Éamon Ó Cuív (Galway West, Fianna Fail)

I thank the Deputy for raising this issue and I agree with her that it is very important. I assure her that I will be, and that I have been, directing quite an amount of attention to the matter. However, it is quite complex and it is important in the decisions we make that we look at all of the various angles.

Under the Pensions Act, defined benefit pension schemes must meet a minimum funding standard which requires that schemes maintain sufficient assets to enable them discharge their accrued liabilities in the event of the scheme winding up. At the end of 2009, there were 254,325 members in 1,212 defined benefit schemes subject to the funding standard. It is estimated that more than 75% of these schemes are in deficit. However, the full extent of the level of underfunding will not be fully apparent until all schemes carry out their next actuarial assessment and report the results to the Pensions Board. These assessments are carried out through the completion of actuarial funding certificates which evaluate the funding position of a scheme and include confirmation as to whether the funding standard is satisfied. Where schemes do not satisfy the funding standard, the sponsors or trustees must submit a funding proposal to the Pensions Board to restore full funding within a specified time period, normally three years.

The Government is acutely aware of the pressures on sponsoring employers and pension scheme trustees that have arisen from investment decisions and changing market conditions. The Government has taken a number of significant measures to ease the pressures on pension schemes since 2008. These measures include the granting of extra time for schemes to formulate funding proposals and allowing longer periods for recovery plans, up to ten years or more, subject to the agreement of the Pensions Board. The deadline for the submission of funding proposals was initially extended for six months and has been further extended on a number of occasions. The current deadline for receipt of funding proposals is the end of November 2010.

Also introduced were significant legislative changes in the Social Welfare and Pensions Act 2009 to allow for the restructuring of underfunded schemes; to ensure a more equitable distribution of assets in the event of the wind-up of a defined benefit scheme; and to strengthen the powers of the Pensions Board in ensuring that pension contributions are remitted by employers to scheme trustees. These amendments improved the level of protection that was in place for current and former scheme members who had yet to reach normal retirement age.

The 2009 Act also introduced the legislative provisions to enable the Minister for Finance to establish the pensions insolvency payments scheme to reduce the cost of purchasing pensions for trustees where the employer has become insolvent. This scheme came into effect in February 2010 and will ensure a more equitable distribution of assets following the wind up of relevant underfunded pension schemes.

The national pensions framework was launched by the Government in March 2010. As Deputy Burton knows, the framework is the Government's plan for future pension reform in Ireland and it encompasses all aspects of pensions, from social welfare to private occupational pensions and public sector pension reform. It aims to deliver security, equity, choice and clarity for the individual, the employer and the State. It also aims to increase pension coverage, particularly among low to middle income groups and to ensure that State support for pensions is equitable and sustainable. The framework is committed to examining new models for the future of defined benefit pension schemes to ensure the sustainability of this pension model.

As Members are aware, I announced yesterday that the Government is expediting the framework proposal to move to a new defined benefits model. As the Deputy knows, the framework recognised the difficulties with the current design of defined benefit schemes and proposed an alternative approach to the design. My Department will aim to introduce this new model, following legislative changes, on 1 July 2011. This is a very tight timeframe. On the basis of this decision, the pensions regulator has announced that the deadline of 30 November for the phased submission of recovery plans is being extended further. This is in order to give schemes time to consider the impact of this new model on their funding position before they are required to submit a recovery plan. The Pensions Board will shortly announce the details of this extended timeframe.

In developing the new defined benefits model we will look at issues regarding the governance of defined benefit schemes and the basis for the funding standard, including areas such as risk management, and smoothing out effects of changes in the bond markets. Strategies for transitioning schemes to this new model will also be examined. Full consultation will, of course, take place with the pensions industry, employers, trade union and other stakeholders in developing the new model.

Once this new model is introduced and schemes have been given this additional time to develop funding proposals, we do not envisage continuing to revisit the position - in other words, there will be no further extensions. These measures should not be viewed as a silver bullet. Pension schemes still have to address their liabilities, their risks and their investment strategies in order to ensure that they are properly funded and we expect them to do that. The proposal for a sovereign annuity is also being given serious consideration. However, it must be stressed that the issue is by no means straightforward and an assessment of the benefits and risks involved for all stakeholders is ongoing. I hope the Government will be in a position to make a decision on this in the near future.

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