I ask members to look at the screen in front of them on which my presentation will be clear.
I will open by saying a little bit about Active Retirement Ireland. The organisation was founded in 1978 in Dún Laoghaire, which is down the road from here. Our national network was constituted in 1994. Acting Retirement Ireland is now Ireland's largest community-based organisation for older people. We represent more than 25,000 members and have 559 groups that span nine regions. We have an all-island reach into Northern Ireland.
Our purpose is to enable older people to lead a healthy and active life, and advocate for them. Today's meeting is a great opportunity for us to address it because our strong feeling is that people cannot enjoy a healthy and active life without the social supports in place that allow them to do so. That is why we advocate for them.
Active Retirement Ireland was identified and supported by Atlantic Philanthropies from 2008 to 2016, inclusive. As members will know, Chuck Feeney has unfortunately departed the philanthropic scene and Atlantic Philanthropies has been wound up. At present we are funded by members' fees, donations and grants from the HSE and Pobal.
I shall now talk about pensions and retirement. We are living in what is known, economically speaking, as a time of demographic opportunity. Contrary to popular portrayal and reporting, Ireland is not facing a demographic timebomb. Ireland has the youngest population in the EU 27. In 2015, to quote the OECD, Ireland had the highest birth rate, the second lowest death rate and the fifth highest rate of net inward migration. This is the time to plan for the future. We are moving into a period where Ireland will have more people working when compared with the number of people retired than any other country in the European Union. When we talk about crisis the word does mean opportunity but people are too keen to focus on the negative aspects.
We also have the highest effective retirement age in Europe. The situation is due largely to not having a mandatory retirement age but rather a pensionable age that has caused its own problem. As my colleagues have alluded to, the pension age is rising. I fully support the call by Congress for consultations to take place. I also commend Deputies Brady and Mitchell on doing a lot of work to end mandatory retirement ages in private contracts. We do not have a law that allows for a mandatory retirement age and we do not have a law to stop one in private contracts. This is a fact that has caused headaches.
I shall now discuss the first pillar of the State pension. I will outline the pillars in case people are unfamiliar with them. In European terms, Pillar 1 refers to State pensions, Pillar 2 refers to occupational pensions and Pillar 3 refers to personal retirement savings accounts, PRSAs. That is the shorthand that I shall use for today's debate.
Ireland has a pensions problem. As I said earlier, it is not a demographic issue but a matter of uptake.
The uptake of third pillar private pensions, that is PRSAs, ARFs and similar products is very low compared to the OECD average. In 2015, it was 12% and to put that in context that is one eighth of Irish people paying into private third pillar pensions themselves. The uptake of the second pillar pensions, which is earnings-related occupational pensions is slightly higher and accounts for 31% of the population but bear in mind that this includes public and civil servants. The reason that is so low is largely down to the fact that the majority of Irish people work for small or medium enterprises, SMEs, so they work for enterprises that do not have group occupational pension schemes, which would have been in operation in companies such as Bord na Móna, ESB and Waterford Crystal. They of course, have their own problems but I understand we are here to talk about first pillar pensions.
The first pillar pensions is the social safety net that picks up a lot of the slack in a system that is, according to a former Tánaiste and Minister for Social Protection, Deputy Joan Burton creaking. I will concentrate on two aspects of what needs to be done and can be done, the philosophy and the coverage of the pension system. If members are considering a pre-budget submission, I would ask them to address these two issues - philosophy and coverage.
I implore members to consider changing the conversation around pensions. Treating the State pension, contributory or non-contributory, in a similar way to any other social transfer devalues the social contract that our citizens fulfil in good faith. In this instance, one cannot compare like for like. One cannot say that the State pension is like jobseeker's benefit, jobseeker's allowance, children's allowance or any other payment that is designed to get a person through a particular period in life, rather the State pension is meant to be an adequate income until death. Philosophically, if one discusses it in the same way, I have sat in the same room as social protection Ministers who have said they have to make cuts or give money to either the children's allowance, the single parent's payment or the State pension. If one considers that these are all in the same political sphere, we devalue the fact that there is a social contract. After 40 years or more of employment, paying tax and PRSI, the last thing an older person needs is insecurity around income, not knowing how much income he or she will have come Christmas time, because it is decided at the budget. If one looks at the State pension payment on paper, the top rate payment is generous when compared directly to other EU or OECD countries, but not when one stress tests it for adequacy. It is less than the ideal replacement rate and it leaves many older people consistently deprived. On paper the €238.30 top rate of contributory social protection looks quite generous, especially when compared to the UK where it is over €100 lower comparatively. The problem is that it is still less than 33% of the average industrial wage, which is the bare minimum replacement rate we should be looking at. Ideally, best practice is to look at 40% of the average industrial wage. It leaves many older people constantly deprived; in a nutshell €230 a week is enough to get by, but if anything happens and one needs to replace the boiler, buy a new car, even buy a new winter coat or take a few friends out for a meal for their birthday, one cannot afford to do it on the State pension alone. That is the glaring hole. Philosophically, we need to break the subconscious link we have between pensions and other social transfers. This will adequately reward older people, it will secure their retirement and it will enable them to contribute to society and generate social capital. Everything should not be about merely the economic capital. Older people contribute to society in a wide variety of ways and had we more time, I could go through them, for example unpaid child minders and other social transfers that they make. We need to break the link between the dole, children's allowance and the pensions. They are not the same.
We call on Government to guarantee that the State pension will rise by a minimum of either 2.5% or the rate of inflation and as the Irish Congress of Trade Unions has pointed out there are various different measures of inflation or average earnings growth, whichever is larger. This is called the triple lock. It is European best practice. Members may have seen it feature in headlines recently. The DUP, conservative as they may be, made the retention of the triple lock a cornerstone of their negotiations with the Tory Government in the United Kingdom. What this does is provides stability and security and it removes any anxiety around budget announcements for older people. Older people know that their income is going to remain static or grow but they know that going into the budget. There is no political football around it. It is not a case of how much their pension will go up this year, or whether it depends on which party is in the majority. Some parties tend to favour pensions and some do not. This should not be seen as a cost, it should be seen as an investment that will bring us in line with best international practice. As our economy recovers, so should the financial status and stability of older people recover.
Part two of my recommendations deals with coverage. We need to close the gaps. As my colleagues from the National Women's Council of Ireland put it so eloquently and comprehensively there are glaring holes in the Irish pension system. During the Celtic tiger boom years, pension reform tended to lag far behind general improvements in living standards, as more people rose out of relative poverty at the turn of the century, more older people fell below the threshold. I know we no longer use the term "relative poverty" as an assessment of risk of poverty but it is a valuable comparison to make. Recent reforms on the funding of the system, as has been pointed by both colleagues, have disproportionately affected anyone with a non-traditional employment history, for example those with large gaps between periods of employment due to taking on duties of care or non-traditional work. Needless to say, these are mostly women and many women still have no pension rights in their own names but rather as qualified adults or as widows. That is without going close to addressing how many women do not have pension rights in their own names because they were affected by the marriage bar up until 1973. What can be done to close these gaps? A State sponsored third pillar pension, which is in the plans, will make a massive impact for future generations. The Department of Social Protection has been looking at a scheme where younger people will start to pay into their own pensions since 2014. I will give one stark warning, if that is an opt-in scheme, I will guarantee it will fail. The research on best practice points to the fact that opt-out is the only way and while we are not looking at third pillar pensions today, it is worth bearing in mind and making a note that the Department of Social Protection will unveil something soon but if it is opt-in, it will not work. Just look to the United Kingdom, where they have a soft opt-out and the take up has been absolutely massive. It has been a roaring success.
If we aim to maintain a social contract and make certain that a social safety net exists, in my mind we need an universal citizen's pension. This pension should replace both the contributory and non-contributory State pensions. It should be set at the highest rate of the contributory State pension, €238.30. This could be funded entirely by standard rating tax relief on private PRSAs, a move that will only affect the top quintile of pensions and please bear in mind that only 12% of the population have third pillar pensions. This is something that will only negatively affect those who absolutely and definitely have the means to cope with it but will have many positive social benefits for everybody else.
We are rightly discussing the prospect of a living wage and realising that the more money people have across the board, the more money remains in the circular economy. I am sure I do not need to tell everybody but I will mention it in passing, if people with lower incomes get a little boost to their disposable income, it is more likely to remain in our economy. If people with higher incomes get a boost to their disposable income, it is more likely to be invested and end up in financial services. Let us radically reconsider what pensions are designed to do, and let us stop thinking of them as a cost and consider them as an investment in people, an investment in social capital and an investment in communities. Let us give today's older people a living pension, let us let future generations have a hand in their own future security and let us end the political football being played around pensions, let us make Ireland the best place in the world to grow up, grow old and retire in.
