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Page 1: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

IBIS Academy 2008 Dublin, Ireland

Green Paper on Pensions

Brendan KennedyThe Pensions Board

IBIS Academy 2008 Dublin, Ireland

Page 2: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The 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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Page 3: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

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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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Page 4: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

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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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Page 5: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

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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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Page 6: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

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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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Page 7: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

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08Demographic Challenge –

Chapter 2 (contd.)

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Page 8: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

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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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Page 9: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

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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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Page 10: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

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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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Page 11: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

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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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Page 12: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

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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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Page 13: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

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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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Page 14: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

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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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Page 15: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

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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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Page 16: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

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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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Page 17: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

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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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Page 18: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

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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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Page 19: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

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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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Page 20: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

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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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Page 21: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

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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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Page 22: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

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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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Page 23: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

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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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Page 24: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

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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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Page 25: IBIS Academy 2008 Dublin, Ireland Green Paper on Pensions Brendan Kennedy The Pensions Board IBIS Academy 2008 Dublin, Ireland.

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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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