Mr. Fergal O'Brien:

I thank the committee for the invitation to the meeting this morning. I am accompanied by my colleague, Maeve McElwee, and we are here to represent the views of IBEC members. The committee will be aware that IBEC is the country's main business representative organisation. It has 7,500 members across all sectors of the economy and they employ approximately 70% of the private sector workforce. Many of our members have an interest in issues relating to defined benefit pensions and the legislation under discussion today.

Our concerns relate specifically to Part 3, the amendments to the Pensions Act 1990, heads 12 and 13, which will have unintended and negative consequences for employers and scheme members. Head 12 proposes an obligation on employers sponsoring defined benefit pension schemes to give 12 months notice of their intention to cease contributions and head 13 proposes that the Pensions Authority can determine a legally enforceable schedule of contributions that will restore defined benefit schemes which do not satisfy the funding standard.

Most defined benefit pension schemes are established under a trust deed. The employer undertakes to be bound by the rules of the scheme and to meet certain duties and liabilities on a voluntary basis. There has never been a statutory obligation on employers under Irish law to contribute to a pension scheme or to accept liability for any deficits. We have just heard the comments on that from the Pensions Authority. This Bill will turn a voluntary contribution into a mandatory obligation and potentially jeopardise the viability of businesses which are unable to absorb this extra cost. IBEC shares the Government’s ambition to protect scheme members, to encourage employers to ensure that schemes are well funded and to prevent employers who will not pay, as opposed to those who cannot pay, from walking away from the schemes they sponsor. However, we also recognise that it can be very difficult to put forward legislative proposals which will have the desired effects without any negative implications. This area of pensions is quite technical and the issues are not amenable to easy solutions. While it may seem that a few simple changes could provide scheme members with the level of security they want, the unintended consequences can be damaging and far-reaching.

IBEC is particularly concerned that the provisions, first, could be unfair on employers who have voluntarily set up defined benefit schemes and invested significant resources over time to maintain them. The previously voluntary commitments under these schemes would become mandatory, whereas there would be no corresponding obligation on employers who had set up defined contribution schemes or who had no pension schemes.

Second, we believe the provisions would destabilise ongoing efforts of many employers and trustees to support and deliver on the pension promise made to scheme members.The experience of recent years has demonstrated that this process is best managed through discussion and negotiation between trustees, employers and members, where efforts are made to reach agreement on the steps required to secure scheme viability. These steps may include a mix of measures such as increased employer and member contributions, which have been commonplace, longer working and changed benefits. This painstaking process of supporting schemes to gradually move to a more appropriate funding level may not attract the same media attention as a small number of high profile scheme closures. However, it is more likely to secure sustainable member benefits than additional regulation.

Third, we believe the provisions would impose an extra funding burden on the employer. While the proposals might appear to improve scheme security, in many cases the pension liabilities and the investment risk assumed would be too big for a company to support. It could jeopardise the viability of the business and the jobs of those employed. There are also a small number of significant companies sponsoring schemes without a balance of cost provision. This means that the employer contribution is fixed under the scheme rules. This legislation would now mean that those companies would have to assume large pension liabilities onto their balance sheets. This could have significant commercial and financial implications for those organisations.

Further, we believe the provisions will accelerate the closure of defined benefit schemes in the private sector. The experience in the UK is that the introduction of "debt-on-employers" in 2005 has been widely blamed for the quickening pace of closure of the UK’s 6,000 remaining private sector defined benefit schemes. The director of a leading academic think-tank has said:

Despite the major increase in pension rules over the last 10 years, aimed at protecting the consumer and encouraging better retirement saving, there has been a significant drop in the membership of defined-benefit pension schemes, with many people on course for inadequate incomes in retirement. Our once brilliant, flexible, final salary schemes have been killed off by over-regulation. We will all live to regret this.

We fear a similar situation playing out in Ireland.

Finally, we believe the provisions will result in a far worse outcome for some scheme members, particularly younger members. In some cases preventing an insolvent scheme from winding up can result in its ongoing deterioration before inevitable closure, with older members using up the assets before younger members retire. IBEC therefore believes that the result of the changes proposed in this Bill, which have been designed to protect the position of defined benefit pension members, would deliver the opposite of that. The Pensions Authority has spoken about its proposals to allow for some additional flexibility for defined benefit schemes and to tackle some difficulties with the current operation of the minimum funding standard. Given that this in many cases is the root cause of the difficulties encountered by the schemes, the proposal should be given time for implementation before going further down the legislative route.

We urge committee members to recommend that the flawed provisions we have mentioned be removed from the Social Welfare and Pensions Bill.