36. Deputy Mary Mitchell O’Connor asked the Minister for Social Protection if permission to early draw down pensions would positively influence younger persons to start their pension; her plans to tackle low pension investments especially by young persons; and if she will make a statement on the matter. (Question 54697/12 asked on 05 Dec 2012)
Minister for Social Protection (Deputy Joan Burton): Pensions are a long-term investment aimed at ensuring that people have an adequate income in retirement. Government policy supports this aspiration through generous tax reliefs. At present, people are generally only permitted to access their pension savings at the retirement age defined in their pension schemes. Schemes may also have early retirement provisions from age 50 and when retirement is caused by ill-health, benefits may be paid regardless of age. In the case of Personal Retirement Savings Accounts (PRSAs) and Retirement Annuity Contracts (RACs), benefits may be taken at any time after age 60 and from any age in the case of ill-health.
There are a number of reasons why early withdrawals of pension savings are generally not permitted, the principal one being that funds, and the associated tax relief on contributions, are designed to support people in later life to ensure they have an adequate income. This requires that pensions must be long term vehicles based on the principle that savings will be “locked away” until retirement. The issue of early access has been considered in detail by an inter-departmental ad-hoc group, chaired by the Department of Social Protection. The group concluded that the principle of pension savings being “locked away” until pension age should be maintained. The Interdepartmental Group on Mortgage Arrears also examined the issue of early access to pensions and did not recommend such an approach.
Younger people in pension schemes are unlikely to have significant pension savings and where their pension scheme has incurred losses, as many have over the past number of years, early withdrawal of funds would mean very poor value for money. There is no guarantee the funds could be repaid or that people could make up these losses. Where people are close to retirement, an early withdrawal of funds could significantly diminish the pension they receive as they may not have time before retirement age to fill the gap left by such a withdrawal.
The Deputy will be aware that the Government has recently engaged the OECD to conduct an independent review of long term pension policy in Ireland. I have asked the OECD to consider the issue of early access to pension savings as part of its review and the report and this will help to inform future government policy in this area.
The OECD review will also consider the coverage levels and adequacy and sustainability of pensions, with a particular focus on lower and middle income groups. In terms of overall coverage, it has been estimated that 51% of people in employment aged 20 to 69 have a pension and this figure may well have reduced given the difficult economic environment. This relatively low rate of pension coverage is a concern. In terms of increasing coverage amongst younger people and others, the Programme for Government includes a commitment to reforming the pension system to progressively achieve universal coverage, with particular focus on lower-paid workers, and a National Employment Pensions Scheme based on an automatic enrolment approach is under consideration, although it is recognised that introduction of such an initiative would be better supported by a more favourable economic environment than is currently the case.