Mr. Tim Duggan:

We can go through some models and show where different possible methods of qualification would work better in certain circumstances, depending on individual circumstances. The main issue is that the gap is primarily found in occupational pensions rather than the State pension.

I was asked about INM and the possibility of having a pension protection fund, a debt on the employer and things of that nature. The first really important point to note is, as members know, defined benefit pension schemes in Ireland are set up and maintained by employers on a voluntary basis. There is no legal requirement on any employer to establish or maintain a defined benefit pension scheme. It has always been voluntary and there has never been a law requiring employers to provide fpr one or anything like it. As a consequence, most defined benefit schemes in Ireland are set up under a deed of trust which sets out the rules of the scheme and undertakes certain liabilities and duties as a consequence of these rules. Because they are voluntary, each trust deed varies. It depends on what the trustees, the employees, their representatives and the employers agreed to. There are differences in the rules which, in some cases, are considerable. There is no essential one-size-fits all scheme. Despite all of the difficulties which have arisen, the vast majority of employers operating defined benefit schemes have made great efforts to support them and deliver the benefits to scheme members. They are making significant efforts to ensure their ongoing viability for as long as required into the future. It is important to state the majority of schemes are working well and that employers are committed to them.

As I said in my opening statement, the process all along has been that the good functioning of schemes is generally engineered through dialogue between the parties involved. Where issues arise, they sit down and work things out between them. This usually works well. However, there are exceptions.

The INM case that occurred in recent weeks is an obvious example of a case where the dialogue process that is almost taken for granted does not seem to have occurred. If serious consideration was given to taking legislative measures in this area, such legislation would have to have a couple of significant qualities. First, it would have to work and do what one wanted it to do, in other words, achieve the desired outcome. One would have to think carefully about what that desired outcome should be. Most people argue that the desired outcome is a no-brainer, namely, that people should receive the benefits they have been expecting to receive. That may not be achievable in its fullest sense, however, and for that reason a little thought and consideration would have to be given to how one might frame it. The second quality which is as critically important as the first is that, in addition to such legislative measures achieving the desired outcome, they would have to do so in a way that would not cause harm. That is a tricky balance to strike.

Another issue that would have to be carefully considered is how applicable this might be in some retrofitting arrangement. Given that pension schemes were established voluntarily under a trust deed, there is a degree of debate about whether one could subsequently impose a statute on them. A question arises as to whether one could impose legal requirements on an existing debt. While it would be okay to do this for the future, could they be applied to schemes that were or are in place using a voluntary mechanism? That issue also requires careful consideration. While I am not necessarily saying anything the Senator has not heard before, these are important qualities that would have to be considered.

There would be obvious advantages in placing a minimum obligation on an employer who is sponsoring a defined benefit pension scheme. It would be better in trying to protect the benefits of existing and former members of a scheme. It would also, to use a horrible phrase, prevent employers from walking away and leaving a scheme high and dry. It might also help to reduce any potential exposure of the State if a scheme were to be wound up with a deficit. Notwithstanding these obvious and good advantages, there could be significant downsides which also have to be considered. I referred to retrofitting and how fair and legally permissible it might be. A second concern is that one would not want a scenario to arise where one had a pension scheme with a company tagged on to the side of it. If it was suggested legislation of this nature was to be introduced, one would not want a flight from defined benefit pension schemes by employers, regardless of whether they had debt issues. Given the volatility of the investment market, it is difficult for anyone managing a pension scheme to predict with any degree of accuracy in what position the scheme will be in one year, two years or five years from now. Therefore, if employers were to be faced with the possibility of having a legal obligation to secure debts that could arise in the future, it could force them, their boards and shareholders to think very differently from the way they think about the scheme when it is a voluntary arrangement. We would have to be careful in considering that issue and teasing out that possibility.

In addition, even if legislation was to be introduced in a way that did not allow for this scenario to arise, experience in other countries has shown that it takes time to bed these things down because it is not particularly easy to predict what behaviours might emerge with companies in such cases. As a result, anti-avoidance structures and measures have become a feature of the system in the United Kingdom and the United States, as well as other countries that have introduced provisions of this nature. We would have to carefully try to predict and tease through these scenarios and how they might work, which would be a complicated task.

While this approach is fine where there is a single employer scheme or a single set of trustees scheme, a number of defined benefit pension schemes are much more complicated as they involve multiple employers and different sets of rules for different types of employee and so on. It is not the easiest thing in the world to develop legislation. I truly wish it were as easy as drafting a small amendment to an Act. However, on close examination, it seems that complicated legislation would be needed to address an issue such as this.

A significant issue is that the extra funding burden could, unfortunately, accelerate the demise of the defined benefit pension scheme environment if one were to take the route proposed. Some experts have suggested this approach could bring about a rather abrupt end to the provision of defied benefit pension schemes. While some argue that this is exaggerated and could not possibility occur, we have to be mindful of this potential and tease through the realities before we would be in a position to make a decision one way or the other.