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Green Paper on Pensions

IBIS Academy 2008. Dublin , Ireland. Green Paper on Pensions. Brendan Kennedy The Pensions Board. IBIS Academy 2008. Background. Commitment given in 2006 Partnership talks Pensions a point of contention during the negotiations Part of a package including;

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Green Paper on Pensions

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

  2. IBIS Academy 2008 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)

  3. 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)

  4. Scale of the Green Paper • Approximately 136,412 words • 254 pages • 14 chapters • 8 appendices • 44 questions

  5. Current System and overall philosophy – Chapter 1 • Pension System in Ireland has two main elements • The State-run Social Welfare System • Voluntary supplementary pensions system • Objective is to provide an adequate basic standard of living and to encourage people to make supplementary pension provision

  6. Demographic 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)

  7. Demographic Challenge – Chapter 2 (contd.)

  8. Modern 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

  9. Modern 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.

  10. Maintaining 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.

  11. Social 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.

  12. Social 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).

  13. Incentives 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;

  14. Incentives 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)

  15. Possible 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

  16. Issues 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

  17. Issues 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

  18. The 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).

  19. Annuities 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

  20. The 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

  21. The 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

  22. Public Service Pensions – Chapter 13 • Chapter considers: • Public Service Pensions Systems; • Reform process to date • Future outlook • Link between pensions and pay determination

  23. Public Service Pensions – Chapter 13 (contd.) • Reform options include: • Career Average • Slower accrual • Pay parity • Increased contribution • Raised retirement age.

  24. Work 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

  25. 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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