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IBIS Academy 2008 Dublin, Ireland
Green Paper on Pensions
Brendan KennedyThe Pensions Board
IBIS Academy 2008 Dublin, Ireland
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Background• Commitment given in 2006 Partnership talks• Pensions a point of contention during the
negotiations• Part of a package including;
– Production of a Guide to Hybrid Pensions (Produced by the Board)
– Review of the Annuity Market (Life Strategies and Indecon)
– Review of the Social Insurance Fund (Social and Family Affairs)
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Inputs
• Builds on previous work of the Pensions Board including:– The National Pensions Policy Initiative (1998)– The National Pensions Review (2006)– Special Savings for Retirement (2006)
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Scale of the Green Paper
• Approximately 136,412 words• 254 pages• 14 chapters• 8 appendices• 44 questions
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08Current System and overall
philosophy – Chapter 1• Pension System in Ireland has two main
elements1. The State-run Social Welfare System2. Voluntary supplementary pensions system
• Objective is to provide an adequate basic standard of living and to encourage people to make supplementary pension provision
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08Demographic Challenge –
Chapter 2• In 2002-2006 natural increase in Ireland’s
population was 131,000, while the estimated level of net immigration was 186,000
• Immigration forecasts are volatile• In 2061 estimated 1.8 workers for every
pensioner (currently 5.6 workers for every pensioner)
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08Demographic Challenge –
Chapter 2 (contd.)
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08Modern and Sustainable System –
Chapter 3• Over 65s will be 28% of population by 2050
(currently 11%)• Age related expenditure from 5% of GDP to
around 13% of GDP (€12bn);• Financing increasing pension spending will
fall to a diminishing share of the population
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08Modern and Sustainable System –
Chapter 3 (contd.)• Broad options to deal with this include:
– Increasing Exchequer 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.
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08Maintaining income adequacy in
retirement – Chapter 4• Average net income for pensioners in 2005 was
€327.55 per week (€776.11 for all households)• 59.9% of the workforce expect to have some level
of supplementary pension income, 20.1% expect the Social Welfare pension to be the main source;
• Risk of income poverty for older people in Ireland is relatively high by international standards, and;
• 30-65 year olds are undersaving for the future.
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08Social Welfare Pension in Ireland
– Chapter 5• This chapter:
– Discusses the main issues which have arisen in relation to the Social Welfare pension system;
– Issues mainly because of the limited coverage of the social insurance system up to the early 90s and societal norms which applied until the early 70s.
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08Social Welfare Pension: Reform
Options – Chapter 6• Reform options discussed are:
– Maintain the current arrangements;– Universal Pensions;– Reforming and backdating the Homemaker’s Scheme;– Replacing the average contribution test with a total
contributions approach;– Approaches to address sustainability (increase social
insurance, defer payments by increasing SW pension age or introduce means-testing for SW pensions).
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08Incentives for Retirement Savings
– Chapter 7• Chapter looks at:
– The principal features of the current pensions tax regime;
– Current rules for Funding Pension Benefits;– The Cost of Tax Relief – approximately €2.9bn in
2006;– Consideration of Equity;– Flexible options – ARFs;
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08Incentives for Retirement Savings
– Chapter 7 (contd.)• Options for change include:
– Matching contribution from the Exchequer for each € paid by way of personal contribution to a PRSA (approx. €400m per annum);
– Increase the level of tax relief to the higher rate for all personal contributions to all forms of supplementary pension provision (approx. €145m per annum);
– Mandatory pension schemes (Soft mandatory approx. €95m per annum, Hybrid mandatory approx €1.4bn)
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08Possible Approaches to Pensions
Development – Chapter 8• Comparison of approaches:
– Current System;– Delivering improved adequacy through enhanced Social
Welfare benefits;– Enhancement in respect of voluntary provision;– Soft mandatory pensions;– Mandatory pensions.
• Coverage, adequacy, cost, competitiveness, continuity, modernisation and redistribution
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08Issues for DB and DC schemes –
Chapter 9• DB issues include:
– Impact of Funding Standard (discussed in Chapter 10)
– Decline of DB schemes;– Integration of DB pensions with Social Welfare
pensions;• Issues for DC:
– Adequacy of pension benefit payable
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08Issues for DB and DC schemes –
Chapter 9 (contd.)
• Issues common to both DB and DC include:– The demand for guarantees– Security for pension scheme members
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08The funding standard –
Chapter 10 • Overview of the current funding standard and the
impact on funding of recent economic/financial developments;
• Possible options for change to the funding standard;
• The Pensions Board plans to submit a report to the Minister on the operation of the funding standard (priority order/protecting pensions inc).
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08Annuities and Related Issues –
Chapter 11• This chapter discusses:
– The role of annuities in the overall provision of a pension;
– Alternatives to annuities;– Annuity purchase;– The future of the annuity market;– The role of the State in relation to annuities
• Annuity Study – ceiling, survey and information
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08The role of regulation (and
charges) – Chapter 12 • The role of pension regulation in:
– Providing confidence and security;– Supervision of pensions
• Structures;• Objectives• Role of the State
– Governance, disclosure and particular needs of different pension scheme designs;
– The provision of information on pensions– The move to risk-based supervision
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08The role of regulation (and
charges) – Chapter 12 (contd.) • Pension charges:
– Types of charges;– Disclosure and viability of charges– Statutory control of charges;– Level of charges;
• Options are outlined in relation to controlling charges for supplementary pension schemes including Pensions Board role
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08Public Service Pensions – Chapter
13 • Chapter considers:
– Public Service Pensions Systems;– Reform process to date– Future outlook– Link between pensions and pay determination
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08Public Service Pensions – Chapter
13 (contd.)• Reform options include:
– Career Average– Slower accrual– Pay parity– Increased contribution– Raised retirement age.
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08Work flexibility in older age –
Chapter 14 • This chapter examines the issues for Government,
individuals and employers in relation to retirement age and work flexibility
• Retirement age options include:– Deferring the Social Welfare pension;– Raising the retirement age for all;– Raising the retirement age for young people
• Retirement age and occupational schemes are also discussed
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Other developments/next steps
• Programme for Government (NPPI target endorsed);
• Consultation process begun – to last until mid 2008;
• Followed by Government response/possible legislative change/framework of interlinked issues
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