Mr. Fergus Whelan:

I thank the joint committee for the invitation to make a presentation on pensions reform. The Irish Congress of Trade Unions is concerned that this term has become a euphemism to cover policy and regulation failure, the transfer of pension risk from employers to workers, and neoliberal attacks on social security provision for the elderly. I propose to focus on three main issues, namely, the crisis that has unfolded in recent years with regard to defined benefit occupational schemes and, specifically, the failure of the regulatory system in this regard; the fact that defined contribution schemes have not proved to be value for money or performed any better than defined benefit schemes; and the implications of the EU White Paper on pensions.
Before the economic crisis in 2008, defined benefit schemes in Ireland were already under significant pressure. In 2005 congress published a document entitled, Pensions Problems and Solutions, which highlighted the fall in equities in the previous three years and signalled problems ahead for defined benefit schemes. Throughout the pensions crisis which began long before the financial crisis the State and pensions regulatory system have failed pension scheme members. At times, in fact, they both appeared to be actively working against the best interests of scheme members. In 2008 the regulator suspended the minimum funding standard, a move that was welcomed by all stakeholders. It seemed that a breathing space was being given to allow steps to be taken which could ease the pressure on sustainable schemes. Gradually, however, it became apparent that officialdom had no intention of dealing with the systemic problems; rather, it adopted a position that these problems were a matter for individual schemes and their trustees. As trustees grappled with mounting problems, they were left in the dark for nearly five years as to what rules would be applied into the future.
Congress gradually developed a consensus among the main stakeholders, including the Irish Business and Employers Confederation, the Irish Association of Pension Funds and the Society of Actuaries in Ireland, seeking changes that would help schemes to survive. Most of our suggestions were ignored or dismissed out of hand by officialdom which either did not accept the extent of the crisis or, if it did, took the view it was not its concern. Throughout the crisis officialdom has appeared indifferent to the views and interests of the workers who own the pension funds. Recent changes to the priority order are most welcome but will serve only to bring some equity in the closure of distressed schemes. The Waterford Crystal workers made a major breakthrough by puncturing the notion that pension funds in difficulty were no concern of the Government.

However, this victory has not had much of an effect on the attitude of public officials.

The Government and the regulator clung resolutely to a funding standard that artificially overvalued liabilities and further increased uncertainty by announcing that defined benefit schemes would be required to hold significant risk reserves. Meanwhile the Government raised a levy on all schemes, including those in trouble. One consequence of this was to promote an attitude among employers that pension schemes were far more trouble than they were worth. When it was introduced initially as a funding mechanism for job creation, the pension levy of 0.6% of fund assets was to apply for the four years to 2014. The cost of the levy has generally been passed on to members whose benefits have been reduced by 2.4% over the period. Despite reassurances to the contrary, the levy did not cease in 2014 and has been extended for at least a further year at a new rate of 0.15% but with a combined charge. It remains to be seen how schemes will manage these extra costs and whether members will experience an apparently never-ending series of cuts to their benefits as a result of this State confiscation of pension savings.

Unions, employers, trustees and pension professionals tackled the problems which arose with great creativity and in a spirit of problem solving rather than adversity. Many imaginative and inventive solutions were agreed to that saved schemes which otherwise would have gone under. However, nearly all of the solutions arrived at led to significant losses for members and deferred members. Coupled with the financial losses was the collapse of confidence in pensions generally. The funding standard was re-imposed in 2013 without anything significantly helpful having been done in the five year hiatus. Owing to the successful strategy of officialdom in decentralising the problem to the level of individual schemes, it is difficult to know how deep the crisis has become. We do know that there has been acceleration in scheme wind-ups, with 25% of schemes expected to wind up by the end of last year; most defined benefit schemes are closed to new members; a growing number of defined benefit schemes are closed to future service accrual; many schemes do not meet the minimum funding standard - some have been, and more will be, saved by section 50 applications, but this will involve major losses of pension benefits that workers have earned and paid for and it will also add to the crisis of confidence to which I have referred. Nearly all solutions involve no further increases to pensions in payment; people will slowly descend into poverty from the moment they retire and if high inflation returns, the fall into poverty will be rapid. In addition, the Labour Court and the Labour Relations Commission are dealing with an array of pension disputes. If these disputes are settled, it is likely that many will be resolved on the basis that no further contributions will be made to the defined benefit schemes and there will be massive losses of accrued entitlements for the workers affected.

Unions have developed great expertise in influencing and constructing section 50 applications which seek to defend accrued and future core benefits. It is a remarkable achievement to convince active members to stay with a scheme, continue to make substantial contributions and accept lower benefits in a climate of declining confidence. Few well-informed workers believe their pension funds savings are safe.

There is nothing to suggest the losses in defined contribution schemes have been any less severe than those incurred by members of defined benefit schemes. Trustees of such schemes have been forced to crystallize. The losses in defined contribution schemes are masked until a worker retires. All that has happened in the move from defined benefits to defined contributions is that the risk has been transferred from capital to labour. There is nothing to suggest the current regulatory regime can better protect defined contribution scheme members. Nobody has monitored the underperformance of defined contribution schemes, the very low level of employer contributions to these schemes, the loss in defined contribution values during the financial crisis or the traditional over exposure of defined contribution schemes to equities. Many thousands of workers took the rational decision and stopped paying into pension funds which were not safe, ineffectively regulated and subject to State confiscation. Neither has there been a review of the failure of orthodox assumptions of what constitutes high, medium, low or even appropriate levels of risk.

There is little new in the European White Paper and it could be summarised in a few bullet points. According to its authors, we are living longer, have to stay in work longer and save more for retirement and need safe sustainable complementary savings systems. In addition, they describe the move from defined benefits to defined contributions as a "structural reform", whereas congress sees it as transferring the risk on a pension scheme from the employer to the employee and as a major deterioration in workers' pension conditions. The authors indicate that the crisis clearly demonstrates that the ability of pre-funded pension schemes to mitigate risks and absorb shocks needs to be improved. Unfortunately, they do not inform us about how this is to be done. The White Paper does state the acceptance of reforms depends on whether such reforms are perceived to be fair. All I can say is "Amen to that." The authors of the White Paper are also of the view that genuine dialogue involving governments, social partners and other stakeholders is necessary to build a consensus on policies to create opportunities for people working longer. I addressed the committee on that matter previously and as far as congress is concerned, there has been no social dialogue on it to date.

Congress regards complementary savings systems, whether defined benefits or defined contributions, as far from safe and the pension regulation system has utterly failed to protect the funds or the interest of scheme members. How can complementary savings systems be safe as long as we have a defective regulatory system and a Government that reserves the right to confiscate accrued funds as it sees fit? With the race towards defined contribution schemes, the risk will not be mitigated and the shock will be absorbed by the workers alone. Our reforms to date have been grossly unfair and inequitable and there has been no attempt to involve the social partners.

The recent pension changes in the priority order are late but welcome. They at least bring an element of certainty in place of the confusion which reigned supreme for the past five years. Stakeholders now know that they will get no further help from the Government or the regulator. The only area of doubt remaining is whether the Government can kick the habit of raiding workers' pension savings for opportunistic purposes. Nonetheless, stakeholders can make reasonable informed decisions about the future. Unfortunately, many more schemes will move towards wind-up and this will involve huge losses for the workers concerned. Those who are responsible for directing public policy on pensions and getting us into this mess - successive Governments, highly paid doyens of risk management and public officials - got it utterly wrong, yet they suffer no consequences and have kept their Rolls Royce pensions. The burden of their failure is borne by workers and former workers. Most workers who have lost out have so far borne it stoically. Perhaps this is because they feel no immediate pain. A decade hence, when workers who contributed huge amounts of income to their pension are sunk in poverty, the pensions time bomb may finally detonate.

The White Paper has nothing to offer except perhaps the suggestion that reform should be fair and involve dialogue with the social partners. Experience to date in respect of pension age and pension policy suggests there is no intention to ensure the reforms will be fair. Pension reform in Ireland involves taking as much as possible from the vulnerable, while ensuring the elites are cosseted. Making "social dialogue" dirty words means that unfair reform can be imposed on citizens without ever having to consider the hardship that results for individuals.