting employment in the 1970s and 1980s because they were women. There are layers of discrimination involved.

I agree also with the point about the contribution that workers have made. On the point about linking the contributions to the pension, the example that comes to mind whenever I discuss this issue is that of an Age Action member who worked for 18 months in 1968-1969, left the workforce to provide care to her family, which I would strongly argue was a contribution, returned to the workforce in late 1990s and worked for about 12 years and then retired who, had she not worked in 1968-1969 would have received the full State pension but because she worked during that time, a decision she made more than 40 years ago and one which I suspect the Government of the time would have been encouraging people to make, she is in receipt of a much smaller pension. These types of anomalies could be addressed by a move to a total contributions approach. Taking into account the Senator's point and also the point made by the Chairman, we believe that could be a better system, but in terms of the mandatory retirement system, we have not had sight of what the Department proposes. A system that is closely linked to the contributions made by workers over their time in employment would be more positive and would remove some of the anomalies in the current State pension system.

However, that system would have to provide fair treatment for care that is not considered to be paid employment but is the care of family members, and not just children but also people with special needs or disabilities.

One of the reasons we are a little bit cautious about it is that when the Minister, Deputy Varadkar, was discussing this issue before the committee last year, he said that in the move to a total contributions approach, there would be winners and losers. Considering the people we represent, we want to ensure there are as few losers as possible in this regard.

I strongly agree with the point that the initial tier should be addressed first. Elected representatives who deal with people in their constituency clinics will know how complicated the State pension can be with all the different stamps and changes to it. My colleague, Mr. Scully, deals with it daily on our information line. We need to reform that system by making it simpler, fairer and more effective. That is not just because it is the one that most people rely on but also to achieve that issue of trust in moving to a second tier pension.

I also wish to mention the question of whether 35% is the best model to choose. This is also the point the Chairman made. Honestly, the answer is probably not but it is the one that is there. As an advocacy organisation, we look at the commitments the Government has made and entered into. It has carried out its own research and decided that the best way of doing this, and the simplest formula, was to look at a 35% figure based on average earnings. In that way the pension would continue to rise in line with the demands of the economy. It would be far preferable to take the approach outlined by the Deputy, which was that we would examine building a system specific to older people and responsive to their needs.

We have looked, for example, at research undertaken on the cost of living for older people. Much of it, however, does not include the fact that many older people have high rates of private health insurance coverage. They will make enormous sacrifices to ensure they meet those insurance payments. There is, therefore, a difference between demands on older people and demands on others that could be addressed with a different formula.

I regret to tell Deputy Carey that we are not familiar with the homemaker's scheme in other countries. Our research programme over the past year has focused on the 2012 State pension cuts, which is the material we have produced. We also examined the homemaker's scheme as it operated in Ireland. Our pension research programme will examine gender and not superficially the homemaker's scheme. I regret to say that I do not have an answer to the Deputy's question, but it is something we have recognised as a priority to be examined.

As regards the Chairman's points, I welcome the fact the committee will consider making recommendations and suggestions. That is important ahead of the budget later this year and given the cross-party nature of the committee. The figure of €290 million comes from the Department. As the Deputy will see from the footnote, we are not completely clear about the evidence for it either. The committee may be aware that the original figure for backdating the homemaker's scheme was around €140 million. It came from the 2007 Green Paper on pensions and was the figure we were using for some considerable time.

In his contribution to the committee in December 2016, the representative from the Department of Social Protection said they had done a more substantial piece of work and had now identified the figure at €290 million for backdating the scheme. The question is, however, how far it would be backdated. There is a big difference between backdating it forever, or to 1973 or 1974 when one uses the marriage bar to link it back to something. I would not question the Department's figures and I am sure the €290 million figure is accurate. However, it would be great to get some context on how the figure was calculated and achieved.

I agree with the Chairman's point on the specific index. I would encourage members of the committee to look at the work that has been done by the Vincentian Partnership for Social Justice, including minimum essential standards, not just for older people but in general.

Rental issues for older people have been coming up more from our members in the past six to 12 months. It concerns not only those in rental accommodation but also owner-occupiers who would like to move into sheltered housing, but there is no such accommodation available. One of the challenges in the years to come is how we can provide housing options for older people that are not currently in place. We have owner-occupiers who would like to move into sheltered housing but cannot do so because they are not on the housing waiting list due to their status as owner-occupiers. We also have people in rental accommodation who would like to move out into communities that are more responsive to older people's needs.

Sheltered housing is one of the issues that will need to be addressed in the years to come. There is much more investment in it in Britain and the private sector is much more involved in building retirement homes and communities. It has not really taken off in Ireland. Organisations such as Clúid are doing fantastic work, but the matter has not been sufficiently addressed so far.

Chairman

I want to follow up one or two points with Mr. Moran. He attributed a comment to the Minister, Deputy Varadkar, that in moving to a total contribution basis there would be winners and losers. As I said to him at the time, that is assuming the pot is exactly the same. Mr. Moran has already made that assumption.

As regards moving from the annual averaging system, and notwithstanding that people get credits whether as homemakers or for whatever other purpose, there is an inherent inequity in it. Somebody could have a lot more contributions than someone else, but the time they entered the system affects it. There is probably merit in looking at another system. The challenge is to ensure it addresses anomalies before the system is introduced.

Mr. Moran referred to the type of people who should get credits and that needs to be built into it as well. However, moving away from annual averaging to another system would have greater equality built into it. While it probably will not be addressed in next year's budget, we do need to get to a fairer system than annual averaging.

A number of colleagues have supplementary questions. I will call Deputy O'Dea first.

Deputy Willie O'Dea

As regards moving to a total contribution system, there would be winners and losers but it depends on where one sets the bar. Let us presume, for example, that the Minister for Social Protection said he was going to introduce a new system based on total contributions of an average working lifetime of 40 years at 52 contributions per annum. In a situation like that there would be a hell of a lot of losers and our clinics would be very well attended. We have to be careful in that respect. I take the point that Deputy Mitchell and others have made about care, but I could see a situation where, for a change, men would lose out more than women in a total contribution system.

Mr. Moran made an interesting point about people being able to put off receipt of their pensions in the event of the legislation ending mandatory retirement coming into effect. Will the Chairman contact the relevant authorities to see where we are with that legislation, which is pretty central to this matter? The Bill is not being opposed by the Government, so we just want to see what stage it is at now and if the money question has been sorted out.

As I understand it at the moment, if somebody reaches pension age and is entitled to a contributory old age pension, but continues working, he or she is still entitled to get the pension. As I interpret it, Mr. Moran is suggesting a sort of trade off. We would have a new system whereby if they were working, they would not get their pension. In compensation for that, people below the age of 66 who are working in certain occupations like the construction industry, might be able to balance one off against the other. That is a very good idea and we should examine it closely. I thank Mr. Moran for his presentation which was very informative.

Chairman

Anyone else?

Senator Alice-Mary Higgins

I have a couple of quick points, including the one that Deputy O'Dea picked up on. I am aware of the debate in France, for example. There was a lot of simplistic coverage about retirement at 55, but in many cases they were talking about people who had worked for 40 years since the age of 15. We should examine the question holistically in terms of what people have been doing, while recognising care as part of that.

Mr. Moran discussed the double-bind highlighted by the 2012 changes.

There is a potential interim position whereby the 2012 changes are suspended and not introduced until we address the question of introducing total contributions and create a new system. I appreciate the concerns highlighted by Deputy O'Dea. I agree with him that we must be careful when deciding the type of total contribution to adopt and what it includes. There is a contradiction. It seems unusual to have introduced and further imbedded a new measure in 2012 that was based on an averaging system acknowledged as being unfair. Introducing a new measure to provide for total contributions or subsequently strengthening or adding bands would be counter intuitive. I wonder about that position.

Concerns have been expressed about PRSI. In order to be realistic about our ageing population and to plan for the future, should we increase PRSI contributions now because a second tier system may take years to introduce? An increase now would mean we would not seek an increase after the fact.

Does Age Action Ireland find the current tax reliefs defensible when we have recognised inequities in the first tier system? A rate of 33% was mentioned by the organisation. Does the organisation think we should move entirely to a standard rate of tax relief in the medium-term?

Chairman

I wish to make the following comment for Mr. Moran's information and that of the committee, and to follow on from a point made by Deputy O'Dea about total contributions. If a person worked 52 weeks a year for 40 years, he or she would have made about 2,000 contributions. Recently I asked the Department for a breakdown on how many people in receipt of a pension had made total payments of 1,800 contributions, 1,500 contributions and so forth. It emerged that the Department did not have the data to hand. People are concerned that we cannot design a proper system because, without that data, the bands in a new system might be just as problematic as the bands in the current system. In my view, very few people will have worked 40 years uninterrupted or have made contributions, availed of credits or whatever for 40 years. It is important that the design of the system reflects reality. We must not introduce a new system that might be more equitable but gives people much less. It is tricky to gather the appropriate information. I am disappointed that some of the big figures are unavailable. If they were, one could commence analysing how a new system might look.

Senator Alice-Mary Higgins

I wish to build on the point made by the Chairman because it is important. In terms of being realistic about how the workplace now operates, we know that the amount of precarious and insecure work is on the rise. As has been mentioned, 60% of the people who have insecure, low hour and non-fixed hour work are women.

I would like the witnesses to share their thoughts on the non-contributory pension and the capacity to make voluntary contributions. As the Chairman outlined, in the future it will be hard for people to have made consistent contributions because their work life does not allow them to do so.

Chairman

In terms of voluntary contributions that people can buy and pay for, typically that category of worker would have been self-employed. What happens if he or she falls out of the scheme? Is there scope to expand the scheme of voluntary contributions?

Mr. Gerard Scully

It is very restrictive.

Chairman

Yes, that is what I asked. Either of the witnesses or both of them can answer.

Mr. Justin Moran

Mr. Scully can answer the last question on the non-contribution pension after I respond.

In terms of the other points, moving to a system involving total contributions with credits is where we will end up. The system outlined by the Chairman would be fairer. We would worry how long it will take us to get there. We have heard a lot about it being introduced by 2020 but we think that is optimistic. The discussion would be greatly helped if the Government gave us more information on the design, format or structure of the scheme. If the Government was serious about changing something as substantial as the State's pension system by 2020, it would need to be talking about it in some detail now.

I will outline one of the challenges that we experienced as a result of the 2012 pensions cut. Many people came to us about it, and still do, because they did not know that a change had occurred. The Government or Department might be spurred on to adopt a total contributions approach if they took Senator Higgins's suggestion on board to suspend the 2012 changes. The move would be welcomed by many people. Our members have taken the initiative to write personally to the Department or to their Deputies and public representatives. They have received letters to the effect that the respondent appreciates they are in a certain situation and there is an anomaly but the Government is moving to a total contributions approach in 2020. Being told that the Government will tackle the matter in 2020 is unhelpful when one can lose €1,000 per year, as a result of the 2012 changes, as some women and men have done. The amount involved is a fairly substantial sum, particularly for someone in receipt of the State pension.

Senator Higgins suggested that it would be better to increase PRSI payments now and I agree with her that we need to do so. Our opening statement contains a reference to the research conducted into this area. Mr. Paul Sweeney highlighted the fact that Ireland has one of the lowest employers' PRSI contribution rates in Europe, which is 7 points lower than the OECD average and lower than the average of the EU's 15 countries. Employers and job creation would be impacted by increased social insurance contributions. We need to commence a conversation. If we want a sustainable State pension system, people must put money into the Social Insurance Fund. Many employees and workers already pay a substantial amount of taxes, not just PRSI but through other income contributions. In a situation where workers are asked to work longer due an increased retirement age and we prevent them from working beyond the mandatory retirement age of 65, it is time to consider the type of contributions employers make, especially in the context of the sacrifices that workers have made over the past number of years.

In response to whether the current tax reliefs are defensible, I raised the issue because when we talk about the State pension a figure of €7 billion is bandied about. We spend €7 billion a year and it will increase by €200 million a year. We actually spend more on pensions but in the form of occupational and personal pensions. If we are going to have a discussion, then let us have it in the round. Let us add the two figures together, which is €10 billion more or less, and decide how to spend it. Perhaps the best and fairest way to spend it is to have a State pension system and to adopt a total contributions approach and provide supports for private pensions. At the moment the supports are not geared in the right way, especially when one considers the disparity between where the benefits for the private pension tax reliefs occur.

To be clear, saving for retirement and having a private pension is a sensible thing to do. It is an appropriate and sensible use of Government funding to incentivise people to save for their retirement. I wonder if we are putting money into the State pension that could be better used elsewhere.

The Chairman made a point about getting the necessary data. We found it a little challenging to get a gender breakdown of data for our report on the 2012 figures. Such data is not published in the annual statistics report released by the Department of Social Protection. Bad data leads to bad decisions but good data leads to good decisions. The more information is publicly available to elected representatives and organisations like ourselves the better, and everyone can make an informed decision.

Mr. Scully will answer the question on the non-contributory pension.

Mr. Gerard Scully

The non-contributory pension is a social safety net. The Chairman mentioned people who are self-employed and other categories of people who do not qualify for a State pension. For people who want to make voluntary contributions, the problem with the 2012 changes was that people were told up to three or four months before they retired that they were safe and had made enough contributions, but then they fell off the cliff so to speak. They were not warned. They were not advised when they were still in employment that they were still in the system and, thus, could make voluntary contributions to improve their record of contributions. The offer was not given to people and it has not been offered since because people are still falling off the cliff edge.

People are still ringing Age Action to tell us that they have just realised that they will not get a full pension although they thought they had made sufficient contributions and were told eight or ten years ago that enough contributions had been made. Nobody has ever gone to those people to tell them that they needed to make voluntary contributions in order to avoid the cliff edge. We either need to suspend the changes introduced in 2012 or start being fair with people and start an education campaign to tell people, if they are in work, to check their contributions and begin making voluntary contributions if needed so they can avoid the cliff edge.

Chairman

I am sorry for interrupting the witness. It is not easy to get into voluntary contributions. Not everybody can pay them. One has to come from a-----

Mr. Gerard Scully

It is very complicated. The rules governing it are very complicated.

Chairman

Yes. Is there scope for the voluntary contribution to be expanded beyond the limited groupings of people it currently applied to? Should that area be explored? Its cost doubled in recent years from somewhere between €200 and €300 to €500 per year.

Mr. Gerard Scully

As the Chairman said, the rules governing voluntary contributions in terms of when one can begin making them and who can make them can be simplified and extended to more categories. Anybody who wishes to do so should be able to make voluntary contributions. There is no justification for having somebody in the system but receiving less in the system than somebody else. For example, those in paid employment can make voluntary contributions but the self-employed cannot. We need to look at the system in its entirety and simplify the rules. The rules governing voluntary contributions need to be extended so that everybody who is paying PRSI contributions at some level, whether that entitles them to a State pension or not, should be allowed to make voluntary contributions in order to become eligible for the State pension. A self-employed person whose business folds may find himself or herself on the dole two or three years before retirement age and he or she cannot make voluntary contributions or get a State pension and may not have a private pension. He or she may not have been wise enough to pay into a private pension. Those people are left on the non-contributory pension after working all their lives, which is grossly unfair.

Deputy Denise Mitchell

Mr. Scully has made the very important point that people were not aware of changes in the rules governing voluntary contributions. That is an issue of which the committee could make the Department aware.

Chairman

Deputy Mitchell should take a note of that point because the committee will be concluding with a written report and, in terms of the committee's conclusions and recommendations, such issues would merit consideration.

Mr. Justin Moran

I do not wish to prolong the meeting but I will make one point on that issue. The lady who launched the Age Action report on the 2012 cuts was from Sligo. She had been due to retire and had found out what her contributions were going to be. Her employer then asked her to stay on for an additional year because of a staff shortage in her department. If she had retired when she had planned to do so, she would have had almost a full State pension. She did not know the 2012 changes were going to be implemented and she liked where she was working so she continued doing so for an additional year. When she retired, she found that her pension income had dropped. Her decision to work for an extra year will cost her, possibly for the rest of her life.

Deputy Willie O'Dea

If the Department has money to spend on campaigns, it would be far better to do so advising people of their right to make voluntary contributions than on a fraudulent campaign about alleged social welfare fraud.

Deputy Denise Mitchell

I agree.

Chairman

Deputy O'Dea's point is well made.

Senator Alice-Mary Higgins

There has been one small change to the voluntary contribution rules which is important to acknowledge. The period of time in which contributions can be made has been extended to five years. That is something which the committee pushed for and achieved. We are focussing very much on the non-contributory and contributory pension. Age Action has expertise across the whole picture. When the committee looks at that in the autumn, it might be able to get follow-up correspondence on other aspects of the pension system.

Chairman

I thank members for their contributions. I thanks Mr. Moran and Mr. Scully for their attendance and the frankness of their answers. The opening statement will be published on the website and the evidence given today will form part of a report on this issue which it is hoped will have some impact on budget 2018.

The joint committee adjourned at 2.06 p.m. until 10 a.m. on Thursday, 1 June 2017.