Willie O'Dea (Limerick City, Fianna Fail) | Oireachtas source

If the previous Government was wrong not to take action within one year, the Government is three times as wrong. I wish to ask the Minister about people who have lost some or all of their pension since she took office when the problem was already manifest and a variant of her solution had already been proposed in a report to the Government.

Yesterday, for example, I went downstairs to meet a delegation and one delegate asked me, in respect of a different matter, what was happening as regards the pensions legislation. I was explaining to her what was to happen today and she said she was a member of a defined benefit pension scheme that wound up in the past six weeks. She will not benefit from the changes. The problem is that the Minister made numerous public promises, to IBEC and other organisations, giving several deadlines that were not observed. Between 2009 and September 2012, 231 schemes closed. Almost as many have closed since. The Minister indicated so much in the response to a parliamentary question on 19 November. In the reply, she stated that, since 1 January, "96 schemes have commenced wind up". Overall since the Minister came to office, 50,000 to 60,000 people have lost either all or part of their pension because of the previously unfair priority system.

I have received numerous representations on a certain matter with which I want the Minister to deal in her closing statement. I have been asked to ask her whether the legislation enables or could be amended to enable the new changes, or the changes she is introducing today, to apply where the wind-up takes place before the Bill comes into law but where the funds have not been distributed by the time of its enactment.

The Minister introduced a section providing for a double insolvency situation, presumably in light of the Waterford Glass decision by the European Court of Justice. What is worrying about the Government's proposals in this regard is that they seem to envisage that the infamous pension levy will become a permanent feature of the Irish taxation landscape. That is in direct contradiction of the very specific commitments made by the former Minister for Finance when he introduced the levy. He emphasised time and again that it would be a temporary provision. For example, on 10 May 2011, he said, "The various tax reduction and additional expenditure measures which I am announcing today will be funded by way of a temporary levy on funded pension schemes and personal pension plans." He said it would apply for a period of four years, commencing in 2011, and that it was intended to raise a specified sum. In a reply to Deputy Michael McGrath dated 24 May, he again emphasised this: "As the legislation introducing the levy makes clear, it is for a temporary four year period only and pension funds are being asked to make a contribution to getting the domestic economy moving again over that period." That promise has obviously been jettisoned and now the levy is to be a permanent aspect of the Irish taxation landscape.

The position is now that the Government will be putting the shovel into people's private savings for an indefinite period and an indefinite amount, despite the former Minister’s optimism to the contrary. The pensions levy is an expropriation of private citizens' savings. It is similar in principle to the expropriation of bank deposits recently in Cyprus. It takes money directly from people's savings, including from defined contribution pensioners, who have no relationship whatsoever with those in the Waterford Glass circumstances. The irony is that the new regulations announced in the Bill by the Government will drive many defined benefit schemes to be converted into defined contribution schemes, whose members will then have the privilege of getting lower benefits in order to guarantee the position of those who are able to remain in defined benefit schemes and are, thereby, better off.

From the welter of publicity surrounding the introduction of this legislation, I understood that the new levy, the extra levy announced by the Minister on budget day, would be ring-fenced to deal with this situation specifically, and that there would be no other payments from it. Can the Minister confirm whether this is the case or whether it is an additional general levy?

With regard to single insolvencies, the changes are, by and large, modest enough. There is a guarantee of 100% up to €12,000 per annum. Pensions worth up to €60,000 per annum are guaranteed in the order of 90%, and pensions worth in excess of €60,000 are guaranteed in the order of 80%. There are anomalies in the figures, although I appreciate it is difficult to have them exact. For example, a person on a pension of €59,000 could lose up to €5,900 whereas a person on a pension of €61,000 could lose €12,200. In reality, however, many pensioners will not be affected at all, even if their pension fund winds up in deficit. A pensioner who was on the average industrial wage and who retired after 40 years’ service, having been in a typical pension scheme, will still probably have the same protection as he or she had heretofore. Despite the Bill, those with higher pensions will continue to receive much greater protection than those still at work or deferred pensioners.

As I stated, the double insolvency provisions in this legislation arise directly from the Waterford Glass case. There is, of course, an anomaly. Where a person loses his job and his pension scheme is wound up and the company goes into liquidation, amounting to double insolvency, the person has a certain guarantee of 50% of his benefits. Where a person loses his job and must rely on the pension, becoming a different pensioner, he has no guarantee whatsoever if the pension scheme winds up but the company does not. In an article in The Irish Timeson 20 November 2013, Mr. Peter Fahy of Eversheds is quoted as having said, “There is a strong disconnect here which may lead to unintended consequences”.

The Minister referred to Article 8 of the EU directive, which refers to protection in the order of at least 49%. The Minister is providing 50% protection but I am sure she is fully aware of the decision of the High Court in the United Kingdom, where the appropriate level of protection was judged to be 90%. The Waterford Glass case is still before the courts and the question of the appropriate percentage has still to be decided by the High Court. If that court stipulates a figure greater than 50%, what will happen then? Perhaps the Minister will deal with that when responding.

There is nothing in the Bill – perhaps this is an oversight – about the indexation of thresholds. It is reasonable that we should ask whether the thresholds will rise over time to provide some sort of consistency. For defined benefit schemes, the minimum funding requirement is based on a fiction. The question asked is whether the pension scheme would be able to meet all its liabilities if it were wound up tomorrow. This is totally artificial. It fails to recognise the long-term nature of pension provision. Pensions are only paid out on actual retirement and businesses file their accounts on a going-concern basis rather than on an assumption of immediate wind-up. We must move to an ongoing funding model that recognises the long-term nature of pension provision. The present system values liabilities on the basis of a hypothetical set of circumstances that may never come to pass. I refer to how much it will cost to meet a liability by purchasing annuities which are largely priced in German or other triple-A rated bonds. The price of those bonds, as every Member will be aware, has soared significantly in recent years, often deliberately driven up by the authorities which sought to reduce the yield.

Healthy schemes do not need to purchase annuities, yet the very health of those schemes is measured against the price of those annuities and the capacity of the scheme to meet the statutory funding standards based on annual testing. The new Pensions Board rules, introduced in 2010, represent a positive step in the right direction although Irish bond yields have decreased since. However, they are far too restrictive and the trustees are still very unclear as to how much protection they enjoy in the event of something going wrong. There is an urgent need for creative thinking. There are alternatives. For example, Mercer has proposed that the link to German bonds should be substantially broken. It recommends that a certain level of the pension could be so linked and that the balance could then be converted into a lump sum on the basis of a fair actuarial value rather than the cost of an annuity. This lump sum could, in the event of a wind-up, be invested in an active retirement fund from which income could be drawn down, as needed. Other alternatives, or variants of that, have been canvassed by various sources.

There is no evidence, however, that such matters have received the slightest consideration by the Government. The Government policy appears to be to collapse as many defined benefit schemes as possible, to expose as many pensioners as possible to the full risks of defined contribution schemes and to minimise the cost of the commitment in this Bill to guarantee pension shortfalls in certain situations.

In view of this, it is all the more ironic that there remains in this country a very large cohort of pension funds which need have no worries whatsoever about meeting the funding requirements or about how those requirements are to be measured. A Government exemption granted last March to more than 100 State-funded schemes for employees of Government bodies excluded those bodies from all of these considerations. These schemes have approximately 340,000 members, dwarfing the numbers in private pension schemes. The exempt funds include the Central Bank scheme, the Pension Board schemes - surprise, surprise - university pensions and, of course, the Oireachtas Members scheme. If these State-protected pensioners were underfunded to the extent of those in the private sector, the liability would be approximately €30 billion. Overall, the liability for public pensions in this country is in the region of €130 billion. The State-guaranteed public sector pension scheme is the most insolvent scheme of them all.

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