Aengus Ó Snodaigh (Dublin South Central, Sinn Fein) | Oireachtas source

I understand it is not the fault of the State, but it means that in the event of such a scheme winding up, the burden will be fully on the State one way or the other because they may only qualify for a non-contributory pension and their income will be quite reduced. I believe that we can address that through using the scheme and funding whatever contributions are missing.

Recognising that some defined benefit scheme members are not eligible for the contributory State pension, my proposal sets out to ensure a minimum safety net for all scheme members, first through the purchase of the requisite contributions record for the State pension for all scheme members who do not have such a record or who are not on the road to it. In the event of a pension scheme wind-up, I believe that should be the first priority. After that, my priority is to protect those on low pensions and those with low pension expectations. My second priority goes to the first €12,000 worth of pensioners' benefit, as the Minister mentioned. I also think it is important to recognise that people approaching retirement age are particularly hard hit when a pension fund collapses, as they do not have the ability or the time to make alternative arrangements. Those who are over 50 or over 55 should also be taken into account. I propose two tiers of protection for those people. My third priority goes to the age-related portion of the current and former members' benefits, and the fourth to the eighth priorities are just different ways of dealing with the distribution back and forth between pensioners and future pensioners. The changes I have suggested mean that once we have ensured that existing pensioners have the full State pension of €12,000, plus their full occupational pension benefit up to €12,000, we can immediately turn to the protection of future pensioners. I believe this is a fair distribution and I have submitted the amendments to that effect on Committee Stage.

I wish to address the Minister's assertion that she is protecting the State and taxpayers from liability for the failed investments of private pension schemes. She also asserted that the pension levy would be used to cover funding shortfalls in the case of double insolvency. That is double or even treble accounting, because a pension levy has already been verbally allocated by various Ministers to the central Exchequer, to deficit reduction and to the Government's so-called jobs initiative. I do not know which it is. It cannot be allocated to everything at the same time. The Minister's press release at the time stated that she had secured agreement with the Minister for Finance to use funds from the pension levy to meet any obligation on the State that may occur arising from such double insolvency. I asked the Minister for Finance about this last Tuesday, and he said that agreement has been secured for these liabilities to be met by the Exchequer where they arise. That is not the pension levy. I hope the Minister can come back to that. Even if the shortfalls were to be met by the pension levy, this levy is paid by pensioners with defined contribution schemes, so it is questionable whether it is fair to spend it on compensating members of defined benefit schemes. There is a question here about poor investment outcomes when the defined contribution members are already being offered no such protection. The questions raised are not enough to make me oppose the Bill, but they are questions that need to be addressed.

I will recap on who is legally exposed when defined benefit schemes go forth: workers, pensioners and the State. The sponsoring employers, who made the pension promise in the first instance, are noticeably absent in all of that. When the OECD recommended in its recent review of the Irish pension system that the insolvency guarantee arrangement was needed, ensuring payments after the bankruptcy of a plan's sponsor, it emphasised that for this to work, the employer must have a primary obligation to fund shortfalls. The OECD was very critical of the nearly unique situation in Ireland which allows healthy sponsors to walk away from defined benefit scheme plans, shutting them down without creating a high-priority debt on the employer itself. The OECD described this as a particular weakness of our system. It recommended that healthy planned sponsors, defined as employers with positive net revenues, should not be allowed to walk away from defined benefit plans unless the assets cover 90% of pension liabilities. The Bill does not address this failing in our system.

Employers include the parent companies, because far too often, especially in a small economy like ours, subsidiary companies are set up, and while the parent company is very healthy, in many cases the subsidiaries are walking away from the defined benefit plans. That cannot be allowed to happen. Employers who have the ability to pay the pensions they promised must honour that commitment to their workforce past and present. I will be tabling an amendment flowing from the OECD recommendations on Committee Stage.

In the absence of a clear legal obligation preventing healthy employers from walking away from defined benefit schemes, these matters often get sorted out by industrial relations infrastructure, including the Employment Appeals Tribunal, the Labour Court and the Labour Relations Commission. However, in such instances, deferred scheme members are at a particular disadvantage because they are excluded from those processes.

I was lobbied by a trustee of one of the schemes, the Aer Lingus, Dublin Airport Authority, DAA and SR Technics pension scheme, outlining the particularly harsh pension cuts deferred members are facing in that context. Without going into their scheme, they do not have a voice if it gets to the Labour Relations Commission. I will try to address that in an amendment but it should be examined, even though it is complicated because deferred members could be scattered around the country or the globe. There should be some voice for them in the event of a scheme going south.

It is important to consider the backdrop to this Bill. There is a crisis in pensions across the board. The capacity of the State pension to reduce pensioners' poverty into the future has been undermined by this and the previous Government. The population is aging. We can argue how fast or slow that is, there are many variables we could use to make accurate, long-term predictions, but there is no doubt that the ratio of workers to pensioners is decreasing. Our fertility rates are more favourable than in many European states but increased life expectancy is also a significant driver.

The social insurance fund has a gaping hole, which we have discussed before, and that hole will either increase or remain static, even if we return to near full employment, because of our aging population. We need to get this fund onto a sustainable footing. The first port of call for doing this is to examine the income which may or may not result from cutting benefits, which seems to be the Government's main focus to date. Changes have been made to the State pension scheme. Increased rate bands, increased numbers of contributions and the raising of the State pension age all undermine the adequacy of the State pension in terms of providing sufficient retirement incomes and will result in rising pensioner poverty. From 2020 onwards, increasing numbers of people retiring will find themselves entitled to less than 80% of the State pension given the recent changes.

In that context, the question is whether the private pensions can solve the pensions time bomb as this and the previous Government would have us believe. I do not believe so and the crisis in the defined benefit scheme will not help anybody else have faith in the future of the private pensions. We are here to discuss the defined benefit schemes. There are 800 such schemes, down from 2,500 a decade ago. Some 30% of those have some underfunding and 20% are underfunded. That is a substantial amount. I do not know how many people that affects, and maybe the Minister could tell us that before Committee Stage. While we know the number of schemes, we do not know the number of people in those schemes. The 20% which are underfunded may be large or small schemes.

The main alternative to the defined benefit schemes is the defined contribution schemes, which have taken over from the defined benefit schemes as the norm. The problem with defined contribution is that the individual person carries all the risk unlike defined benefit where the employer makes a benefits promise. In a defined contribution pension one's pension is determined, in most cases, by the size of the annuity that can be purchased for the amount of money in one's fund when one retires. When the yields on German bonds are low, the cost of the annuities is high. There can be problems there. The cost of annuities is high now. While governments and businesses all want low interest rates to facilitate their borrowing, the defined contribution pension schemes want the opposite. There will always be a contradiction or a push-and-pull effect with pensions.

Pension fund charges are another scandal which we have discussed here before but which have not yet been fully addressed. In Ireland we have many small pension schemes and these charges have been found to eat away at a sizeable chunk of people's funds. The most prudent pension fund portfolio is a diverse one, but this is likely to incur even more charges than those which are concentrated on one system. People need an affordable avenue to save for their retirements in which they can have confidence. From the track record of the private pensions industry in this State, I do not think it can deliver. It has taken disproportionate risks and has not learned its lessons. It continues to invest disproportionately in equities.

Despite billions of euro spent on tax reliefs to encourage the take-up of pensions, private pensions remain low among women, the low-paid and part-time and flexible workers. As insecure work becomes more prevalent the capacity of private pensions to provide reliable incomes into the future diminishes even further, so they are not the solution. A radically reformed and more robust State pension system is the way to go. The private model has failed thus far. The State pension model offers relative simplicity, it is cost-effective, less risky - although not without risk as all pension schemes have risk - and can be designed to recognise work without a market value, such as caring, and afford meaningful coverage to those on low-paid and insecure work.

There have been some reforms in the tax treatment of private pension contributions in recent years and the current Finance Bill reduces the standard fund threshold, which further limits the amount of tax relief that can be availed of. However, we are still spending on tax reliefs, including at the marginal rate, in a highly regressive manner. We cannot continue to subsidise private saving while unable to afford the State pension. Significant reforms to the public sector pensions have been introduced but because these will apply only to new entrants, the impact will not be felt for some time. In the shorter term, the public service pension reduction emergency measures introduced from 2009 have had the effect of reducing pensions in payment by way of a levy. Sinn Féin proposes different thresholds and rates for this levy which would have been much more progressive than those chosen by the Government.

The Minister proposed one priority order in 2011 but what she brought forward today is different. Hopefully she will be able to outline the reasons for the change from the original proposal. The system still overly prioritises the gold-plated pensions, those over €60,000, at the expense of future pensioners even potentially those with very modest occupational pension expectations with no entitlement to a State pension. That priority order can be changed. In the intervening years the Mercer report, commissioned by the Minister for Social Protection, should have been published, if it was any use at all. If I have missed it, could the Minister please tell me? If not, it would be useful to have it. If it was not good enough or came up with different conclusions to those we are discussing, so be it.

I am happy that we are here dealing with an issue that has been around for a number of years. It was always identified because it was always a potential problem but we did not address it. We are addressing it now. This does not go as far as we wish and does not have retrospective effect for those pensioners who have already suffered the consequences of collapses or insolvencies.

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