1. PENSIONSTIMEBOMB ANNE MAHER Chief Executive25 May 2005 The Pensions Board Dublin LIA Dublin Region Seminar

2. 2 CONTENTS  Background  Irish ‘pensions time bomb’  Irish response to date  And now in Ireland – National Pensions Review

3. 3 BACKGROUND Why a “Pensions time-bomb”?  All countries face demographic change  Triggered by falling fertility and increased longevity  Resulting in dramatic changes in dependency ratio  Impact on pension systems differ depending on  structure  generosity  fiscal position of country

4. 4 BACKGROUND  Various responses  Reduction in State “provision” role  Increasing private “funded” pensions  Raising pension contributions  Lowering of pension benefits  Raising of retirement age  Other responses  Immigration?  Reforming of labour market and avoiding early retirement?  Differentiating by number of children?  Overall social impacts

5. 5 IRISH “PENSIONS TIMEBOMB”  Fertility1.93 in 2001 1.75 by 2011  Longevity Life expectancy at birth = 75 (males)/ 80 (females) Life expectancy at 65 = 81 (males)/ 84 (females) Over pension age (65+) 428,000 (2001) 1,198,000 (2056)  Dependency Ratio 5.3 working age: one pensioner (2001) 1.8 working age: one pensioner (2056)

6. 6 IRISH “PENSIONS TIMEBOMB”  Private pensions coverage 52% of those at work 59.1% of those aged over 30 at work  Average Savings shortfall per annum = €6.0 billion =11% of income =€3,343 per person

7. 7 IRISH RESPONSE TO DATE  A national pensions consultation and research process called the National Pensions Policy Initiative (NPPI) from 1996 to 1998  NPPI culminated in a report by the Board to Government in 1998 recommending a pension reform package (Securing Retirement Income report)  NPPI recommendations now implemented through the National Pensions Reserve Fund Act, 2000 and the Pensions (Amendment) Act, 2002

8. 8 IRISH RESPONSE TO DATE Main Features of Current Structure  Social Welfare (First Pillar) pension providing either:  Old age contributory pensions for those satisfying certain contribution conditions, or  Old age non-contributory pension subject to a means test for those not qualifying for contributory pension  Social Welfare pension arrangement funded on a pay-as-you go basis supported by National Pensions Reserve Fund)  Public Service pension scheme which faces greatly increased costs (also supported by National Pensions Reserve Fund)  Private Pensions arising from funded occupational pension schemes, personal pensions and Personal Retirement Savings Accounts which are tax encouraged

9. 9 IRISH RESPONSE TO DATE Issues with Current Systems  Coverage needs to increase to approximately 70% of over 30s at work  Initiatives to increase coverage  PRSAs  Mandatory Employee Access progress steady but slow  Awareness has improved considerably (now over 70%) but has not led to enough action  Adequacy of pension contributions – average contribution is 5% employer/5% employee which is usually not enough  Funding of Defined Benefit schemes – 40% to 50% of DB schemes have deficiencies

10. 10 IRISH “NATIONAL PENSIONS REVIEW” Background  National Pension Policy Initiative changes up and running  Statutory requirement for pensions review by September 2006  Minister brought forward September 2006 review to mid 2005

11. 11 IRISH “NATIONAL PENSIONS REVIEW” Process  Steering Committee in place  4 Board Workshops scheduled  Progress report to Minister in June and final report scheduled for completion in late Summer.  Pensions Board aims:  To present balanced factual picture  To include all costs and other impacts

12. 12 IRISH “NATIONAL PENSIONS REVIEW” Contents 1.Review NPPI Report’s strategic recommendations 2.Review Pension coverage targets in NPPI Report 3.Review current private pension position 4.Identify options to address coverage and adequacy

13. 13 IRISH “NATIONAL PENSIONS REVIEW” Some Possible Directions  Range of pension systems will be considered  Consideration likely to include following broad approaches  continued voluntary Second Pillar (with/without enhanced State incentives);  mandatory Second Pillar provision (with/without a contribution cap); and  increased mandatory First Pillar pension (funded/unfunded)

14. 14 IRISH “NATIONAL PENSIONS REVIEW” Next Steps  Interim progress report to Minister in June  Final report presented to Minister in late Summer  Likely to trigger serious pensions debate  Decision on response to Review is for Government/Social Partnership

15. 15 EXTERNAL INFLUENCES  Demographics  Mortality  Other country experiences  EU Initiatives  IORPs Directive  EU Commission Review of Pensions in Member States (2005 National Strategy Report on Adequate and Sustainable Pensions)  Stability Pact/National debt-rating  Employment/employer competitiveness/national economy  Political?

16. 16 IN CONCLUSION  Ireland has time to address its ‘pensions time bomb’  But that time is moving fast