Pension Provisions

Wednesday, 3 November 2010

Seanad Éireann Debate
Vol. 205 No. 7

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An Cathaoirleach: Information on Pat Moylan Zoom on Pat Moylan The Minister of State is welcome.

Senator Fidelma Healy Eames: Information on Fidelma Healy Eames Zoom on Fidelma Healy Eames I also welcome the Minister of State and hope she has a good response for me.

The matter I am raising relates to a proposal mooted by the Minister for Social Protection sometime ago to means-test the State contributory pension. Does he propose to deprive people of something for which they have already paid, in some cases for more than 40 years or more in others, and which, in itself, is subject to levies?

I will outline the reasons many people who have contributed to a State pension scheme believe this proposal is patently unfair and perhaps would be open to legal action. Apart from the consequent hardship, there is a potential grave injustice for a number of reasons, the first of which is that the State contributory pension is not a gratuity. It has been paid for over a period ranging up to 50 years. On the other hand, senior civil servants and public representatives such as ourselves can receive substantial indexed-linked pensions towards the cost of which we pay nothing.

The second reason is a qualified adult allowance is payable to spouses. For example, a wife with no income or entitlement is already means-tested. It would be truly shocking if a wife who has devoted, say, 40 years to her family in the home was now to be deprived of the only income she receives in her own right.

The third reason is that most privately funded occupational pension schemes have been integrated with the PRSI system, with the employer paying 10.75% in PRSI on a full salary, in addition to the employee’s contribution. The removal of the State contributory pension from some employees would have serious financial consequences for already hardpressed employers.

[476]The fourth reason is that many people are fearful about the future in terms of their occupational pension, given the state of the stock market. It is common to hear pensioners say they will at least always have the State pension.

The excuse used for considering means testing the contributory State pension is to protect the vulnerable. There are few people more vulnerable than people aged in their 70s who depend on a private occupational pension. Many of the individuals in question must support unemployed adult children. As the Minister of State is aware, private occupational pensions are subject to the vagaries of the market.

The contributory State pension is already subject to full PAYE tax assessment. In addition, pensioners already pay levies — PAYE and the health contribution — on occupational pensions. At least this approach is fair as it applies to everyone above a certain minimum income.

The essence of means testing is that anyone having a private pension income in excess of a specified threshold will not receive any additional income from the State. In other words, if the Minister for Social Protection introduces means testing of private pensions, many pensioners will lose the contributory State pension, despite the pension having been paid for. Depriving some people of something which has been paid for is unfair and of doubtful legality.

There is an even greater potential for unfairness when one makes other comparisons. For example, will a senior civil servant on an index linked pension of €142,000 per annum and a tax free lump sum of €630,000, for which he or she has not paid, have his or her pension reduced to a specified amount per annum? The Minister of State will be aware of the types of people I have in mind, including the likes of Rody Molloy and the former Financial Regulator, Mr. Neary.

An Cathaoirleach: Information on Pat Moylan Zoom on Pat Moylan The Senator should refrain from referring by name to individuals outside the House.

Senator Fidelma Healy Eames: Information on Fidelma Healy Eames Zoom on Fidelma Healy Eames Furthermore, we have the example of the Government executing a U-turn on proposed cuts in the pay of senior civil servants last December. As a result, the civil servants in question managed to avoid income levies. One then wonders why people are cynical.

The proposal to means test pensions is stupid and unjust and should go the way of many reports, namely, into the dustbin. As in many other cases, it aims at soft targets while avoiding the privileged. Given that the contributory State pension is already subject to PAYE and levies, the proposed measure would yield little while adding a new layer of bureaucracy. Depending on the value of a person’s pension, the proposal would render some people eligible for a medical card, causing the Government another problem. It would also cause great hardship to people who lose their occupational pensions due to poor investment returns. The grossest injustice would be to deprive home-making wives of the only independent income they have enjoyed. I look forward to the Minister of State’s response.

Minister of State at the Department of Social Protection (Deputy Áine Brady): Information on Aine Brady Zoom on Aine Brady I am taking this debate on behalf of my colleague, the Minister for Social Protection, Deputy Éamon Ó Cuív.

The Irish system of social protection is often described as a mixed system. It combines a social insurance system whereby entitlement to contingency based benefits is secured largely on the basis of paid contributions linked with earnings income, with a system of social assistance whereby entitlement for similar contingency based payments is made on the basis of an assessment of the person’s means.

[477]The social insurance system is based on two fundamental principles, namely, the contributory principle whereby there is a direct link between contributions paid and entitlement to a varying range of benefits and pensions that are payable as a right if and when particular contingencies arise, and the solidarity principle whereby contributions paid by insured persons are not actuarially linked to benefits but are instead redistributed to support contributors who are more vulnerable. It is an expression of solidarity between both earning groups and generations.

The system maintains a relationship between labour force status, earnings from work, contributions made and entitlement to benefits in the event of certain specified contingencies such as illness, unemployment or old age. As with many social insurance systems throughout the world, the Irish social insurance system is based on the pay as one goes principle, whereby current contributors fund the pensions and benefits of present recipients, namely, previous contributors, while building up entitlement to their own future benefits, in turn paid for by future contributors.

The current qualifying conditions for contributory State pension require a person to have entered into insurable employment before age 56, have at least 260 weeks full-rate contributions paid, that is, a minimum of five years minimum and a yearly average of at least ten contributions recorded, taking paid and credited PRSI contributions into account, from 1953 or from the date of entry into insurance, whichever is the later, to the end of the last complete contribution year before reaching pension age.

To qualify for the maximum rate a yearly average of 48 contributions is required. From 6 April 2012, and as provided for in legislation since 1997, the minimum number of paid contributions required for contributory State pension will increase from 260 to 520, that is, ten years. As the Senator will note, there is no requirement to have 40 years contributions to receive a full rate pension and many pensioners had considerably less than that.

The Government has committed to endeavouring to maintain the value of the State pension at 35% of average earnings. The national pensions framework, launched in March this year, outlines Government policy on future pension provision. The Framework includes a number of changes to the State pension to make it more transparent, simple and equitable for those who reach pension age.

Recognising that people are living longer and healthier lives, the Government has decided to amend State pension age in three separate stages. In 2014, the State pension (transition) will be abolished. The effect of this will be to standardise State pension age at 66 years. In 2021, the State pension age will be set at 67 years. In 2028, State pension age will be set at 68 years.

For those who wish to postpone drawing down their State pension, arrangements will be put in place to enable them to receive an actuarially increased benefit when they decide to retire. In addition, for those with contribution shortfalls at pension age, arrangements will be put in place to allow them to receive additional benefit at a later date if they continue to make paid contributions for pension purposes while remaining in work or self-employment.

From 2012 onwards, social insurance credits will be introduced for people who take time out of the workforce for caring duties. This will replace the current homemaker’s disregard and will assist people, particularly women, to qualify for a contributory pension or higher level of payment.

From 2020, the way in which eligibility for State pension is calculated will be simplified. Specifically, there will be a switch from the way in which pensions are currently calculated over the average working life. Under the new system, the level of pension paid will be based on the total number of social insurance contributions made by a person over his or her working life. A person will need to make contributions for 30 years to qualify for a maximum pension. Once a person has the minimum number of paid contributions required, he or she will accumulate one thirtieth of a pension for each year of contributions up to a maximum 30 years. Upon [478]introduction of the total contributions approach, the maximum number of credits that can be used for pension purposes will be set at 520.

An implementation group for the national pensions framework has been established by the Department of Social Protection and is working through the relevant issues in implementing the measures contained in the framework.

It is important to stress that there is no proposal to means test pensions. On the budget, the Minister is engaged in an intensive round of consultations with a wide range of welfare representative organisations and is listening carefully to their views. In an uncertain international environment, the priority will be to ensure the overall Government strategy is advanced to protect those most in need in a manner which is sustainable in the years ahead.

Senator Fidelma Healy Eames: Information on Fidelma Healy Eames Zoom on Fidelma Healy Eames In thanking the Minister of State for her response I regret that only the final paragraph of her statement refers to the matter I raised. She indicated that the Minister was listening. I ask her to bring this matter to his attention. She should also note that it was an uncertain national environment and not only an uncertain international environment that brought us to this juncture.

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