PensionReforms' summary and comments
Like all developed countries, Ireland is getting older; there will be twice the number of pensioners (as a proportion of the population) and they will cost Ireland a lot more than now (from now 5% of GDP to 13% by 2050).  With fewer taxpayers supporting this larger burden, "the existing system is not sustainable" without changes.

This "Green Paper" suggests that:
".the available options are:
·          Increasing Exchequer savings (raising taxes or reducing spending elsewhere) and / or private savings;
·          Easing upward spending pressures;
·          Raising the retirement age;
·          Increasing the share of the population at work;
·          Improving the economy's productive capacity and overall competitiveness."

Each pensioner household (singles and couples - called "pensioner units") received in 2005 average net income of about 42% of the net average wage.  PensionReforms notes that only 3.7% of pensioner units do not reach the "official consistent poverty indicator" (compared with 7% of the overall population) but wonders whether this measure is appropriate. According to the '60% of median income' measure used by the EU for international comparisons, 20.1% are "at risk of poverty". A layer of income-tested state benefits help.

Only 32% of pensioner units have occupational or personal pensions and there has been little change in this over the seven years to 2002, despite all the policy-driven activity in this area ("Pension Retirement Saving Accounts" et al).  

"The risk of income poverty for older people in Ireland is relatively high by international standards.  Replacement income provided by the Social Welfare pension for middle and high income groups is also low by international standards."

The Green Paper suggests that "It is an objective of the Social Welfare pension system to provide income and other supports at an adequate level. Pension adequacy is also about the maintenance of a level of retirement income which is adequately related to pre-retirement income."  According to the Green Paper "many people are not making adequate supplementary pension provision. Changes may be needed to address this."

But, "along with the focus on adequate income in retirement, a key objective of our pension system is sustainability."

The government suggests that the Irish pension system is "a tripartite arrangement between the State, employers and individuals."  However, there are different views as to the respective roles of each.  

The present "gap in pension coverage" is seemingly "the result of the structure of our social insurance system" in the past - also - "The manner in which the qualifying conditions for pensions are designed, including the average contributions test.".  Maintaining the status quo seems therefore not optimal.

On the other hand a universal payment  ". would deal with many of the societal and equity issues" but "...would, however, be a radical departure from the present system."

Other alternatives include a narrower approach to reform (a review of the "Homemaker's Scheme", indexation, dual contributory system and other design details) but, apparently, "A change to a system of qualifications based on total contributions, allied to a more comprehensive rate structure, would be a more equitable and transparent way of awarding pensions."

Finally, there are the benefit reductions that could reduce the cost of the ageing population.  The usual candidates appear here - reduce the indexing mechanism; increasing the State Pension Age, increasing social security "contributions" and means-testing.

The tax treatment of "supplementary pensions" (Tier 3) is discussed.  Currently it is EET but the report wonders whether the cost could be better targeted or even whether private provision should be mandated.  The cost of tax incentives amounts to ?2.9 billion but, aside from questioning value, the obvious question was not asked - whether the Irish might still save for retirement without them.

"In that context, the models for supplementary pension reforms discussed are based on either enhancing the existing system of voluntary provision or on introducing mandatory or soft mandatory approaches. As an alternative to reforms based on supplementary pensions, a rise in the social insurance pension combined with an increase in the statutory retirement age is also considered.

"These four approaches (voluntary, mandatory, soft mandatory and enhanced Social Welfare) need to be compared to the current system across a range of criteria. The main criteria that facilitate comparisons of the five approaches are coverage, adequacy, cost, competitiveness, modernisation and redistribution. These criteria apply both to the level of pensions provided under the system and to the means of delivery."

The report also looks at aspects of the regulation of Defined Benefit and Defined Contribution schemes at Tier 3, including funding standards for DB schemes, annuities and work-based pension arrangements for civil servants.

Finally, the report looks at the work/retirement transition - in Ireland, the average "exit age" in 2005 was 64.1, compared with the EU average of 60.9 but the report suggest that both state and private pensions could encourage an increase in the exit age to benefit growth, lower pension costs and result in shorter retirement periods.  This will also apparently improve "intergenerational equity".  A higher State Pension Age seems likely.

If PensionReforms had to guess from the tone of the report, it seems the existing systems will be tinkered with but will emerge looking much as they do now, but more complicated and with more intimate regulations.  That seems a pity.  Although a non-contributory, universal pension (the optimal outcome in PensionReforms' view) is raised as an option, the language makes it an unlikely candidate for implementation.  Apparently, that's against the "social insurance principle" to which "successive governments have been committed".  The report seems to indicate that it might be better to improve the coverage of the "social insurance" arrangements.

Questions are raised about the value of tax incentives for "supplementary pensions" but they will probably be modified rather than abolished, which is a shame.  But it doesn't look as though Ireland will follow the UK's lead with the introduction of some form of "soft compulsion".

PensionReforms thinks the Irish government should instead concentrate on the things it can change (like getting rid of acknowledged old-age poverty) and leave citizens and their employers to decide what else to do about retirement incomes - and there is no need to pay them to do that through tax incentives either.  If the Irish government is really worried about finding sufficient money to pay for the cost of a decent universal Tier 1 in the face of an ageing population, removing costly tax breaks given to "supplementary pensions" (about ?2.9 billion or about 1.9% of GDP in 2006 according to the report) should do it. Dismissing those on the grounds of the ".very significant . economic and behavioural impacts .. that are difficult to model in advance." seems weak.  (File size 5.6 MB) 200