Pensions - particularly the issue of mandatory pensions - have been at or close to the top of the agenda of Séamus Brennan since he became Minister for Social and Family Affairs. He has repeatedly asserted that, left to their own devices, not enough people are saving for their retirement. And figures from the Pensions Board and the Central Statistics Office (CSO) suggest that he is correct.
The 1998 National Pensions Policy Initiative said that the State should aim to persuade 70 per cent of those in the workforce, aged between 30 and 65, to make some personal private retirement provision over and above the State pension. Figures from the ESRI, dating back to 1995, showed that just 54 per cent of this group were doing so. By 2004, despite the introduction of Personal Retirement Savings Accounts (PRSAs), the CSO reported the percentage had only risen to 59.
The Minister is rightly concerned that changing demographics mean Ireland will face major future problems when the ratio of people working to those in retirement will be significantly lower. It was for this reason that he brought forward the National Pensions Review last year to examine existing pensions policy and propose any changes necessary to bring private coverage up to the 70 per cent target. The report of that review favoured tailoring incentives under the existing voluntary private pension regime. But that did not satisfy the Minister and he instructed the Pensions Board to explore mandatory provision and recommend the most practicable option.
The Pensions Board's findings on this issue were published on Tuesday and their apparently grudging tone, together with the decision of Ibec to walk away from the process, and a less surprising dismissal by the Department of Finance of any initiative which might cost the Exchequer, suggests the Minister has overstepped himself. In the meantime, he has been outflanked effectively by the Government's plan to publish a Green Paper on pensions as an element of social partnership. That Green Paper is more than a year away, however, and any legislation would likely be two years or more beyond that.
If the Government is serious about addressing this issue, it is incumbent on it, at a minimum, to test whether the proposals for a revamped voluntary system contained in the National Pensions Review can deliver improved coverage and adequacy. These proposals include an SSIA-style system of matching contributions on PRSAs and the introduction of higher-rate tax relief on contributions by standard-rate taxpayers to other private pensions. This simpler system would have the merit of targeting the lower-paid, the group least adequately provided for by current incentives. If the implementation of these recommendations yielded no significant improvement in private pension provision by the time consultations on the Green Paper conclude, a debate on mandatory provision would be more appropriate at that stage. Doing nothing in the interim runs counter to the Government's own position.