Alan Shatter (Dublin South, Fine Gael) | Oireachtas source

First, I wish to inform Deputy O'Dea that I understand the Minister for Social Protection had another commitment from well before this matter was submitted and that is the only reason she is not here and I am. In so far as I do not answer some of the issues raised, I will ensure that she is aware of the issues the Deputy has raised.

I thank both Deputies for raising what is an important issue for many people. The persistent funding difficulties of defined benefit schemes, due to increasing life expectancy and the financial downturn, have been well recognised. Employers, unions and trustees have been making strenuous efforts to protect the viability of their schemes and many measures have been introduced to support these efforts. The funding standard for defined benefit schemes was suspended in 2008, following the downturn in the financial market, to give the trustees and sponsoring employers adequate time to assess their schemes and consider a response to improve the funding position. The reintroduction of the funding standard was then delayed on a number of occasions pending changes to legislation which were designed to help trustees respond to these challenges.

Following the reintroduction of the funding standard in June 2012, pension schemes were required to submit funding proposals to the Pensions Board by 30 June 2013. Where funding proposals have not been submitted, the Pensions Board is formally contacting schemes to ascertain their particular circumstances. The Pensions Board will then decide what steps to take on a scheme-by-scheme basis and taking account of the individual scheme circumstances. However, it must be emphasised that trustees must meet their legal obligations and ultimately the Pensions Board will use its regulatory powers where benefit underfunding is not properly addressed.

In trying to strike a balance between the need to support schemes in their efforts to meet funding challenges while simultaneously implementing a regulatory framework to ensure pensions commitments made can be met, the following measures were introduced to ease pressures on defined benefit schemes while the funding standard was in abeyance: significant legislative changes were made in the Social Welfare and Pensions Act in 2009 to allow for the restructuring of underfunded schemes by removing the priority given to post-retirement increases for pensioners to ensure a more equitable distribution of assets in the event of the wind-up of a defined benefit scheme; the powers of the Pensions Board were strengthened to ensure that pension contributions are remitted by employers to scheme trustees; the pensions insolvency payments scheme was established to reduce the cost of purchasing pensions for trustees where the employer has become insolvent; and legislation was introduced in 2010 and 2011 to provide the option of a sovereign annuity for trustees.

Changes to the defined benefit model and the funding standard, including the introduction of a risk reserve, were made in the Social Welfare and Pensions Act 2012. The reintroduction of the funding standard followed. More recently, the Minister for Social Protection announced a number of regulatory changes to assist defined benefit schemes as they prepared funding proposals. Legislation has since been enacted in the Social Welfare and Pensions Act 2013 to strengthen the powers of the Pensions Board.

The funding standard provides a benchmark against which the "health" of a scheme can be tested. The responsibility rests with the employer and the trustees for ensuring that the scheme is properly funded and managed. While the recent OECD review of the Irish pension system describes the funding standard as ''undemanding'', many schemes are coming from a deficit position and it is clear this is a difficult problem that requires careful management. Ultimately, it must be remembered that the regulatory structure is there to ensure members' benefits are protected. Therefore, it is expected that all defined benefit schemes will submit their proposals to the Pensions Board. Compliance with the regulatory structure is essential for the future sustainability of these schemes and increased security of members' benefits. It will also ensure that we ascertain the precise funding position of schemes.

Following receipt of proposals, it will be possible to get a more accurate indication of the level of underfunding in defined benefit pension schemes. This will also allow for the impact of the many measures already introduced by Government to be assessed, including the potential benefits to schemes of the use of sovereign annuities or bonds. The Minister, Deputy Burton, is keeping the situation under review and will report back to the Government in the coming months on these issues. A wider package of legislative proposals and additional reforms will be considered at that stage.

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