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

2. IBIS Academy 2008 2 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) IBIS Academy 2008

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) 3

4. IBIS Academy 2008 Scale of the Green Paper Approximately 136,412 words 254 pages 14 chapters 8 appendices 44 questions 4

5. IBIS Academy 2008 Current System and overall philosophy – Chapter 1 Pension System in Ireland has two main elements 1.The State-run Social Welfare System 2.Voluntary supplementary pensions system Objective is to provide an adequate basic standard of living and to encourage people to make supplementary pension provision 5

6. IBIS Academy 2008 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) 6

7. IBIS Academy 2008 Demographic Challenge – Chapter 2 (contd.) 7

8. IBIS Academy 2008 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 8

9. IBIS Academy 2008 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. 9

10. IBIS Academy 2008 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. 10

11. IBIS Academy 2008 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. 11

12. IBIS Academy 2008 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). 12

13. IBIS Academy 2008 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; 13

14. IBIS Academy 2008 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) 14

15. IBIS Academy 2008 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 15

16. IBIS Academy 2008 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 16

17. IBIS Academy 2008 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 17

18. IBIS Academy 2008 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). 18

19. IBIS Academy 2008 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 19

20. IBIS Academy 2008 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 20

21. IBIS Academy 2008 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 21

22. IBIS Academy 2008 Public Service Pensions – Chapter 13 Chapter considers: –Public Service Pensions Systems; –Reform process to date –Future outlook –Link between pensions and pay determination 22

23. IBIS Academy 2008 Public Service Pensions – Chapter 13 (contd.) Reform options include: –Career Average –Slower accrual –Pay parity –Increased contribution –Raised retirement age. 23

24. IBIS Academy 2008 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 24

25. IBIS Academy 2008 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 25