NATIONAL PENSIONS NATIONAL PENSIONS REVIEWREVIEW

Report of the Pensions BoardReport of the Pensions Board

Launch of Report

by Minister Seamus Brennan TD

on 17 January, 2006

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AgendaAgenda

Background/Overview Targets / Current position Options Related Issues Recommendations

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BackgroundBackground

Statutory Review not later than September 2006

Minister’s request (February 2005)

Final Report (October 2005)

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OverviewOverview

Report

Reviews agreed pension targets

Reviews current coverage and adequacy

Considers how to sustain Social Welfare pension

Considers options to meet targets

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OverviewOverview

Key messages

Significant cost increase for Social Welfare pension

Good pension provision costs a lot

Changes need to be made

Should build on existing good base

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TargetsTargets Targets reviewed

• 50% pre-retirement income replacement

• 34% GAIE Social Welfare pensions

• 70% over 30s in workplace supplementary pension coverage

Targets broadly accepted

Most believe agreed targets would not be met without change

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Current Position – Social WelfareCurrent Position – Social Welfare

2005 Old Age (Contributory) Pension is

• €179.30 per week

• 32% of 2004 GAIE of €560.77 per week

2006 Old Age (Contributory) Pension is

• €193.30 per week

• 33% of estimated GAIE of €588 per week

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Current Position – Social WelfareCurrent Position – Social Welfare Significant increase in Social Welfare cost

Projected cost of first pillar pensions as a % of GNP

2006 2016 2026 2036 2046 2056

3.0% 3.7% 4.9% 6.5% 8.7% 10.1%

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Current Position – Social WelfareCurrent Position – Social Welfare Projected ratio of those at work to those

aged over 65

2006 2016 2026 2036 2046 2056Nos. at work (000) 2,001 2,213 2,268 2,268 2,170 2,125Aged over 65 (000) 464 620 844 1,105 1,403 1,532No. at work per person aged over 65 4.3 3.6 2.7 2.1 1.5 1.4

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Current Position – Social Welfare Current Position – Social Welfare Projected life expectancy at 65

2006 2016 2026 2036 2046 2056

Men 16.0 17.6 19.2 20.6 21.3 22.0

Women 19.4 20.9 22.4 23.9 24.6 25.3

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OptionsOptions Options to sustain Social Welfare pension

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• Increase retirement age

• PRSI / Taxation increases

• Increase payment to NPRF

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Current Position – Supplementary Current Position – Supplementary PensionsPensions

59% of over 30s in the workforce have supplementary pension coverage

52% of the total workforce have supplementary pension coverage

No progress towards adequacy target

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OptionsOptions

Enhancements to Voluntary System

Mandatory Pensions

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OptionsOptions

Enhancements to Voluntary System

All Board recommended immediate enhancements to current system

All Board believe enhancements would achieve improvements

Some believe enhancements would achieve targets

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RecommendationsRecommendations

State incentive for personal contributions to PRSAs changed to matching contribution (SSIA style)

• Basis to be €1 state incentive for each €1 invested

• Limited access to fund before age 45

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RecommendationsRecommendations Tax relief at higher rate for all personal

contributions

Reduction of point of sale regulation for Standard PRSAs

Incentives to encourage SSIA proceeds to be saved for retirement targeted at those:• Otherwise not qualifying for tax relief

or• Who have not recently fully availed of tax relief

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RecommendationsRecommendations

Cap on incomes for contribution/benefit purposes supported provided derived savings used to improve incentives for lower-paid

Option of deferring drawing Social Welfare pension to be available

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Mandatory Pension ProvisionMandatory Pension Provision

Considered issue in general rather than design a system

There are many differing views among the Board

Could be summarised as an issue of cost versus certainty

Some Board members believe mandatory should be considered urgently

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Related IssuesRelated Issues

State Retirement Support

State-sponsored annuities for Defined Benefit / members / schemes

State-provided annuities for holders of small (PRSA/other) funds

State guarantee to holders of Standard PRSAs

Most Board members believe that State retirement support should be pursued vigorously

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Related IssuesRelated Issues

Funding Standard for DB schemes

Pension Protection Fund

Long-term care

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Recommendations for Immediate Recommendations for Immediate ImplementationImplementation

SSIA style tax delivery for PRSAs

Higher rate tax for all personal pension contributors

Reduced Standard PRSA regulation

Incentives on SSIA proceeds

Retirees option to defer Social Welfare pension

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Recommendations for Further Recommendations for Further ConsiderationConsideration

Others, including

Progress review in 2008

Research on women’s coverage

Regular projection of pension costs

Automatic enrolment

Pensions awareness campaigns

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ConclusionConclusion

Board thanks Minister for opportunity

Believes Report will contribute to future decisions on pension policy

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