Oireachtas Joint and Select Committees
Thursday, 12 December 2013
Committee on Education and Social Protection: Select Sub-Committee on Social Protection
Social Welfare and Pensions (No. 2) Bill 2013: Committee Stage
I refer members to the grouping of amendments for the purpose of the debate. I understand the list has been circulated to members. It is proposed to group the following amendments for the purposes of debate. Amendments Nos. 2 to 4, inclusive, amendments Nos. 5 to 10, inclusive, amendments Nos. 13, 14 and 24, amendments Nos. 19 and 20 and amendments Nos. 21 and 22 will be taken together.
Section 3 and the next section deal with deciding officers, appeals and so on. While I do not have a major problem with the content, when this Bill was published, it just dealt with pensions. This seems to have been an afterthought based on a court case and I have not had the time to get legal opinion as to whether this fully complies with the court case finding in terms of appeals and the claimant or appellant having the right to submit additional documentation continuously and whether the appeal would be open. It is a pity it was included in the Bill in this way and that we are being short-circuited in dealing with it. As I said, the Bill was originally a pensions one. Will the Minister give an outline as to where these sections came from? Do they fully comply with or fully address the points which emerged in the recent court case?
This arises in the context of a recent High Court case. The social welfare system has a practice of appeals officers revising decisions in a particular set of circumstances. There are approximately 2 million applications per year to the Department for a whole range of benefits. When the appeals process has been exhausted but where circumstances have changed, the Department allows a fresh application in order to take account of the change of circumstances and the matter proceeds. Until now that flexibility has been seen as an asset in allowing deciding officers and appeals officers to deal with differing circumstances but following the recent High Court ruling, the provisions relating to a change of circumstances are now considered problematic as they unintentionally remove finality from social welfare determinations that refused claims and they introduce considerable uncertainty into the system of social welfare decision-making as a consequence.
It has been the practice in the Department that once a claim is refused and all review and appeals processes have been finalised, if the customers seeks a revised decision based on a change of circumstance, he or she is advised to make the fresh application. The new claim is fully assessed in the light of all the circumstances. In the context of the High Court decision, the Department would no longer be able to ask people to make a fresh claim but would have to reopen the claim, even if it was closed many years previously. The purpose of sections 3 to 5, inclusive, are to address the issue but in a limited range of circumstances. Specifically, section 3 amends the provision of section 301 of the Social Welfare Consolidation Act which applied to the revision by a deciding officer of a previous decision of a deciding officer, an appeals officer or a designated person in regard to SWA. Where the original decision was wrong and if new facts and evidence emerge, the customer will be able to seek a revised decision. The amendment does not change that. Where a claimant is in payment, it will be possible to revise the decision if circumstances change but where a person was refused a social welfare payment in the past and the circumstances change, the current channel is to make a fresh application so that the application can be fully considered in the light of the current circumstances and the amendment seeks to ensure that will be the practice in all cases.
In light of the High Court decision, I have asked the officials in the Department to carry out a more wide-ranging review of the legislation on social welfare decisions. If I need to address this subsequently in a future social welfare Bill, I will do so then.
I welcome the fact the Department is quickly addressing the anomaly that emerged. I do not have a problem with it but I have a problem with the way this appeared and the rushed nature of this legislation. If the circumstances of somebody who is refused social welfare change next week, he or she will make a fresh claim but if the circumstances changed a number of months ago but he or she had not managed to get a consultant's letter, which is one of the big problems currently, and if he or she had indicated that to the social welfare appeals office, can the appeal be held open, pending a consultant's letter ? Does this, in any way, affect the process where a deciding officer has decided not to grant an application and somebody is entitled to a review or an appeal? One of the problems is that people are not aware of the advantages of the review.
The standard letter that is sent out is slightly confusing. In the middle of the sentence to the effect that the person is entitled to a social welfare appeal, it is stated that he or she is entitled to a review. We can come back to that at another stage with the officials but I am not opposing the sections.
The Deputy's assumptions about the practices are correct. As the Deputy is aware, people are better off doing a review than going to appeals, but with the improvements in technology, everybody has seen a very significant improvement in processing. Having the right to make a fresh application for a change of circumstances is a valuable right and is the right thing to do in many cases. With 2 million social welfare applications a year and the findings by the High Court of the gap in the law, this is simply an attempt to close the gap to ensure all the administrative procedures the Deputy has described can continue as well as providing for the fresh application.
Amendment No. 1 is in my name. I understand that amendment has been ruled out of order. I wish to comment briefly on it. I got the notification, as usual at the last minute, which I accept. I will try to find some way of moving this amendment again on Report Stage to deal with the situation of the 50,000 to 60,000 people who have lost all or part of their pensions since the Minister took office.
On the section, I ask the Minister about double insolvencies. In a press release which accompanied the publication of the legislation the Minister stated:
Could the Minister elaborate on that? Is she saying that in regard to historic double insolvencies, the levy will be used to top up what those pensioners may be adjudged entitled to under the European Union directive?
Historic double insolvencies will not be covered by this legislation [that is the Waterford Crystal case, among others] but are covered by the Insolvency Directive. This means that in those [past] cases, pensioners' entitlements will not be affected in any way and they will continue to receive 100% of their pensions. However, as the Directive stipulates that workers should be protected to at least 49%, the State may use funds raised by the Pension Levy to explore options to resolve historic double insolvencies which failed to meet this requirement.
First, in regard to Waterford Crystal, the point is that the Waterford Crystal case has been addressed by the European Court and the workers have won their case. The applicants in the case have the matter before the Irish courts and the Irish courts are proceeding to address the matter. The point is that the Waterford Crystal workers' situation is covered by the court judgment they received from the European courts. This legislation addresses new cases that arise in the future.
Second, in regard to funding the Waterford Crystal case and other cases in the future, the Minister for Finance announced in the budget that the levy of 0.6% is ending in 2014, as promised by the Government on the introduction of the levy, but he brought forward a provision for an additional levy of 0.15%, which he said could be used, inter alia, to address deficiencies in historic cases, of which the most outstanding and the largest is the Waterford Crystal case, and any others that arise in the future. He stated subsequently that any such deficiencies would be met out of general funds. That means that in terms of a funding mechanism and the 0.15% levy he specifically addressed in the context of 2014 and 2015, as he is the funding agency, I was pleased that there is a funding stream to provide for the pension entitlements of workers and members of pension schemes in the context of such cases.
To clarify, what the Minister is saying is that the levy, which is intended to prop up double insolvency payments, will not apply? The funding for the Waterford Crystal workers and other historic double insolvencies will not be accessed from the new levy but rather it will be done out of general funding.
It could be but he has also made a reference to general funds. The point is that in the context of the new levy, that funding has been put in place, and that is a good measure.
I move amendment No. 2:
The purpose of these amendments is to ensure a healthy sponsor, namely, the employer or the company, cannot close a defined benefit, DB, pension scheme. The reason for that is because the OECD report on the Irish pension system highlighted an anomaly in Ireland. It stated:
In page 9, between lines 19 and 20, to insert the following:
“9. The Principal Act is amended by inserting a new section 48A as follows:“48A.(1) A healthy sponsor shall not be allowed to close a defined benefit pension scheme except where the scheme has reached a minimum 90 per cent funding standard.
(2) For the purposes of this section a healthy sponsor means an employer that—(a) has positive net revenues, or
(b) has a parent company with positive net revenues.”.”.
Another weakness of Irish legislation is that it allows healthy sponsors to 'walk away' from DB pension plans, shutting them down, without creating a high-priority debt on the employer, as is the case in the United Kingdom. Under the UK's "debt upon employer obligation", the sponsor's debt (if the plan is underfunded) is determined by valuing the benefits on the basis that they are bought out in the full via immediate annuities (for pensioners) or deferred annuities (for non-pensioners).There has been much debate outside this House on this issue, which appears to be becoming a trend. Those of us in Ireland may be more exposed than others in that regard because while we have many large employers, they often become subsidiaries of an even bigger conglomerate. Those conglomerates are quite healthy in the scale of things but their Irish subsidiary might not be as healthy or is, in their view, likely to become insolvent if the minimum funding standard for the pension fund is imposed in a case where it becomes insolvent. There must be some liability on that employer or its parent company. I am trying to ensure that in respect of the remaining the DB schemes in Ireland, which are down from 2,500 some years ago to 800, and that figure is likely to reduce further as many of those 800 schemes have been closed to new membership for a long time, the employer has the liability. It must be remembered that the DB scheme is based on an employee, on taking up employment with a company, being promised in a contract that they will enjoy the benefits of a DB scheme.
The companies now want to evade that responsibility because they did not take the required actions over the years to set aside the requisite sum of money to ensure the pension pot was in place not only to pay the pensioners but also to have regard to existing workers and those described as deferred members, who have left to move to other employment or for health reasons and who are also awaiting their payments. All of those people are stakeholders. They have an expectation based on an employment contract between them and the company and now, because of changing circumstances, the companies say they are not liable. We should try to ensure that our legislation reflects our priority - that companies have a duty to their employees and pensioners. This is one mechanism we could use to do that.
My amendment, No. 4, makes substantially the same point. As the law stands, a company which is financially healthy, or whose parent company is financially healthy, can simply allow a pension fund to run down and close it. We propose that no company which is financially healthy should be allowed to close a defined benefit pension scheme under which people have legitimate expectations until that scheme is at least 90% funded. I am open to suggestions about mechanisms to measure that, or who can determine that. At that point if the company wants to close down the scheme that is fair enough, but people will at least be able to get most of what they have been led to expect they will get.
The legislation is probably clear in the case of double insolvencies, but this is to deal with cases in which a company is still viable and the scheme runs into difficulties or there is a dispute. The legislation is deficient in the protection it gives to workers compared with those in other countries. It lets the employers off the hook somewhat. We should try to copperfasten the legislation so that it is not the pensioners or the State picking up the tab for a company that is incredibly profitable and could step up to the plate. In the UK there is quite strong legislation which defines the legal onus on the company such that where it is viable it has an obligation to meet its pension promises to its workforce.
Several of the big schemes here fall short of provision - for example, the IASS scheme, which is a cross-border scheme, has over 1,000 members in the UK who would expect as British citizens to get the same guarantees they would get in Britain. Even the United States places a heavier onus on companies than we provide for in this scheme. Membership of these schemes was often a condition of one’s contract of employment and there was no opting out. Employers must come up to the mark. Many points have been made about the courts and others having considered this matter. The Minister is aware of several schemes in which there have been disputes over who is responsible, or in respect of which companies with defined benefit schemes have tried to declare them as defined contribution schemes, or change the method of accounting. The courts have adjudicated on the big airport schemes as defined benefit schemes. The Minister is aware of the recent case involving Aer Lingus in the Commercial Court, which impacts on the company's attempt to reduce some of the capital allowances. The judgment stated that there was a contingent liability in respect of the pension scheme. This Bill does not fully deal with such a situation.
It is interesting that, because of the changes in some of these companies, members of pension schemes such as that one were treated as public sector workers. They were enabled to join the public sector transfer network scheme because Aer Lingus had been 100% State-owned and the State still owns 100% of the Dublin Airport Authority and Shannon Airport. Workers could transfer their pensions under the public sector legislative rules into the public sector pension scheme. I am not sure how this legislation affects that transfer facility. While the onus may be implied, the Bill is too silent and we want to try to toughen it up on the employers’ responsibility. Aer Lingus has almost €1 billion in cash and a huge deferred pensioner body, and active membership and disputes continue. That is not good enough.
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.
Yes. A number of issues have emerged from what the Minister said. The idea here is to ensure healthy companies live up to their commitments. In defining healthy companies, we used in our amendment the wording from the OECD report, which pointed out that Ireland was out of sync with other countries. Our amendment uses the OECD term "has positive net revenues". We have to take into account the day-to-day running of the company. We do not want a company to close, impose reduced hours or redundancies on a workforce or cut wages. That is not the intention. However, there is a commitment that needs to be lived up to and "positive net revenues" suggests there is a formula of words involved.
This is not just an Irish issue. The parent company could be in another EU member state and there is a responsibility across the EU on profitable companies not to use the current crisis as an excuse to get out of something which they deem to be a burden on them into the future. We have seen companies examining how to get out of this. I include the ESB in those companies that are examining how to put this liability off their balance sheet and change it to a defined contribution scheme or another pension scheme. It is not attractive for a company to have a defined benefit scheme on their books if they are planning to be taken over, up for sale or whatever.
I urge the Minister to look at this over the next week to see if a formula of words can be put into this Bill which ensures this liability is imposed on companies and they cannot walk away. If there is no clear legal obligation preventing healthy employers from walking away, we will find over the next while that more of those 803 defined benefit schemes will see their employers, regardless of whether they are in financial strife, looking at how they can shirk that responsibility. The people who are legally exposed when a defined benefit scheme becomes insolvent are the workers, the pensioners, and the State to some extent if both go south. The workers and pensioners also include the deferred pensioners, who are not mentioned in this Bill. It is to be hoped we will get an opportunity to deal specifically with that in one of these sections, because that is an area of concern.
If this issue is not addressed, it will end up clogging up the industrial relations network, as it has done. It also has the potential to increase the number of industrial disputes. The most recent disputes in Marks & Spencer and the ESB were tied to a promise of a defined benefit scheme. The disputes were not about increased wages, which happened in the past, or for better conditions of work, or for increased hours. They were about ensuring the promise made to them in a contract of employment was honoured. We are not addressing it when we address the pension scheme wind-ups, nor are we ensuring the remaining 800 defined benefit schemes are complied with while those companies have positive net revenues, as per my amendment and the OECD report.
I think the Minister accepted in her reply that there is a genuine problem. A company which is in a perfectly healthy financial state can decide tomorrow morning, for whatever reason - it might be subject to a takeover or it might want a temporary boost to the share price if it is a quoted company - to wind up the defined benefit pension scheme. I have received correspondence in the last week from somebody who paid into a defined benefit pension scheme for the past 30 years. The company involved unilaterally decided to wind it up, even though the company is not winding itself up because it is perfectly solvent.
The person who has paid into that scheme for 30 years will end up with a pension of some €24 per week, which is outlandish. We are talking here about solvent, healthy companies which can well afford to maintain the responsibilities they undertook to their employees when they signed them up for the defined benefit pension scheme.
I am open to suggestions such as letting a third party, like the Pensions Board, decide whether a company is sufficiently healthy to meet its obligations in this regard. The bottom line is that there is a problem here that must be resolved. I take the Minister's point regarding the OECD's observations and the qualifications it mentioned. Ultimately, however, that body came down in favour of what we are proposing here. I am likewise aware of the anti-avoidance provisions in the United Kingdom. Any time one seeks to impose an additional tax, burden or obligation, those affected will seek out avoidance measures and the State must put measures in place to counteract that. I take the point that our economy is different from the United Kingdom economy, with the risk being much more widely spread in that jurisdiction. However, the introduction of the relevant legislation in the UK does not seem to have had a substantial detrimental effect on its economy. In legislating as they did, the British authorities were conscious of all the issues to which the Minister referred, but they proceeded as they did because they recognised there was a problem, as does the OECD.
I hope the Minister will reconsider this issue before Report Stage. If she is prepared to offer some type of compromise which would at least impose certain barriers in the way of perfectly healthy employers walking away from their obligations, then I am prepared to withdraw the amendment.
I must return to the point I made on Second Stage, namely, that the crisis in pensions is caused by two factors. The first of these is the change in life expectancy we have seen in recent decades. When pension funds were originally set up, people did not live very long after retirement. Happily, people are now living for far longer, with most of them being far healthier in retirement. The problem for employers is that the increased longevity of the employees to whom they made promises in good faith 30 years ago - it is important to remember that many employers had very good intentions in this regard - is now giving rise to a serious issue in regard to affordability. The second factor in the pensions crisis is the larger financial crisis, which saw Irish pensions hit by a perfect storm. The schemes were in equities at the wrong time, when the equity market was collapsing - Deputy O'Dea is much more of an expert than I on the equities market - and proceeded to move into Government bonds at the wrong time. It was a perfect storm whereby a range of issues and developments went against them.
There is also the issue of FRS 17, which set much of this in motion. The point I am making in regard to the regime in the United Kingdom is that notwithstanding the legislation we have talked about, there has been a huge move - to a far greater extent than in Ireland - away from defined benefit schemes and towards defined contribution schemes. Deputy Ó Snodaigh referred to the situation at Marks & Spencer. My understand is that the company closed its defined benefit scheme to new entrants in 2004. In fact, I understand that much of the dispute with employees in that instance related to changing work practices and most of them are in a defined contribution scheme. That is the information we have from the Pensions Board, and it is not untypical.
The Deputies are proposing in these amendments that a healthy sponsor should not be allowed to close a defined benefit scheme where that scheme is 90% funded. However, in such cases, employees would effectively be almost 100% protected. I absolutely accept the intention of these amendments, but they do not actually do very much in regard to the underfunded schemes that employers are seeking to close. The amendments apply to schemes that are, according to the definition in the amendments themselves, well funded, but those schemes are not the problem. In fact, the schemes encompassed within the amendments will, by definition, be among the 50% of schemes which have met the funding standard of the Pensions Board. In short, it is not the schemes that are 90% funded which should be causing us concern.
There have been discussions recently on what might happen if everything were to collapse tomorrow, taking a risk and probability of 100% right here and now. However, pension schemes, because they are based on life expectancies and so on, do not normally anticipate 100% risk in the here and now. I understand where the Deputies are coming from with these amendments and it is a subject to which we will return. In fact, we will have no option but to come back to the issue of how defined contribution schemes are invested. That is not dealt with in this Bill but is a huge issue for younger people currently in employment. For the reasons I have set out, I do not propose to accept the amendments. I understand the Deputies' concerns and assure them that these matters are constantly up for review and discussion. As I said, there is work to be done on defined contribution schemes, which apply to a large proportion of younger workers.
The Minister has not sufficiently addressed the issue we are seeking to address in our amendment. The legislation clearly defines the State's responsibility in cases of double insolvency and guarantees certain benefits to scheme members in such cases. The guarantee in this regard is not adequate, but that is an issue for discussion under later amendments. Our amendment No. 3 is seeking to do something analogous in terms of defining an employer's responsibility in cases where the scheme, but not he company itself, is in trouble.
This provision is necessary because we have seen several examples of employers exploiting the grey area that exists in this regard. Our intention is to ensure that such exploitation does not continue under the new legislation. What we are discussing here are healthy companies which can afford to pay. There are few, if any, new defined benefit schemes opening up, so these provisions could not be said to raise a deterrent in that regard. As the Minister said, there was no statutory obligation on these companies to set up these schemes. They engaged voluntarily in a commitment, often as part of the contract of employment with the members of this scheme. That guarantee or promise was that workers who paid in over many years - often over a lifetime of work - would be guaranteed an outcome at the end of it. Now, however, the rug is being pulled from under them in some cases. To reiterate, we are talking about contractual obligations into which employers entered freely.
We are not the only ones arguing this point. The High Court stated in the Commercial Court case regarding Aer Lingus and the IAASS scheme that there was a clearly defined contingent liability on the company in regard to its pension commitments. We are seeking to build that into the legislation. The Pensions Board itself has adjudicated that FRS 17 does not replace the statutory obligation on the employer.
The discrepancy and lack of legal foundation is causing the problems in the first place. We must address it and if it is not done in the way some of us are proposing, because we are all trying to do the same thing, the Minister must return with something much firmer to address it. Decisions to take money are being made by companies which are healthy companies. The ESB is one example. It was quite clear it could have stepped up to the mark. Thankfully, it has now decided to do that, but the country was at a standstill in anticipation of whether it would be resolved. There are currently approximately 15,000 members of the airport pension schemes who are similarly affected by some of these issues. Due to Pensions Board adjudications and High Court rulings regarding this matter being a contingent liability, it is a case of introducing legislation now to bring that on stream. If we do not do that, who will foot the bill? It is either the pensioners, which is unacceptable, the members of the scheme or the State. As Deputy Ó Snodaigh said, it will just pave the way for more cases like Waterford Wedgwood and EMI, which nobody wants. This should be an opportunity to sort out the grey area.
Deputy Daly is saying she wants a deterrent. The problem is whether the deterrent will incentivise companies to close their pension schemes. Deputy Daly must be conscious of that. She referred to a couple of State bodies, but they are less likely to wind up. Incidentally, with regard to the ESB, I made it clear from the start that in respect of pensions legislation and the Pensions Board, the ESB scheme is a defined benefit scheme. The issue people had was, "What if the scheme closed tomorrow?". Well, what if Ireland closes down tomorrow? Clearly, in a catastrophic situation where all of the risks and liabilities crystalise tomorrow, there are lots of promises with regard to many things, and not just pension schemes, which would not be able to be filled. However, we were very clear that the ESB scheme is a defined benefit scheme.
The Deputy spoke about it being part of the contract of employment and that employers entered it voluntarily. It is important that she recognises that employers entered it voluntarily. There are many employers who have never set up a pension scheme. There are good employers, as it were, who did make those promises as part of the contract, but they encountered the problem of people living much longer and taking from the pension scheme. Obviously, the contributions they made during their lifetime of working reflected what was considered appropriate at a much earlier point, in terms of funding the scheme for the longevity required. Second, and this is a major issue across the world, the schemes' returns have been extremely disappointing. However, for the last two years the ESB's returns have been extremely impressive and hopefully that will continue and the deficiency in the scheme, as is expected by the Pensions Board, will be addressed via the agreement the scheme made with the Pensions Board.
On balance, I believe it is imprudent to seek to impose a direct employer liability in Irish law. I appreciate the sentiments that are being expressed, but there must be proper regulation so that schemes invest in ways that provide returns which are sufficient to meet the promises that have been made. That is the critical thing to do. However, we will keep this under constant review as well as looking at the situation of people in DC schemes, many of which operate on their own in a context where it is very difficult in a small fund to call the market for 30 years hence into retirement. In fact, one would have to be a very lucky investor, as Deputy O'Dea will know.
I have sympathy for the view that we must be careful not to place an onerous liability on a company whereby it ends up having negative consequences for the existing workers. That is why we chose the words "positive net revenues". The last line in my amendment deals with the parent company. Increasingly, parent companies set up an Irish subsidiary using loans from the parent company. When they decide to wind up, the first port of call for the liabilities is obviously the Revenue Commissioners, because they must pay off whatever debts they have to them, and then they turn to paying off the debt to the parent company. The last port of call is often the workers, who might not get enhanced redundancy payments. If there is a DB scheme, there is pressure to reduce the amounts or make wrong provision for the existing members and the deferred members. The pensioners under existing law will get up to 100% of the fund that is in place. Is there an EU directive on this and does it cover companies located in the European Union whose parent company is in the EU, to ensure they do not evade their responsibility in a member state, or is there a compensatory scheme in place similar to that which applies if a company closes in Ireland and relocates somewhere within the European Union? I recall that when Dell closed there was a fund available to help retrain workers and so forth.
Is that something that is being considered? It should be considered. It will probably take longer if it is not. DB schemes are closing in Ireland at a very fast rate and, in fact, according to the OECD, the number of DC schemes is also reducing, which is interesting. That might be due to the number of companies that have closed. It is a dangerous time for pensions and workers in Ireland and we must ensure that existing members and, in particular, deferred members get their entitlement to money that was supposedly set aside for their retirement. We will return to the matter of deferred members because it is a huge issue for them, as well as for existing members which the Bill is trying to deal with.
I am pressing the amendment. There must be something in the legislation to impose an obligation on healthy companies to continue to fund the DB scheme. If they wish to close it for future entrants, that is a matter for themselves and their future workers. If they wish to close it for existing members and pensioners, I caution against giving them that ability. However, it is something they have already, but they would have to buy out their liability to the existing pensioners, deferred members and active members. They must understand that they have that liability, come what may, and that if they will not honour it in Ireland, the State or the European Union will hound them to ensure that people get what they have set aside or what is supposed to have been set aside. It is part of the workers' wages that is being set aside for these pensions.
I wish to make a couple of brief points. The ESB scheme was always a defined benefit scheme.
The IASS scheme was also a defined benefit scheme, but that did not prevent ten years of argument as efforts were made to undermine the benefits to the members of that scheme. The measures undertaken by the company were the subject of years of adjudication in front of the Pensions Board. The recent development in the ESB was a carbon copy of what started in the IASS scheme over ten years ago. That is a strong argument in favour of the need for tighter provision in this part of the legislation. I do not accept that these pension schemes are less likely to wind up. In fact, the IASS proposal is to stop the defined benefit scheme and replace it with a defined contribution scheme. The current scenario is that people who are paying into the scheme will get approximately 30 cent back for every €1 they put in. It is absolutely crazy that they are looking at a retirement pension of less than €100 a week. It is absolutely the case that the company voluntarily set up this scheme. It was not voluntary for the employees, however.
Some of the decisions taken by employers have had a substantial impact on the performance of schemes. We could debate whether longer life expectancy is a contributing factor. The move towards outsourced work and away from direct employment was definitely a huge factor in these pension schemes. It meant that there were fewer current workers while there was a growing pensioner body. Direct employees used to do work that was subsequently outsourced to private companies that did not have pension benefits. There are now a smaller number of people feeding into a system that has an older population. Strain factors such as early retirement schemes and voluntary severance schemes have not been adequately factored in. This has led to an uncoordinated benefit and an extra cost on the scheme. People who are pensioners now, including those on deferred pensions, will be affected by the decisions that were taken and the agreements that were entered into.
The point is that employers are trying to wind up these schemes now. We are trying to ensure that employers who try to exploit the present situation by seeking to get out of their commitments will face penalties. It could be argued that the provisions we are proposing will encourage employers to keep these schemes open. We are seeking to ensure that those who walk away from their schemes even though they have the financial ability to keep them going will be penalised anyway. We do not want the pensioners and the State to have to pick up the tab in such circumstances. I remind the committee that the courts have established that the trustees of pension schemes are a contingent creditor in this scenario. That means there is a legal liability. The Pensions Board has adjudicated to that effect.
I would like to ask the Minister about cross-border schemes that involve multiple companies. In some ways, it is the opposite of the Waterford Glass situation. For example, over 1,000 UK workers are members of the IASS scheme. These British workers would expect legislative protection vis-à-vistheir peers in Britain. Where do they stand, in terms of the situation here, in a European context?
The Minister said that if she accepted this amendment, some of the companies that are operating defined benefit pension schemes might decide to get out of those schemes because they will face a liability.
The legislation we are considering will become law in the next week or two. Does the Minister anticipate a rushed exit from defined benefit pension schemes between now and when the legislation is signed by the President? I do not see that happening somehow.
In my view, the introduction of a supplementary national pension scheme would solve many of the problems we are discussing. I hope we will be able to afford that, from an economic perspective, in the not too distant future. I envisage that employers, employees and the State, perhaps via taxation, would contribute to such a scheme. Such a scheme has been built up over a period of time in countries with more progressive pension situations.
Deputy Ó Snodaigh is right to suggest that much of this needs to be addressed on a pan-European basis. Quite an amount of work was done in this regard during Ireland's Presidency of the Council of the European Union. A number of improvements relating to the protection of workers' pension rights were agreed following approximately 15 years of debate back and forth among the various member states. One such improvement relates to the pension status of people who go from one member state to another to work for a private company. It has been agreed that they will be able to acquire vested rights after a certain period of employment. If someone who has been working for a particular company for seven or eight years leaves that company - this applies to women, in particular - his or her pension entitlement goes with him or her. The Irish Presidency succeeded in getting that across the line. A vast amount of work was done by officials in the Department of Social Protection and the Pensions Board. The IORP directives basically relate to regulation, funding standards, the quality of information, etc. An amount of work has been done. It is constantly on the EPSCO agenda when the various social welfare and employment Ministers meet. There is still an awful lot to do. Issues such as employer liability should be approached through something like European minimum standards. That is a long way down the road, to be honest, although some work has been done.
I assure Deputy Clare Daly that the rest of this legislation is about assisting companies with restructuring options with a view to improving the protection of the different parties involved, particularly the deferred and the active members. As the Deputy suggested, some of them are extremely concerned that they are contributing to a pension fund whose fruits they might not enjoy. That is one of the reasons we are passing this legislation. That is the very positive part of the legislation. I understand what Deputies would like to achieve. I am afraid that, in terms of defined benefit schemes, the horse bolted a long time ago. The number of defined benefit schemes declined by more than 1,200 - from over 2,200 to just over 1,000 - between 1997 and 2011. As I have said, the number of defined benefit schemes in Ireland at present is approximately 800. In 2007 and 2010, the then Government produced statements to the effect that it was going to sort all of this out. Very little of that was ever reflected in law, however, partly because of the difficulties we have been discussing. This is the first time the State has sought to address some of the issues. However, we will not be in a position to accept these amendments.
I move amendment No. 3:
In page 9, between lines 19 and 20, to insert the following:“9. The Principal Act is amended by inserting the following new section after section 47:"47A.Where the company is solvent the discharge of the liabilities of a relevant scheme under section 48(1AB), the resources of the relevant scheme are not sufficient to discharge, in whole or in part, the liabilities of the scheme in respect of the benefits referred to in paragraphs (b), (c) and (d) of section 48(1AB), or any of those benefits referred to in any of those paragraphs, the employer shall, in accordance with section 48A, provide such moneys as are required to provide for the discharge of those liabilities in respect of those benefits in accordance with those paragraphs.".".
I move amendment No. 4:
In page 9, between lines 19 and 20, to insert the following:“9. The Principal Act is amended by inserting a new section 48A as follows:
"48A.A solvent firm shall not be allowed to close a defined benefit pension scheme except where the scheme has reached a minimum 90 per cent funding standard.".".
I move amendment No. 5:
Can we address the issue of deferred members, which is of relevance to this section and is mentioned within the amendments in this grouping, before we start to consider this highly complex area?
In page 9, to delete lines 29 to 36, and in page 10, to delete lines 1 to 5 and substitute the following:"(a) firstly, a PRSI contributions record sufficient to ensure eligibility for the full State Pension for every retired scheme member who has not attained this record themselves and an age-appropriate equivalent for those that are pre-retirement;".
The recognition of members who previously paid into a defined benefit scheme is a slightly separate issue in some ways.
In the past they were recognised as being on an equal footing with active members and pensioners. In its report the OECD states the anomaly whereby those to whom I refer are not recognised as a distinct group should be removed. The report states "the priority currently given to pensioners before other members if a scheme closes because of sponsor bankruptcy should be eliminated".
We have been lobbied by quite a number of people who have been affected in this way. A group of people who are in receipt of a pension have been defined, while active members will usually have a union to bat on their behalf. If one has been in employment with a company and, for whatever reason, left it and gone elsewhere, one might not be in the same union, one might not be in a union or one might not even be in the country. I am referring to people who do not have advocates to speak on their behalf. We are discussing pension legislation and those to whom I refer are individuals who have paid into schemes. In some instances, there may be quite a number of such persons. In the future defined benefit and other types of scheme will have increasing numbers of deferred members. The reason for this is that people are changing jobs and moving around much more. If one does so within a certain period, one can cash out of the scheme of which one is a member. That is what I did when I left Foras na Gaeilge.
The Irish Senior Citizens Parliament outlined its position in its submission. Like everyone else involved, it has been obliged to respond to rushed legislation. However, it has managed to identify a number of points. Last night alone I received e-mails from ten deferred members appealing to us to restore recognition which was extended up to 2009 in order to ensure their views would be taken on board. In the context of the part of the Bill with which we are dealing, the standing of deferred members is not as high as it should be. They are not viewed as being on the same level as active members. I wish to read an e-mail from a woman, Mary, who was a member of the Aer Lingus defined pension scheme. She states:
I am a divorcee and a deferred member of the Aer Lingus defined pension scheme and have been depending on what I was promised I was due. As a deferred member, I have no one to speak for me - no union, no representative, no one. I paid into the scheme believing I would have something to live on when I retired. I would still be an active member except I was made redundant so it is not my fault I am in this position. I am asking you to please consider the person when you are debating the pension issue. We are not all on big salaries with huge lump sums due. My huge expectation was an annual amount of approximately €10,000.
I am speaking to it. We are discussing amendments Nos. 5 to 10, inclusive, and amendments Nos. 7 and 9 refer to deferred members. Such members should be granted increased prominence in the priority order. I am setting out the context in which deferred members should be granted such increased prominence. In her e-mail the woman to whom I refer also states:
I am not going to read all of the other e-mails I received. I will merely inform the Minister that those who wrote them are seeking to ensure they will have a right of audience when decisions are being made in the distribution of assets of defined benefit schemes in the event that such schemes are wound up.
I have not tried to screw the country. I have worked hard all my life and I am continuing to pay my own way in a low-paid job with little or no pension because of years employed, although I am still funding this miserly pension.
In the context of wind-ups, I have major issues with the Minister's proposed order of priority. I am not opposed to it because it is better than that which obtains under the current system whereby existing pensioners, regardless of the incomes they are receiving - some of them are on gilt-edged pensions of over €100,000 - take precedence over those who might have 40 or 45 years service and who might end up with nothing in such circumstances. There is still this possibility under the model put forward by the Minister.
I hounded the Minister for a number of weeks to publish the review of pension scheme wind-up priorities she had commissioned from Mercer. The review is specific to the issue under discussion, but it had never been published. It is a pity it had not previously been available to members because since its publication - I thank the Minister for circulating it on Friday last - it has allowed us to compare the new scheme with the existing one. The latter is the case, despite the fact that Mercer did not review what was before it, rather it examined different options. The option the Minister has put forward is quite close to one contained in the review. This shows that there is some logic behind the moves she is making. It is evident from the review that, in the context of the wind-up priorities she has chosen, she has shied away from the original proposals she made, either last year or the year before, to the effect that what would be introduced would be fairer. Under the new scheme, some high-end pensions could continue to be protected and, despite having paid in for a number of years, some deferred and existing members could be left with very little.
The Mercer review explores and simulates the outworkings of a range of hypothetical priority orders for two sample schemes. The various priority orders fall into two categories, namely, a percentage plus a monetary cap and a floor plus a percentage, such that whatever happens there would be a minimum amount plus a percentage. In my amendments I have put forward a model more akin to having a floor plus a percentage and a monetary cap. This is to ensure every member of a scheme would benefit to the fullest extent. The inclusion of a floor would ensure a minimum amount would be secured for all of those involved - existing pensioners, deferred members and existing members - and the cap would ensure active and deferred members would not be excluded from an earlier consideration in the distribution of assets. I am seeking, therefore, to bring the latter into the priority order at an earlier stage. With the inclusion of a cap, I am trying to avoid the shortcomings of the first option considered by Mercer for more mature schemes. In the absence of a cap, a fund would run out of money before those who had yet to reach retirement age were considered. The cap the Minister and others have proposed would be too high.
It can be inferred from the report's findings that my proposals would give greater protection to those on low pensions and those with low pension expectations than either what was proposed by the Minister in 2011 or what is in front of us today. By relying solely on a floor and percentage and by failing to insert a cap on the distribution of pension funds in the first round of priority, the Minister risks leaving the active and deferred members with very little or nothing, no matter how close to retirement they may be. This would particularly be the case with mature schemes.
The report points out that some members of pension schemes are not entitled to the State retirement pension, especially those in employment that is or was linked to the public service. Those members rely entirely on their scheme for their retirement income and therefore, any change considered to the priority order needs to have particular regard to their circumstances. This Bill, as drafted by the Minister, pays no regard to their circumstances whereas my proposal does. In the wind-up distribution order that I have put forward, first priority goes to the purchase of the requisite social insurance record for those who are not eligible for the State pension so that, at the very minimum, everybody in a defined benefit pension scheme would get the State contributory pension. That is a good advance on what the Minister has proposed and would involve a cost to the pension fund rather than to the State. The fund would be buying contributions for those scheme members who had no contributions or an insufficient number to qualify for the pension.
I have tabled a number of amendments which outline how my party believes the scheme should work. The first priority is the purchase of PRSI contributions. The second priority is to ensure that all pensioners receive €12,000 per annum. Given that we have already guaranteed that all members would have a State contributory pension, then existing pensioners would have the equivalent of approximately €24,000 per annum, through a combination of the State pension and the scheme pension payment of €12,000. Many people in defined benefit schemes could take comfort from the fact that at the very least, they will have some income in retirement and would not end up, having paid into a scheme for years, dependent solely on the State non-contributory pension in their retirement.
The priority order then goes back and forth between the pensioners and existing and deferred scheme members, at a different rate to that suggested by the Minister. Our amendments also ensure that those whose pensions are on the higher end would not get 100% of their entitlements to the detriment of other scheme members. The first port of call is to ensure a minimum standard for all pensioners as well existing and deferred scheme members.
I will be supporting Deputy Ó Snodaigh's amendments as my own were ruled out of order. In essence we are trying to improve the situation for the lowest-paid pensioners in particular. The Bill is concerned with securing benefits but that needs to be tilted in favour of the lower paid. We must view this against the frightening backdrop of the fact that 80% of our pensioners depend on the State pension to provide the majority of their retirement income. That is astounding and means the overwhelming majority of pensioners have an income of less than €500 per week. When one compares that to the very obscene pension pots that have been the subject of a lot of commentary recently, one cannot deny that a huge anomaly exists. We must make provisions which protect lower earners and give people at least a minimum guaranteed income in retirement. We can do more than this Bill provides for and Deputy Ó Snodaigh's amendments are an advance on the legislation as currently drafted.
I do not want to repeat the points made by Deputy Ó Snodaigh but wish to deal with an issue which was discussed during the Second Stage debate, at which time the Minister indicated a willingness to examine it further. It is an issue which is not directly linked to this Bill but rather to the principal Act of 2009, namely deferred members being put on a par with active members, making them very vulnerable and exposed. I appreciate that this legislation is attempting to give protection to the active group, which will give a subsequent protection to the deferred group of scheme members but-----
Deferred scheme members, however, up to a number of years ago, had the same protection as existing pensioners. I know that situation is complicated by the fact that it is the existing pensioners who are now taking a hit in this legislation and they were not exposed previously. It is a case of balancing interests, particularly in situations where schemes unravel, as with the IASS scheme, where the LRC sat down and discussed the pension scheme with groups of employees and came up with proposals which will have a devastating impact on deferred pensioners but that group did not have a voice at the negotiating table. I do not know how that can be factored in to the legislation before us. Is the solution, in terms of the priority order, putting the deferred pensioners on a par with the existing pensioners? I do not know if that is the solution or whether it can be considered. Perhaps the solution is to give deferred pensioners a right of audience when these matters are being negotiated. Some of the proposals being put to deferred pensioners at the moment will see them experiencing a drop of up to 50% in their pension entitlements compared to their pension expectations. That is an appalling situation for such people and they are being deprived of the right to have a say in the matter. The Minister indicated earlier in the debate that this issue could be examined further. I am not sure if we can deal with it now or on Report Stage but it must be taken into account here.
I also have had representations from the Senior Citizens Parliament and representatives of deferred pensioners on this matter. There seems to be a twofold problem here. First, pensioners had a right of audience to the industrial relations machinery of the State up until the 1970s. That right was removed on the basis that pensions in payment could not be reduced. Of course, that has now changed as a result of the pension levy and it will also change as a result of this legislation. Therefore, the question arises as to whether the right of audience should now be restored and there is a very strong case for such a restoration. The second problem is that of the rights of deferred pensioners. On the question of restructuring under this legislation, there seems to be a difference in the treatment of deferred pensioners as opposed to active pensioners but we will come to that later in the debate.
I had intended to propose an amendment along the same lines as the one before us, not with the same figures necessarily but one which would make the legislation more progressive. The objective was to hit the higher-paid pensioners harder and to offer more protection to those on lower pensions. I published legislation some time ago in that vein. The figures set out in Deputy Ó Snodaigh's amendments would make the legislation more progressive than it currently is and for that reason, I will be supporting his amendments.
I thank the Deputies for their contributions.
The Bill seeks to provide a floor of €12,000 for existing pensioners. If the pension fund is on its way, with the assistance of the Pensions Board, to sorting out its problems, existing pensioners, active and deferred members will not be affected once we get the scheme back towards solvency. That is an important point to make.
The funding standard was stood down in the month or two following the bank guarantee, I think, on the premise that, as happened in the case of the First World War, the bank guarantee would be no more and that everything would be sorted before Christmas. Not only did the bank guarantee result in the dreadful consequences of which we all are aware but the funding standard was suspended in a period during which pension schemes were facing enormous difficulties. One could kick the can down the road indefinitely and current, active and deferred members could hope for the best. This is the first time in Ireland that we have proposed legislation which seeks to recognise the issues for both active and deferred members and to rebalance in the event that - we do not want to see this happening - a pension fund becomes insolvent.
The good news, from the reinstatement of the funding standard and the work being done by the Pensions Board with pension schemes, is that 50% of pension schemes are now adequately funded and have arrangements in place with the pensions regulator and the board. When the funding standard was being reintroduced, the predictions were that almost every scheme might collapse. Happily, that has been shown not to be true. We are working with the other 50% to put viable arrangements in place for existing pensioners and also provide something, an issue raised by members, for active and deferred members who have also contributed to a scheme. A floor of €12,000 is provided for.
The reason the Mercer report was not published immediately was it was under discussion in terms of Government policy. As Deputy Willie O'Dea will appreciate, I was not in a position to publish it until after the deliberations on the Bill and the go-ahead on it was received. I published it immediately after the Bill was brought before the House.
Mercer highlighted that most pensions in payment in our model scheme were, as Deputy Clare Daly stated, at the lower end of the spectrum. That is why I have sought to provide a floor of €12,000. More than 50% of pensions, the median level, are €11,000. The reason the Bill is extremely progressive is that it seeks to protect the pensions of low-paid workers. In the Mercer report there was a focus on protecting a floor of €6,000, which I did not consider to be adequate. Many of those involved in the pensions sector argued for a much lower figure. We have achieved, through agreement, a much higher floor, particularly when taken together with the fact that those in private pension schemes have almost universally contributed through PRSI to a State retirement pension, giving them the possibility of bringing their total package up to €24,000. In the case of a pensioner with a State retirement pension with a dependent spouse, the figure is higher, which matter is stressed particularly by those involved in the Senior Citizens Parliament and the trade union movement. We have reached a package which is far better than that which was being suggested by many involved in the pensions sector when rebalancing-restructuring was first mooted.
The Bill does not affect a pensioner who has an annuity or somebody who is retiring on the limited State retirement pension only or who may have an entitlement on a means-tested basis to a non-contributory pension. It is important that we make that clear, particularly to pensioners and others who, when the word "pension" is mentioned, become nervous about their own position.
On the audience issue, the Bill marks the first time deferred members' issues have been addressed. That is a positive development and I thank Deputy Clare Daly for acknowledging it.
The trustees must notify in writing all members of a scheme, any other person in receipt of benefits under the scheme and any authorised trade union representing members of the scheme of the circumstances giving rise to the proposed application and the reasons they believe an application is in compliance with their fiduciary duties. Pension law in Ireland is complex because, in effect, it is governed by trust law. There are onerous requirements on trustees. The Pensions Acts require trustees when considering a restructuring of scheme benefits to first undertake a comprehensive review of the scheme with a view to its long-term stability and sustainability. At a minimum the review must cover the following matters: the benefits payable under the scheme; the options available for reductions in benefits and their impact on the different category of members and other persons; the contributions required, both in relation to future accruals of benefits and any past service deficit; the options for increasing contributions, should the need arise after a direction is made by the Pensions Board, and the employer's attitude to any request for increased contributions in such circumstances; the long-term investment strategy, including, where appropriate, how any transition from the current investment strategy should occur; and the future risks facing the scheme, including the possibility of the scheme proving more expensive than anticipated, whether through investment under-performance, improving longevity and life expectancy and any other cause, and the measures available to the trustees in these circumstances such as contribution increases or changes to discretionary benefits.
In the context of the Bill, the Department is working on guidelines which we anticipate being in a position to publish in January, but we cannot proceed to deal with them until the Bill has been passed. I will certainly give consideration to additional guidelines which members of the committee may consider would strengthen what is already in place in the context of the fiduciary duties of the trustees. For instance, in the Seanad there was a proposal to undertake an analysis of what had gone wrong to require a scheme's restructuring to note, for instance, what Deputy Clare Daly referred to, which had been a factor, about which we have been hearing again recently in the context of discussions on the health sector, namely, extra benefits being paid, extra years being added, etc.
I do not see that being incorporated in the principal legislation but I anticipate it would certainly be a matter for consideration in regard to the guidance and guidelines.
On the later amendments relating to an individual audience, as it were, I am not sure how that could be done in practice, given, as was said, that deferred members may be living all over the world. The trustees must notify them, advise them and have a very careful process where they, in turn, may have the possibility of coming together to make a collective representation, but it is difficult, if not impossible, to designate that as a requirement in law. Somebody from another country may have worked in a company for five or ten years and then returned to their own country and may not be necessarily all that interested, particularly if subsequently they went on to have further entitlements in the country in which they are now living. Those requirements have to be operable. Very valuable suggestions have been made, including during the debate in the Seanad, on the guidance and the guidelines, which we are endeavouring to take into account.
A number of issues have been raised. I appreciate what the Minister said about the Mercer report. In terms of progressing this legislation, the Government suggested in regard to Dáil reform that the heads of Bills would be published and we would have time to evaluate them and take counsel from groups which would be affected by their provisions, and in the case of this legislation some of them have managed to take the time in their busy schedules to get to grips with this highly complex Bill and submit their considerations. It would have been appropriate for the Mercer report to have been published at that stage. I am not sure if other Deputies have managed to look through it but it runs through a series of options and sets out the potential outcomes. It does not does not run through the provisions in the Bill before us. It is a useful tool in examining how various options could work and who would and would not benefit from them.
For instance, the scheme I proposed is not set out in the report but it comes close to option 1A in it. A range of options are set out and the Minister's proposal comes close to another option but it is not that exact option. Therefore, the report would not have given us an insight into what the Government had been planning other than us running through figures in another way. The Minister made her proposal prior to engaging with the Mercer report, which she examined but none of the options in it was the one she went with in the end. The report was given to the Minister in January and we have been given it at the last minute. If we had been given it earlier, we could have had a useful discussion on it to examine who exactly would benefit under a new priority order of distribution in the case of a defined benefit scheme being wound up, which is the eventuality with which we are dealing.
The Minister said there are 803 defined benefit schemes, 400 of which are secure and there are no issues with them. That leaves the other 50% with which there are a variety of issues and 20% of them with which there are major issues, which is a substantial number. We do not know the scale of the membership of those 20% of schemes. It could be the top 20% of those schemes but I do not believe it is as the ESB and other such groups have the big schemes which we have mentioned. We do not know how many people are likely to be affected and that is the reason I welcome this legislation. I am critical in some ways of it being rushed through but I welcome the fact it is being rushed in order that we have legislation in place to address the eventuality of a scheme being wound up in terms of the 160 schemes that are in danger of not reaching the required funding standard and ending up becoming insolvent and this process being triggered. We do not know the figures involved, whether it is 10,000 active members with so many pensioners and deferred members. It would have been useful to have those figures. For the benefit of such members, we could have used the Mercer report to examine who would be most likely affected. The majority of people who are members of this type of scheme might be entitled to very low pensions. They may have been on a low income in the companies in which they were employed throughout their working lives.
I could have a technical debate with the Minister on the merits of my proposals over hers but I am not inclined to do that because it would go over the heads of others. All I will say is that I am adamant that the first priority at a minimum must be that every member of a scheme, in the event of it becoming insolvent, should have the required contributions to allow them to be entitled to the State contributory pension being bought on their behalf. At a minimum they should have that entitlement and the pensioners already in a scheme should have a minimum benefit of €12,000. Those are the early priorities in this respect. The others priorities are to ensure that as the fund is being is distributed, it is distributed on a more equal basis to the lower paid in those schemes.
On the issue of the deferred members, the Minister said it would be difficult for them to be represented. We have, through the trade union movement and other groups, a system of advocacy in many other areas of law. We need to find some mechanism to address this and I will submit an amendment on Report Stage to allow for an advocate to be appointed or designated to represent the interests of deferred members. An advocate such as the Irish Senior Citizens Parliament or another group could be specified at the behest of the Minister through regulation rather than being specified in the legislation. The Minister, through regulation, could designate some group or groups - bearing in mind that groups form and disband - over time and that their duty and first responsibility would be to represent the deferred members in the regrettable event of a scheme being wound up or in the event of those members having to deal with the labour rights apparatus.
On what the Minister said about a right of audience, I understand what trustees' obligations are under trust law, namely, that they have a fiduciary duty and they must consider a number of issues, including the interests of pensioners, but the way the law is structured means they must consider all those issues in isolation from the pensioners, after which they notify them of the result.
In many cases that is the end of the matter. For example, in a submission to me, the Irish Senior Citizens Parliament indicated that in many schemes, pensioners and their associations are denied access to scheme trustees and sponsoring employers, with no direct communication. As I understand it from the submission of the Irish Senior Citizens Parliament and others, up to the 1970s pensioners had a right of audience to the industrial relations machinery of the State, and following a successful pensioner case, the then Minister for labour affairs changed the law. Could we go back to the position that applied before he changed the law, as the circumstances which resulted in him changing the law have changed again?
The position of active and deferred members is being improved by this legislation because at the moment there is nothing there. That is not really the issue, which is whether this is being improved enough and if the process is fair. These are the issues we are grappling with, particularly as the work is being done at the expense of existing pensioners who, as of today, cannot have benefits touched. These are the issues we are trying to balance.
In that sense, it is the case that the issues highlighted to us with regard to deferred pensioners do not exactly fit with this Bill. They have brought to light problems that exist for this group, whose position may be improved with the passing of this legislation but is still worse than it was before the 2009 Act was signed into law. This is linked to the argument made about the fact that what the Minister termed "viable" arrangements are being discussed in many of these schemes. For some of the groups involved, the viable arrangement to keep the scheme within the funding criteria is not viable at all. Their interests are not being protected and these people see themselves as being disproportionately impacted by the mechanism put forward. Discussions under way currently in the Irish Airlines Superannuation Scheme are under the auspices of the Labour Court and the Labour Relations Commission, so by virtue of the legislation they exclude existing pensioners and the deferred group from attendance. Those discussions formulated a proposal resulting in some people having a loss of retirement income of up to 50%, which would be a devastating blow. I can understand the logic that it may be difficult to mandate a consultation but these people are currently excluded because of legislation. It should be about allowing people to participate when such a group can come together and have interests protected. It is not about not being able to sign off on a process without tracking down every person in Lithuania who used to work here.
For example, in the IASS there are more than 5,000 deferred members who are getting an astronomical hit. Through social media and contacts they have formed a group and their voice should be heard in a balanced way. These are similar to the points made by Deputy O'Dea regarding pensioners. The three strands must be brought together in a crisis so as to balance interests. That can only be done fairly when the three groups are represented. I know the Minister has heard the point and she is suggesting it could be done by some sort of statutory instrument, guideline or something else in legislation. Given that there is a legislative basis for these people being excluded, a reversal of that process may be the way out. If a group of deferred pensioners wish to attend talks in the Labour Relations Commission, the unions representing the active members - their former colleagues and friends - will tell them to come in. The difficulty would occur if they were prevented from attending. The legislative proposal should be considered. These people are outside of a company but we are not addressing the possibility of overturning the 2009 Act. I can understand why that is so but the matter is now in the public domain and people feel it needs to be addressed.
Deputy O'Dea took it from the top in addressing the industrial relations machinery of the State. This is pensions legislation and my remit is limited to that. I have heard what Deputies O'Dea and Daly have said in that pensions are a key part of industrial relations issues for companies and workers. From a pensions legislation perspective, I can send a copy of my note to people. There are three types of members: pensioners, active members and deferred members. All these must be notified by trustees of the different elements that I read into the record.
This is an area in industrial relations legislation. As we saw, companies and unions attend the Labour Relations Commission and try to thrash out a viable and sustainable scheme for the pension fund as part of considering the viability of a company. I can certainly speak to my colleague, the Minister for Jobs, Enterprise and Innovation, but I do not know if there has been any work done on that. I will revert to the Deputies in that respect. It would be dishonest to say it is part of the remit of this Bill, as it is not.
Much of this issue centres on the quality of information available to people from trustees. Considering the guidelines and legislation, I will work with the pensions regulators and the Pensions Ombudsman, who handles many individual cases where people feel there is a grievance or the pensions have not been calculated properly, in drawing up guidelines to see if there are ways in which we can improve the information available to the three categories of members. On the positive side, this is the first time that deferred members' interests are being positively taken into account and being reflected in the legislation.
At my request the Department held a very detailed review of all the issues raised in the Mercer report. Some of the members of the Irish Senior Citizens Parliament were party to the consultation. Many of the scenarios set out in the Mercer report were discussed by stakeholder representatives, including older people, the pensions industry, employers and trade unions. The Mercer report entailed a detailed external review and the scenarios were presented in many cases to the stakeholders. The clearest conclusion from all the exercises on consultation undertaken was the benefit of putting a notional floor in place to protect low pensions. It was the clearest message that came to me and it is what I have tried to implement in this legislation.
As Deputy Ó Snodaigh has pointed out, as in the Mercer report we can all produce different scenarios but in the legislation we must opt for one. I have made the case as to why the one I have adopted offers the most, especially in the context of the current difficult economic position. It offers a floor of decency for existing pensioners and we hope the numbers restructuring will be small.
The number of double insolvencies in particular will be very small and perhaps there will not be any, but it seeks to protect low pensions.
It is important to recognise that people who have retired and are in receipt of a pension are not in a position to make good the losses they suffer. We have a proportionate arrangement set out to address those losses. We had to be cognisant of the Attorney General’s advice on higher paid pensioners. One must recognise that people who have higher benefits have generally made higher contributions - not always as Deputy Daly said, because of the way certain pension funds could change entitlements - but generally the majority of middle and upper income level workers have paid a proportionate contribution. The legal advice, as with the Financial Emergency Measures in the Public Interest legislation is that one cannot discriminate against any particular group and the measures one takes have to be fair and proportionate. The advice of the Attorney General on the contribution of people with pensions in excess of €60,000 at 20% is that it is proportionate and would meet the constitutional requirements.
I move amendment No. 6:
In page 10, to delete lines 6 to 11 and substitute the following:“(b) secondly, 100 per cent of pensioners’ benefits up to €12,000 (not including post-retirement increases in such benefits);”.
I move amendment No. 7:
Given that the previous two amendments have not been accepted, I withdraw this amendment, and I will withdraw amendments Nos. 8 to 10, inclusive, because they are consequential on the others.
In page 10, to delete lines 12 to 17 and substitute the following:
“(c) thirdly, the lower of 50 per cent or €6,000 of active and deferred members’ benefits under 55 years of age and the lower of 75 per cent or €9,000 of active and deferred members’ benefits over 55 years of age (not including post-retirement increases in such benefits);”.
I move amendment No. 13:
This is a very simple amendment which I assume we can deal with very quickly. The Minister mentioned that she had detailed consultations on how to find a balance and a floor. I appreciate that. I will take amendment No. 13 as an example, but what I say about it applies to the other amendments. The floor is €12,000. What the Minister has given people is €12,000 worth of purchasing power today. However, that might not be €12,000 worth of purchasing power next year if there is 1% or 2% inflation. It certainly will not be the case that €12,000 will have the same purchasing power in five years time. If we are protecting people to the extent of what they can purchase for €12,000 this year, that should be indexed in line with inflation in order that they are protected for the same amount each year. For example, someone in his or her 40s who is paying into a defined benefit pension scheme will not take much solace from the fact that he or she will be protected to the extent of €12,000 a year when he or she is 65. The sum of €12,000 today might be worth an awful lot less in 20 years time when people reach the age of 65, and the amounts should be indexed to protect their value.
In page 12, between lines 3 and 4, to insert the following:“(1AC) The €12,000 monetary threshold shall be reviewed on an annual basis by the Minister to take into account the annual increase in inflation.”.
We do not index link the State retirement pension but what we do is an annual review via the budgetary mechanism. What I would have to do in this case is go back to Government if a situation such as that described by Deputy O’Dea arose. Currently, the median pension is €11,000 and the floor of €12,000 is above that. I will undertake to go back to Government if that relationship changes over time. Perhaps I am being an optimist but what I hope is that the need for the restructuring we have experienced due to the fall-out of recent years will not arise as urgently, as we are sorting out pensions. I will go back to Government to undertake to revisit the floor of €12,000 but I do not particularly see that it is terribly relevant to include it in the legislation. I undertake to go back to Government because that would be a requirement. If after this period of restructuring and resettlement there was another crisis, I would assume one have to again look at medians. I hope that by then we would have a mandatory or auto-enrolment supplementary pension scheme in order that there would be other benchmarks to take into account as well. That is the way I would prefer to do it. I sympathise with the Deputy and understand what he is trying to achieve but it would be better done by returning to Government, as with an annual budget, to seek to review it in the context of the various data which affect pensions.
I support the thrust of amendments Nos. 13,14 and 24, which are being discussed together. Deputy O'Dea has suggested that the sums of money in the Bill be indexed linked or at the very least reviewed annually to ensure that the figure would not lose its impact over time. They should be indexed linked or tied to the equivalent, the State contributory pension, which is what the Minister suggested as the equivalent. Aligning it to the State contributory pension might allow it to roll over each year without the Minister having to review it on an ongoing basis.
We are dealing with defined benefit schemes. If the current trend continues, there will not be too many left in five or six years. I am including the 120 schemes in the problem area.
Is there a way of arriving at a formula of words with which the Minister would be happy to give effect to what is contained in Deputy O'Dea's amendments Nos. 16 and 17.
It is important that the value of the all the figures in the legislation do not lose the effect over time. The figures for the priority order are fine at present but let us remember that when I bought my house in 1994, it cost €32,000. Even in today's depressed housing market, that figure would go nowhere. What we consider as a reasonable pension today might have a different value altogether in the space of ten or 15 years time. Could we include in the definition section that all figures mentioned in this part of the legislation are index linked or at the very least that the lower figures should be tied to a realisable figure such as the State contributory pension, which is the nominal reason for the figure of €12,000.
As I said to Deputy O'Dea before the break, I would envisage that reviewing the figures would mean going back to Government. I am certainly happy to undertake that. Any time a significant issues related to pensions arises, which is an important issue in society and the wider economy, I would normally bring it to Government. I can certainly undertake to do so.
There are two social welfare Bills each year, the budget Bill and what is often called the spring or summer social welfare Bill. Both Bills give ample opportunity to revisit this particular issue should the need arise. I am happy to give that undertaking. I know the senior officials, who have greater longevity to use a pension term than the Ministers in the Department, would anticipate dealing with the policy in that way. I would be happy to support that. I give that undertaking publicly.
I move amendment No. 14:
In page 12, between lines 18 and 19, to insert the following:“and the monetary thresholds mentioned at paragraphs (a), (b) and (c)
shall be reviewed on an annual basis by the Minister to take into
account the annual increase in inflation.”.
I move amendment No. 15:
I realise that the pensions board regularly update the information for the guidance of trustees. I was advised that it might be a good idea to have that written into legislation, even though it is happening already in practice.
In page 12, between lines 18 and 19, to insert the following:“(1AD) The Pensions Board shall update its statutory guidance on the Principal Act for trustees upon the enactment of this Act.”,”.
The Deputy has asked that we update the guidance. We are doing that. As I said earlier, it should take effect some time in the first part of the new year. Much of the work is underway at present.
I move amendment No. 16:
The new levy, that is the 0.015% levy is not ringfenced to deal with what it is proposed to deal with in the Bill, namely where there is a shortfall in a double insolvency.
In page 12, between lines 18 and 19, to insert the following:“(1AD) Any levy on pension schemes for insurance against insolvency shall not be applied to defined contribution pensions.”,”.
Leaving that point to one side, where there is a shortfall
Leaving that aside, where shortfall arises in respect of a double insolvency, the pension insolvency being a defined benefit pension, the levy will be used to make up that shortfall. This has no connection with defined contribution pensions schemes, yet these schemes are being asked to pay part of that cost. For example, a situation could arise whereby there are two defined benefit pension schemes and one is wound up, in respect of which, if there are not sufficient assets to meet the 50% target, people will as a result of this legislation get their payments from the State, which I welcome, and the second of which, because it was not able to survive, was subsequently converted into a defined contribution scheme. I do not see the reason the pensioners under a defined contribution scheme, who no longer have the benefit of a defined benefit pension scheme, which is a more valuable pension, should be paying part of their hard-earned savings to prop up the benefits which people received under a defined benefit scheme.
There are two different types of schemes. The levy being introduced under this legislation will ensure in the case of a double insolvency that people in a defined benefit pension scheme which is wound up will receive a minimum of 50%. Why should people who are in defined contribution schemes, which are a different type of scheme, pay for the people in the defined benefit schemes who are, by definition, in a generous type of scheme?
I support Deputy O'Dea's amendment which seeks to ensure the pension levy would not be applied to DC pensions. We believe it is unfair to ask defined contribution contributors to fund a guarantee that applies only to defined benefit schemes. Ultimately, it is worse than this because as stated by the Minister when I raised this issue on Second Stage, the pension levy will be used to deal with double insolvency cases and has been allocated by the Minister for Finance for a variety of things, including the Exchequer. It has been used in the past to support the jobs initiative. We must be careful we are not engaging in double or treble accountancy such that the same money is not allocated on a number of occasions.
It is unfair that people who are not part of a particular scheme should have to subsidise it in some way. People should not be asked to pay for a scheme which would have been beneficial to those who were members of it. While it may be that for the greater good somebody has to pick up the tab in the case of double insolvencies, we should look at putting in place a cap on the liability of the State in the case of double insolvencies because it is a private arrangement, albeit that the Government has the duty of control of regulation.
I am still considering tabling an amendment in regard to putting a monetary cap on the amount for which the State would be liable in the case of double insolvency. I am trying to come up with a formula of words in that regard. In general, I agree with the thrust of this amendment. It would be useful if what the pension levy will be used for were explicitly stated.
We had a brief discussion on this issue this morning. Revenue from the 0.15% levy which will apply in 2013 and 2014 as referenced in the budget will be used to fund the jobs initiative, including the reduced 9% VAT rate for the hospitality sector, and to provide for potential State liabilities which may emerge from pre-existing or future pension fund difficulties. That is what was said by the Minister for Finance in his budget statement in relation to the introduction of the 0.15% levy. The revenue arising to the Exchequer from the levy, as with most Exchequer revenues in Ireland, is not earmarked or hypothecated to any particular item of expenditure. When devising a budget, revenue lines are available to fund particular costs.
In regard to DB schemes and double insolvencies, agreement has been secured for certain liabilities to be met by the Exchequer. I am not aware of any double insolvencies, which is when an employer and scheme go under, in the pipeline. Under this legislation, the State's liability is being capped at 50%. In the case of the Waterford Glass workers, whose case was adjudicated on by the European Court, as they made their original application in the Irish courts, they are now back in the High Court. Obviously, this case has to be proceed. I understand it is being done with some diligence but none the less these types of legal cases take time.
In regard to the subject matter of the amendment, which provides that the levy shall not be applied to a defined contribution pension, levying or taxing is a policy matter for the Minister for Finance. This is a decision of the Minister for Finance in the context of a number of liabilities which the State has, including the jobs initiative and, specifically, the 9% VAT rate in the hospitality sector. I will draw the Deputy's concerns to the attention of the Minister for Finance. There are a number of people who pay on a defined contribution basis. There is a point in making provision for the type of collapses that are occasionally experienced. Obviously defined contribution schemes are on a different basis. The funder of last resort in cases such as Waterford Glass, which thankfully are rare and exceptional, is the State. The State must resource such cases through the broad measures of taxation, levies and so on.
I hope the Minister's optimism is borne out and that we have few, if any, future double insolvencies. The legislation provides for such eventualities. In the event of a double insolvency the legislation provides that people's defined benefit entitlements up to a maximum of 50% will be financed by a levy which is levied on pensioners, of which there are only two types, namely, members of defined benefit pension schemes and members of defined contribution pension schemes. As this applies only to the former, members of defined contribution pension schemes believe they should not be paying the levy. It will be of no benefit to them.
It relates exclusively to the other type of pension.
The Deputy is correct. To some extent there may be an element of intergenerational solidarity because by and large the people in the defined-contribution schemes are younger on average than people in defined-benefit schemes because many defined-benefit schemes have been closed to new entrants for a significant period of time. The only other example, I suppose, is the public service, which, in essence, is an unfunded defined-benefit scheme.
I move amendment No. 17:
In page 12, between lines 18 and 19, to insert the following:This amendment would oblige trustees to communicate people's entitlements and where they stand in clear language at the end of each year. I have seen some documentation that people have received over the years. While I do not cast any aspersions on the Minister or her Department, it would be easier to read Swahili. I know lawyers are obliged to state things in a certain way and in order to cover themselves they must use certain phraseology, etc. Having used all that exotic phraseology and legal terminology, surely it would not be beyond the wit of people, who manage pension schemes and do very well out of it as we will demonstrate in a moment, to put the thing in fairly simple language so that people can know approximately where they stand.“(1AD) Trustees must outline in clear language the current and future prospects of their pension fund to beneficiaries on an annual basis.”,”.
I am a great fan of the campaign for plain English or indeed plain Irish. I am afraid, as the Deputy has mentioned, sometimes it is not only like looking into a bush, but like looking into a thicket, trying to make out the meaning of a pension statement. The Deputy is correct in pointing out that the people in the pensions industry earn very handsome rewards for the work they do.
The standard annual trustee report must show the: benefits payable at normal retirement age, assuming one stayed to this age, based on present salary and how benefits are calculated; benefits payable at normal retirement age, assuming one left service at the stated date and the method of calculation; how contributions are calculated; contributions paid to date and the amounts of any transfers received; and information on benefits from AVCs or funds transferred from another pension scheme or PRSA. Those requirements already exist and I do not believe we need additional legal provision for it. Lawyers would probably argue that this language is clear and people should be told everything. I sometimes think that much of this information would be better in something like an info-graph because it is very complex. There are further pages of notes which are even more impenetrable. Often the most important things are in the notes.
I hope that with the development of the governance structures on pensions in Ireland having the reports we had that we will be moving to this. However, I do not believe it needs to be incorporated in legislation because the requirements for the information already exist. We will certainly be encouraging the campaign for plain English, but that is a tough one to crack in pensions.
I have always argued for plain English and found it bizarre that legislation is often written in the negative. Having to look at three or four pieces of legislation going back to a principal Act can be very difficult and I have argued for consolidated Bills published with explanatory memoranda outlining deletions, etc. With computers we could do it at the drop of a hat so that we could see what is being deleted and what is replacing it. I have often used the example of the debate on the Nice treaty. The former MEP, Jens-Peter Bonde, produced a version of the Nice treaty in which it was very easy to see what was being deleted and what was being added with space for notations. If we moved towards that, it would make our job a little easier and it would also benefit those who are trying to figure out the intent of changes to legislation.
In this case very complicated estimations are being made by trustees when sending out documentation. Until recently I was not aware of the way in which annuities are used in one case and in another case actuarial values are used. I know this is something the Mercer report suggested changing. This is not the ideal time to move towards the change that would best benefit people and also give them an indication of where their pension was so that one is moving away from those who were active members where it is estimated on an actuarial basis and those who are coming into benefit where it is on an annuity basis. There is a huge discrepancy between the two - approximately 20%.
The Mercer report that the Minister circulated contains an entire page dealing with what it refers to as the transfer-value basis. It is something that needs to be addressed. It could be addressed in this legislation with a sunrise clause that it would not come into being until such the fund is in the black again. That might be a way to address it. However, we should certainly in the medium term have a single standard for estimation for trustees to outline the value of the fund, the number of active members, the number of people in receipt of the pension and everything else they need to comply with. Using two different formulae coming up with different figures can cause confusion, especially for people who are trying to work it out for themselves. They work out on what basis their annuity would be purchased or whatever, and then all of a sudden find it is 20% less because theirs was based on a different figure. It needs to be addressed.
I have very little to add. The existing Pensions Board is working on a number of communications regarding information on pensions, some of which I expect to launch in February. When the pensions council is established it will be given the specific remit of consumer interests. As both Deputies have said, the paramount issue is communication with consumers in a language they can understand. If that were possible, it would also become much easier to persuade people of the value of taking out a pension early on. Part of people's reluctance to and disinterest in taking out a pension is finding the documentation so difficult to understand.
I move amendment No. 18:
I tabled this amendment to highlight again the charges, as revealed by the Department's own study last year, and how hard they bear on small schemes in particular. The Department's own study showed that someone who saved €250 per month from the age of 35 could end up with a fund of €200,000 after 30 years. That would leave them with an annual pension of €10,000 per year. However, when one takes out the charges, the sum of €200,000 is reduced by approximately €62,000 and the pension is reduced from €10,000 to €6,900. No one could argue that these intermediaries, managers, trustees or whatever are underpaid. Having read the report to its fullest extent, I realise the complexity of the situation and that putting in a standard 1% may be somewhat simplistic, in view of how such items are priced and so on. However, I reiterate that I tabled the amendment to draw attention to, and to revitalise the Minister's interest in, the issue. At the time the aforementioned report was discussed by members, the Minister indicated there would be follow-up in respect of dealing with those charges and perhaps she might outline what is happening in that regard.
In page 12, between lines 18 and 19, to insert the following:“(1AD) The annual management charge on a pension scheme shall not exceed 1 per cent of the pension fund.”,”.
Briefly, the report itself was quite lengthy and its executive summary alone contains 20 pages. In some ways, matters have moved on since and continue to do so. I do not believe the charges being applied to such schemes have become any cheaper. This is a small State at the edge of Europe and in some ways, the major insurance companies that deal with and invest pensions appear to believe they can charge people here more than is the case in their own home territories and this must be taken into account. I am unsure about the 1% limit but one must try to ensure people's pension pots and investments are not being eaten away by administrative or other such charges.. In addition, I note that in some cases, the pension levy was passed on rather than being absorbed from the existing charges being levied. In such cases, no hit was experienced by the pension industry that handles all these funds. I would rather it had been passed on to those who were investing and who in recent years already have been hit with other increases, such as the universal social charge, changes in taxation and so on. Such people have suffered an additional hit, rather than the industry itself reducing its charges. It would be useful were some kind of message contained within this Bill, even though it only deals specifically with the times of single or double insolvencies. It would be appropriate for a message to go out to the pension industry stating enough was enough and the industry needed to begin to row back on the charges being imposed.
I agree with much of what Deputies O'Dea and Ó Snodaigh have said. On the precise item identified by Deputy O'Dea in his amendment, namely, the annual management charge, these are charges associated with the cost of fund management. It does not take account of other charges incurred such as contribution charges, policy fees, exit penalties and other undisclosed costs. The recommendation from the pension charges report I commissioned is to continue efforts to develop a single standard measure that would assess all costs and charges, thereby enabling easier comparisons to be made. In some way, the debate on charges in Ireland has been extraordinarily muted because, particularly in respect of the provision of pensions for self-employed people, accountants or tax consultants are standing beside people's side and on the one hand, there is a potential tax liability while on the other hand, there is a pension plan to which they possibly will contribute. In a way, people are focused on - of course the pension provider focuses on - the generosity of the tax reduction in such a way that in my experience, the charges get relegated to the small print. One is told that one could pay, for example, €50,000 in tax or, if one makes an appropriate investment in a pension fund, one's tax bill will fall by X amount. Consequently, one is considering charges in the psychological context of one's likely tax bill minus one's saving on entering into the pension. In that context, the management-type charges, commitment fees and so on, are relatively small compared with the tax relief. I believe this is one of the problems.
As I stated, when the new Pensions Council is under way, I will ask it specifically to consider this issue again. I have also asked the Central Bank to examine some charges that were identified in the report in respect of re-brokering. This is an area in which, particularly with small schemes, charges can be very high and it is important that this issue be dealt with. However, simply because of the dominance of tax reliefs in the Irish pension cost scheme, charges unfortunately have a much lower profile. In particular, for women and relatively low-paid workers accumulating, for example, a relatively modest personal retirement savings account, PRSA, of €100,000, the charges could have a very heavy impact on it and people really do not see this impact until the very end when they have exited. It is something that, as Minister, I keep under constant review.
I move amendment No. 19:
Members already had a debate earlier on some of the concepts contained within my amendment and that of Deputy O'Dea when they discussed the duties of the sponsoring company or its parent body, in this case to ensure the trustees of a pension scheme would not reduce the benefits of current and former scheme members or post-retirement increases in benefits for pensioner members or both, where a sponsoring company or its parent company have the financial capacity to meet such duties. This amendment is tied to the earlier discussion, when members went through its main points. I believe one should ensure that no company, whether it is a subsidiary or a singular company, should renege on its responsibilities to its pensioners, whether they be active or future pensioners, if such a company has the capacity to pay. In the earlier amendment, I was careful in my wording to specify companies with positive net revenues, which means one would not be threatening existing jobs and the associated pay and conditions. In essence, if such companies are profitable or are making major returns to their parent company or are investing in future plants that are not tied to the existing workforce, this means they are in a positive revenue position and their responsibilities and commitments they made to the workers should be met.
In page 15, between lines 39 and 40, to insert the following:
“11. Section 50 of the Principal Act is amended by inserting a new subsection (1A) as follows—“(1A) The Pensions Board shall not direct the trustees of a pension scheme to reduce the benefits of current and former scheme members and/or post-retirement increases in benefits for pensioner members where a sponsoring company or its parent company have the financial capacity to meet the under-funding in the scheme without precipitating wage cuts or redundancies.”.”.
In its submission, the Irish Senior Citizens Parliament said the Bill must not facilitate viable and profitable companies to renege on their legal obligations to fund pensions. It also said that essential safeguards are required to prevent companies closing or restructuring schemes other than in situations of gross insolvency.
There is a general concern that the current climate would be used by certain companies to evade their responsibilities under these schemes or use these circumstances to threaten job losses, even though the companies may be profitable. There is a concern they will close schemes or force closures just because, for accountancy or other purposes, a DC scheme looks better on the books than a DB scheme. Such companies have a responsibility regardless of whether they decided to set up the scheme in the first place or whether it was a historical scheme they inherited when they took over a company. They did so in the knowledge they would have to pay and there was always a possibility that, for schemes that were set up quite a long time ago, the length of time people were surviving after retirement and thus starting to enjoy a pension would extend. People are living longer in general so therefore pension pots need to be increased. It has not been today or yesterday that life expectancy has increased in Ireland. It has happened gradually over time. The problem is these companies did not make the required adjustments to their pension funds. In addition, perhaps governments did not raise the matter with them or force them to make such adjustments. We are where we are, but even in these stricken times, no company should be allowed to evade its responsibilities at this stage. Companies should use part of the profits they retain or repatriate to a parent company to ensure the pension scheme required for a defined benefit scheme is solvent and can continue.
I wish to ask the Minister a technical question on section 11 which deals with restructuring. It provides that in the event of a fund being restructured, there is a limit to the amount to which one can reduce certain people's benefits. That is dealt with in the eighth paragraph of the new section 1B. It states that the restrictions apply only to benefits payable from the scheme to or in respect of persons receiving benefits under the scheme or persons who have reached normal pensionable age. Does that distinguish between existing active pensioners and deferred pensioners? Does it confine the curtailment of or restriction on the trustees to people in receipt of pensions? Does it mean, for example, that the benefit of an active pensioner can only be reduced by so much, whereas in the case of a deferred pension they can do what they like and there is no limit? Is a distinction being created here between active and deferred pensioners?
I support the thrust of these two amendments. It seems strange that in a single insolvency situation no element of the debt remains with the company. It would seem in those circumstances that a company is allowed to wind up the scheme and essentially walk away from it. That leaves the taxpayer to pick up the tab. I do not understand why that debt does not remain with the company. That is the most significant gap in this legislation. It sets out how members will have to share the pain, but it allows companies to wash their hands of their responsibilities. I am not sure if taxpayers realise this is what the Minister proposes to do. It is not allowed in the United Kingdom. Why on earth does the Minister propose to do it in this legislation? I would be interested to hear the justification for it. As far as I can see, this is a huge gap in the legislation but it needs to be closed by way of amendments similar to the ones proposed by my two colleagues.
As regards Deputy O'Dea's question, as I understood it, he asked if it was ultimately possible for the scheme to change solely the entitlements of deferred members before they became pensioners, and leave existing pensioners untouched.
Only about 6% of schemes have been restructured to date and the majority of that restructuring has related to post-retirement increases. Very few schemes have adjusted core benefits. In some schemes, for instance, the pensions, including deferred ones, moved with how salaries moved in the company. In a lot of restructuring cases, the sacrifice that has been made is to forgo some or all of those increases. Those kind of changes would apply to deferred members because, in a certain sense, they are all pensioners of the company. When deferred members come to get the pension, they will get it in the context of the restructured scheme.
It does not happen to them at the moment because they are simply deferred. What they may expect, however, will have changed because the pension entitlement, when a person becomes a pensioner, will have changed. That is quite a popular way, just as workers negotiating a wage increase have decided that a percentage or all of the wage increase might well be devoted to plugging a deficiency in the scheme as a priority, or it might be shared 50:50. These are the common stratagems that have been identified in restructuring.
Active and deferred pensioners are treated the same, therefore, but the deferred people have not yet reached retirement age or their retirement entitlement for the purposes of the pension fund.
As regards Deputy Shortall's comments, we had a detailed discussion on the earlier amendments concerning employer liability. I said then that in drawing up the legislation, detailed consideration had been given to the arguments for and against employer liability. On balance, the decision has been not to go with employer liability for a number of reasons. One is that, in terms of unintended consequences, it may precipitate the closure of a number of schemes.
We discussed the example of a long-standing Irish company which, perhaps, was taken over by an international parent company. It may well be that while the Irish company had on a number of occasions put extra money into the pension fund the international parent was not inclined to do so. The fear, based on advice from different quarters, was that this could precipitate the closure of a number of funds which were otherwise viable.
Another legal point in terms of pension schemes is that under Irish law employers' commitments to pension schemes are voluntary. Employers do not have to put their employees into a pension scheme. I hope that as we leave the bailout and head to a more prosperous future for everybody we will be in a position, as other countries have been, to put in place either a mandatory or auto-enrolment based supplementary pension structure. Currently, employers in Ireland can voluntarily set up a pension scheme. Where a scheme is not put in place, employees would be reliant exclusively on the State retirement pension. The difficulty is that in putting in place an employer liability we would be making things tougher for employers who had made provision for a pension scheme rather those employers who made no commitment to the provision of any type of pension scheme.
Having examined and discussed this at great length, we decided on balance not to include an employer liability. We have looked at what has happened in the UK. The UK is a much larger economy than Ireland and it is, therefore, possible to spread risk there in a more determined way than here. In the UK, extremely complex and, in a number of cases, effective mechanisms have been used by employers to avoid pension liabilities and any involvement in pensions. In a situation where we are trying to ensure that the maximum number of people have a pension provision, which situation has moved in recent decades towards defined contribution as opposed to defined benefit in that many defined benefit schemes are not open to new entrants, we have opted not to provide for employer liability.
That is not the rationale. The Minister's explanation underlies the folly of taking a piecemeal approach to pension reform. It is regrettable that this issue has not been addressed in a comprehensive and meaningful way. As I stated previously, it is a case of passing the parcel between social protection and finance on this. One cannot make changes in one area without them having a knock-on effect in other areas. The type of arguments being put forward by the Minister, such as the danger of companies closing schemes and so on, is reminiscent of the arguments made against attempts to tax capital, namely, that it would flee the country. Employers have responsibilities to their employees. The State should be insisting that they honour those responsibilities. If that needs underpinning in legislation that is what should be done. The type of open situation that currently exists should not be allowed to continue.
The Minister speaks about this as if it is some kind of grace and favour arrangement with employers. Their failure to address a deficit in a scheme and the Government allowing them to walk away means that the risk is spread not between the employers and employees but with the remainder of the tax paying population. Essentially, the Minister is allowing employers, even though they may have current or future the capacity to meet that deficit, to walk away from their responsibilities, if only moral responsibilities given the lack of statutory underpinning in this regard, leaving everybody else to pick up the tab. That is an indefensible position to adopt. It is regrettable that the Minister has not grasped this nettled and dealt with the problem.
With regard to the overall proposals in this legislation, I am surprised that the overall benefit is not being capped. The notional figure of €60,000 is being used by Revenue in terms of what is regarded as a reasonable, and in many ways very generous, pension that would be subsidised by the State. I cannot understand why this is not being capped in the context of this legislation, which again would help to spread the risk more evenly. The Minister spoke about spreading the risk. While that is what is being done employers are not being included in this regard.
I indicated my own preference. The people who do not have any type of proper pension structure are typically people in low paid jobs, women and other people who have interrupted periods of employment for different reasons. Most of them end up relying solely and exclusively on the State pension because their employment does not provide for a pension. If we were to develop a national scheme of supplementary pension to which individual employees would contribute over their working lives, the State, possibly through taxation or other mechanisms, and the employer would achieve the goal in which most people are interested, in that people, particularly those who are less well off, would end up with some pension provision in excess of the State contributory retirement pension. In comparison with other EU countries, payments in Ireland are at the higher end of the scale. The current level of the State retirement pension at €12,000 per annum is not a huge amount on which to retire. I understand the Deputy has a different conclusion. Having considered the matter, this would not be achieved through the introduction of an employer obligation. I think the way to go is to develop the supplementary mandatory or auto-enrolment system. Other countries have done this and in doing so have achieved vastly improved cover. The reality in relation to defined pension schemes is that they have been in trouble for two decades now, in particular since the late 1980s when the accounting standards in relation to how pensions would be treated in accounts were changed dramatically. This led to the changes that have been experienced.
In regard to the taxpayer liability, which is important, this applies in respect of a double insolvency, namely, where a company and pension become insolvent. I would sincerely hope and expect that because in the past this has been a relatively rare event there will be no double insolvencies in the future. The capping of benefits was discussed in the context of an earlier amendment.
In terms of pension law the advice of the Attorney General is that what was introduced had to avoid discrimination against any particular group, and had to be fair and proportionate. It was a difficult call. In the context of our discussion of the Mercer report and the discussions with the various stakeholders, including retired people and those involved in the pensions industry, many expressed a preference that the level of pensioner protection would stop at €6,000. As we discussed earlier, I opted for €12,000 floor of protection because the median pension for most people in DB schemes is €11,000. We then have a sliding scale for people with pensions between €12,000 and €60,000, and then people with pensions of above €60,000, which, as the Deputy said, is a significant pension. The legal advice was that what we did had to be fair and proportionate, and could not discriminate against any group. As with the Financial Emergency Measures in the Public Interest Acts, the argument would be that the higher-paid groups would have contributed more in pension contributions than people getting a lower level of pension entitlement. Except in relatively rare cases, that tends to be the truth of the matter. That was the legal advice which I needed to take into account in drawing up the legislation.
I move amendment No. 20:
In page 15, between lines 39 and 40, to insert the following:“11. Section 50 of the Principal Act shall be amended by inserting a new subsection (1A) as follows:“(1A) The Pensions Board shall not direct the trustees of a pension scheme to reduce the benefits of current and former scheme members and/or post-retirement increases in benefits for pensioner members where a sponsoring company or its parent company have the financial capacity to meet the under-funding in the scheme.”.”.
I move amendment No. 23:
In page 17, between lines 5 and 6, to insert the following:When people reach pension age and lose their employment, their sole means of survival is their pension. Despite some statements to the contrary, in many cases people who qualify for an occupational pension might for one reason or another not be entitled to a State pension. The trustees who administer these pension schemes have a great deal of power now. When this legislation is passed they will be able to reduce pensions substantially. The figures in the Mercer report indicate that some people who are receiving a fairly modest pension could suffer very substantial reductions in their income with negative consequences for their lifestyle as a result of a decision by trustees.“(1E) An appeals mechanism for pensioners shall be put in place where trustees have decided upon reduced benefits for members, and such appeals mechanism shall ensure that such pensioners have not been unfairly treated in any restructuring arrangement.”,”.
When a viable scheme is being restructured the trustees have sole discretion in how to restructure it. I accept that under Irish trust law trustees have certain obligations. They have a fiduciary duty and an obligation to inform the people affected. While they might have an obligation to inform them, they have no obligation to listen to them or take into account anything they say; it is solely a matter for the trustees to decide.
I am proposing the introduction of an appeals body - it could be a section of the Pensions Board or whatever - to which aggrieved pensioners can appeal. This would allow them to point out something that is unfair and hitting their section particularly hard - perhaps people higher up could take more of the pain or whatever. All the talk about the right to consultation and the need to inform people is fine, but informing people about a fait accompli does not get us very far. Trustees are obliged to inform people, but are not obliged to listen to them. We need an appeals mechanism whereby a pensioner who feels aggrieved by a decision of the trustees can appeal his or her case.
I agree with the sentiments of this amendment. I would go further and include the deferred members in such an appeal mechanism. As a group, they may find themselves out of synch. In some ways the trustees hold all the cards in these events. For those without the representation of, for example, a union, it would be important to have some type of appeals mechanism to allow them to put their case if they feel they have been disproportionately impacted by a particular change. I am not arguing that such an appeals mechanism should be outlined in full in the legislation at this stage, but that could be done by way of regulation. I may table an amendment based on Deputy O'Dea's amendment to ensure that the appeals body would be established by regulation or suchlike. It should outline the manner in which these people could be represented in such a process. We do not want each individual pensioner or deferred member having to take a case to appeal. It should be possible for them to be grouped together or, as we discussed earlier, have a representative group identified by the Minister or whatever.
It is also in line with the proposals we made on representation for the deferred members to ensure their cases would be taken on board at an early stage when their changes are being discussed. There would be less need for them to be included in an appeals mechanism if the deferred members were fully represented at an earlier stage, but there is no harm in having them there. As the earlier amendments were not accepted, we should press this to ensure it is put in place. Hopefully the mechanism would never need to be activated. Simply having it would force the trustees to take greater account of it because they would know there would be a possibility of challenging them through an appeals mechanism and they would have to stand over it. Therefore it would force them to ensure that any decisions they take are proportionate in respect of the various groups, the active members, the current and future pensioners.
The Irish Senior Citizens' Parliament highlighted this issue in correspondence to all of us, including the Minister. They were looking for the right of audience for pensioners. They also expressed their dissatisfaction over not having had the opportunity to come in and present to the committee. Many of us wondered why there is such a rush with this legislation and why there was not an opportunity to consider it given its far-reaching implications for so many pensioners and future pensioners.
However, it was the case that up until the 1970s, pensioners had a right of audience through the industrial relations machinery of the State and subsequent changes to the law meant they were denied this. At the time, the argument used by the then Government was that since pensioners in payment could not be reduced, there was no need for such access to the industrial relations machinery. Matters have changed dramatically since then in respect of the stamp duty pension levy and what is being proposed in this legislation, if it proceeds. Consequently, that argument no longer stands and in light of this, there should be a right of audience for pensioners who are affected by this legislation. I appeal to the Minister to grant such a right of audience. It is an issue of concern but one has seen, through various different organisations, as well as some trade unions, a lack of willingness to continue to engage with pensioners. Current workers are the main concern within a trade union but very often, pensioners within different sectors consider themselves to be left out and voiceless in many ways, because there is no official mechanism in which to have their voices heard. In light of the recent assault on pensions that is being continued through this legislation, it is only right that pensioners should be allowed a voice in these matters.
I apologise to the Chairman as I was double-booked for meetings. However, I wish to put on record that I will revert on Report Stage to the issues that could not be dealt with in my absence here. These are the issues concerning the amount at which the cut can come in when a scheme is a difficulty, as I consider it to be too low. As this issue must be addressed, I will return to this matter on Report Stage.
Members had a lengthy discussion of this issue in the debate on an earlier amendment. First, the Department of Social Protection probably has the most extensive consultation process of almost any Department. It could be argued at times that things might move a lot faster, were the Department to adopt the practices of other Government agencies by having limited consultation. People from the Irish Senior Citizens' Parliament, who were very welcome, were present for the entirety of the morning's proceedings. In addition, I am unsure whether Deputy Shortall is aware of this, but the Department meets representatives of the Irish Senior Citizens' Parliament pretty constantly. They are included as a matter of course in everything the Department organises in respect of pensions, including the extensive stakeholders' consultation that was undertaken at length with regard to this Bill.
There is no denying that this is difficult legislation. It is probable that no one present would ever have wished to have such legislation considered. In the case of defined benefit schemes in the past, people simply did not live for as long, financial markets were far more stable and buying bonds and annuities was a far easier prospect. However, all these things have changed in recent years. Some have changed for the better, such as the increase in longevity. However, I am happy to inform the Deputy that representatives of the Irish Senior Citizens' Parliament and of other pensioners were involved in all the stakeholder consultations, which were very detailed, on this Bill. The Mercer study was commissioned and the information and scenario-setting that is set out in the Mercer report formed the basis for much of the discussions that took place at the consultations, a number of which I attended in part. I am happy to confirm the people about whom the Deputy spoke were involved. Moreover, my senior officials next week are meeting, as is regular, the secretary of the Irish Senior Citizens' Parliament to discuss in detail the parliament's ongoing issues.
However, if we are to have a situation in which the interests of active and deferred members also are taken into account, one must carry out such a rebalancing in an appropriate way. I explained earlier that the figure of €12,000 was selected. Figures within the industry had recommended a much lower floor - I believe €6,000 was the figure most frequently suggested - but some suggestions were radically lower than that again. The median pension to pensioners in defined benefit schemes is €11,000 and the figure of €12,000 is above that. Consequently, it means that people on the median pension are fully protected by the floor. In addition, people in defined benefit schemes in the private sector almost all have an entitlement to a State retirement pension, which brings values of a further €12,000, which for most people brings the package up to €24,000. I had to hand a table in earlier discussions regarding people in the semi-State sector, who of course have been on a different rate of PRSI. I refer, for instance, to people in the ESB scheme. Incidentally, years ago, it was the case that people working in semi-State organisations, their representatives and the companies concerned did not particularly wish to be in the PRSI structure and this only changed after 1995. However, for people paying class D contributions, in the case of those earning up to €1,443 per week, the weekly PRSI contribution by the individual and the employer is 0.9% and 2.35%, respectively, giving a PRSI combined contribution of 3.25% per week. As the full contributions are of 4% and 10.75%, respectively, or 14.75% in total, one is comparing contributions of 3.25% with contributions of 14.75%.
However, as I am sure the Deputy is aware, what then happened in such schemes was that the pension on retirement was calculated having reference to an industrial pension in a private defined benefit scheme and then by reference to the calculation of what benefits would arise, had the employees been contributing to PRSI in full. In effect, this is the reason one often finds that pension entitlements in semi-State employments are significantly higher than those in equivalent private sector entities. People sometimes wrongly state they have much higher pensions because they think those individuals also might have the State retirement pension. However, unless they are post-1995 employees, by and large they do not because they, their representatives and the companies were happy to be in PRSI class D. Therefore, when one considers the €12,000 floor and the €12,000 State retirement pension, bringing it up to a total of €24,000, I decided on balance that this was a fair point, given that the average industrial wage in Ireland is somewhere between €34,000 and €36,000. In fact, if this rule applies to Sinn Féin Deputies and if what they state happens to their salaries applies-----
-----Deputy Ó Snodaigh will probably be receiving approximately two-thirds of the €24,000. Perhaps he might have a special case to get the minimum floor that is being established here.
That is the background to that and it means we have moved in that regard.
We then have the situation of people with higher pensions, but as I said in the previous discussion, the advice of the Attorney General was that there had to be proportionality. That has been the financial emergency measures in the public interest test in respect of a number of cases that have been taken.
I want to record my intention to table amendments on Report Stage regarding the right of audience, which is different from consultation. I accept the Irish Senior Citizens Parliament and other groups have been involved in various rounds of consultation, but that is different from having a right of audience through the industrial relations machinery.
I should have given the Deputy a more comprehensive answer on that. I discussed this at length with Deputy O'Dea. As the Deputy said, this is in regard to the industrial relations machinery. The Department of Social Protection does not have any power regarding the industrial relations machinery, but I told Deputy O'Dea that I would take it up with the Minister for Jobs, Enterprise and Employment because that is where the industrial relations machinery arises.
The problem with that is that it is after the event. I intend tabling an amendment on employer liability and also on the need to introduce an upper limit.
The Minister said she did not want to have to introduce this legislation. She would not have to introduce it in the way she is doing it if the Government had dealt with the wider pensions issue in terms of the €2.5 billion being spent on pension tax relief. If she had gone ahead with the undertakings given on limiting that tax relief, we would not be in a situation where she is increasing the levy on pensions, which is hitting many private sector pensioners. There were options available. There is a big pot of money available and the issue is how that is shared out. Unfortunately, the Government has not grasped the nettle in this regard and used that funding to redirect support from the State for pensions. There is an opportunity to do that but, unfortunately, it has not been taken.
To be clear, I am very happy to introduce this legislation. It is reforming legislation. What I said is that I regret the difficulties pension funds have found themselves in over a protracted period going back to the late 1980s.
I thank all the Deputies for what was a very detailed discussion. It is a very technical issue but it is of great importance to all the people who are part of pension funds - the pensioners, the active members and the deferred members. I hope the new options offered in this Bill will allow even more pension funds to restructure successfully and, ultimately, protect pensions for people.