Joan Burton (Dublin West, Labour) | Oireachtas source

I appreciate the sentiments and motives behind the amendments. Very serious consideration was given during the deliberations on these issues in the past few years to imposing a statutory obligation on employers, which the amendments suggest. Defined benefit pension schemes in Ireland are set up and maintained by employers on a voluntary basis. There has never been a statutory obligation on employers under Irish law to contribute to their pensions, although scheme rules do and can place some level of obligation on them. There are many good employers in this country which are very committed to meeting their obligations and the promises that they made on the pension fund, even in very difficult economic and financial circumstances.

Most defined benefit pension schemes are established under a trust deed. The rights, responsibilities and duties rest in trust law. The OECD review stated:

In considering these alternatives, it should be kept in mind that each of the national schemes and reforms discussed in this review was adopted in a specific national economic, social and political setting. There is no blueprint for reform which Ireland could take off-the-shelf and implement directly.

Any solution has to fit our situation in Ireland and our law. We considered very seriously the debt and employer issue, imposing a statutory obligation on employers to secure a minimum level of funding before a scheme could be wound up. The Deputies have set out the advantages of a debt on the employer but there are also very strong arguments against the introduction of an employer obligation, given the uncertainties about the overall impact and the potential for unintended consequences. This is the difficulty in the case of Irish law.

Several industry experts have suggested that a statutory obligation on an employer has the potential to effectively eradicate the provision of private defined benefit pension schemes in Ireland. Deputy Ó Snodaigh referred to companies operating in Ireland that may be part of much bigger multinational companies but that are relatively small in that overall context. The biggest problem is that there could be a move to close down schemes completely as a way of mitigating and avoiding any debt for the employer. That is the biggest risk factor. In discussions on this matter, that has long been recognised as a specific problem for Ireland. It is not a simple matter to bring it in.

There will be increased State involvement in the sponsoring employer's business decisions, and the Pensions Board has recommended against it. It can also be seen as unfair to good employers who voluntarily established a pensions scheme, as opposed to employers who have done nothing to establish a defined benefit or even a defined contribution scheme. Therein lies the law of unintended consequences.

The Acting Chairman has referenced FRS 17, which is what has caused this problem in the accounting treatment of pension liabilities in company accounts. There is a danger that some employers with underfunded schemes may wind up the scheme in advance of the completion of the legislative process, which by its nature would be complex and would take quite some time to put in place. As they are much bigger societies, the concept of having an employer liability in the UK and the US is far easier to deliver in the context where there is a far larger volume of companies involved in pension schemes, because the risk can be spread in a way that is less likely in a much smaller economy like Ireland. There is much evidence in the UK of complex anti-avoidance structures, with the requisite resources and expertise being employed to prevent employers restructuring to avoid their obligations. This complexity includes application to single employer schemes, multi-group schemes and those of multinational parent companies. Concerns have also been expressed that a statutory obligation on the employer could encourage imprudent investment behaviour by trustees if losses were seen as being backed, in effect, by a guarantee. For those reasons, I am not inclined to accept the amendments.

In Ireland, given the very small proportion of defined benefit schemes linked to employers who have a credit rating or another reliably accurate and consistent measure of solvency, it is not the case that a workable framework to apply a debt selectively on the employer is easily achievable. We do not propose to proceed with the debt on the employer, but it is an issue where there are pros and cons on both sides.

The most recent information from the Pensions Board is that as of the end of October 2013, there are 803 defined benefit schemes, and we have been advised that currently 50% of them will meet the funding standard, while 50% of them will have a funding proposal in place to do so. About 10% to 20% of the schemes, some of which are very small, have very serious issues.