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THE IRISH PENSION MODEL

This document explores the Irish pension system, detailing its evolution since the National Pensions Policy Initiative of 1996-1998. It outlines the current structure, which includes a state universal basic benefit and private voluntary pensions, highlighting issues such as inadequate coverage and shifting risk from defined benefit to defined contribution schemes. The ongoing National Pensions Review aims to address these challenges, offering potential solutions for enhancing coverage, adequacy, and sustainability. The conclusion emphasizes the necessity of a cohesive pension strategy supported by all stakeholders.

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THE IRISH PENSION MODEL

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  1. Reinventing Retirement:Balancing Risk THE IRISH PENSION MODEL Anne Maher Chief Executive Washington DC The Pensions Board 19 July 2005 Ireland

  2. Agenda • Background • Current Irish pension model • Issues arising for private pensions • National Pensions Review in progress • Conclusion

  3. Background • No agreed national pensions policy prior to 1998 • National pensions consultation and research project called the National Pensions Policy Initiative (NPPI) from 1996 to 1998 • NPPI culminated in report to Government in 1998 recommending pension reform package • NPPI recommendations now implemented • Pensions part of Social Partnership Agreements

  4. Current Irish Pension Model • First Pillar • State universal basic benefit • Private Pensions • Private voluntary supplementary benefit

  5. Current Irish Pension Model First Pillar • Flat benefit • Old Age Contributory Pension of 32% average industrial earnings subject to contribution conditions • Old Age Non-Contributory Pension subject to means test for those not qualifying for contributory pension • Funded on pay-as-you-go basis supported by National Pensions Reserve Fund • Generally sustainable • Avoids poverty • Aims to provide replacement income for 30% lower paid

  6. Current Irish Pension Model Private Pensions • Voluntary • Funded except for Public Service • DB/DC ratio is 2:1 • Occupational pension schemes, personal pensions, Personal Retirement Savings Accounts • Covers 52.4% of employed people • Aims to provide supplementary pensions for 70% higher paid • Supported by tax reliefs and pensions awareness campaign • Public Service pension: good benefits/almost universal coverage/ pay-as-you-go supported by National Pensions Reserve Fund

  7. Issues Arising for Private Pensions • Coverage needs to increase to approximately 70% of over 30s at work • Defined benefit to Defined contribution – shift of risk • Adequacy of pension contributions – average contribution is 5% employer/ 5% employee • Funding of Defined Benefit schemes – over 40% of DB schemes have deficiencies • Employer concern over costs • Pensions an issue for Government, employers, trade unions • EU Pensions Directive may be catalyst for change

  8. National Pensions Review • Statutory requirement to review progress in 2006 • Brought forward to 2005

  9. National Pensions Review Scope • Review of NPPI strategic recommendations • Review of coverage targets • Review of current private pensions position • Options to address coverage and adequacy

  10. National Pensions Review Criteria for Pension Model • Coverage • Adequacy • Cost • Simplicity • Continuity • Modernisation • Redistribution • Competitiveness • Choice • Robustness • Acceptability

  11. National Pensions Review State earnings related Possibilities Combining 1st & 2nd Pillar State DC Flat benefit Private mandatory Private voluntary Defined contribution No second pillar

  12. National Pensions Review Pension models for Further Investigation • Enhancement of current voluntary model • Mandatory supplementary private model • Mandatory supplementary State defined contribution model • Mandatory supplementary State earnings-related model • Enhanced First Pillar pension, voluntary supplementary provision

  13. National Pensions Review Associated issues being considered • Benefit options at retirement • State involvement in private pensions provision • Possible enhancements to voluntary provision • Retirement age and longevity • State support and equity • Female coverage • Governance (insofar as it affects coverage and adequacy)

  14. In Conclusion • Agreed national pensions strategy supported by Government, employers, trade unions and pensions industry • Pensions not a ‘party political’ issue • Regular monitoring of progress and flexibility for change • Public pension awareness – supported by media role • Pension model influenced by culture, governance, economic and social considerations And there is no universal model

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