Joan Burton (Dublin West, Labour) | Oireachtas source

Since becoming Minister, I have commissioned the most comprehensive review of pension schemes in the midst of all the economic difficulties that beset Ireland following the bank guarantee and the collapse in the construction sector. The OECD has strongly recommended, in the context of the continuing difficulties experienced by defined benefit pension schemes over a long period - the problems did not arise today or yesterday; they have been ongoing for a long period - that we, as a country, when economic recovery permits, seriously consider debating a move to mandatory enforcement in supplementary pension schemes or auto enrolment. That is what is done in most countries with systems similar to that in Ireland. For a variety of reasons, not excluding the FRS 17 accounting standard referred to by Deputy Clare Daly, the landscape has changed in the past 20 years in how pensions are accounted for in defined benefit schemes. I understand why people may dislike FRS 17 which has evolved since the 1980s and, unfortunately, resulted in the fall-out affecting defined benefiot pension schemes in the past two decades that Members have described.

In Ireland defined benefit pension schemes are set up and maintained by employers on a voluntary basis. There has never been a statutory obligation on them to contribute to their pension schemes. None of the Members who have contributed suggested there be such a statutory liability when establishing a pension scheme; rather, when a defined benefit scheme is set up, the level of employer and employee contribution is agreed and established under contract law in each of the scheme's trust deeds and rules where they operate under contract and trustee law. The suggestion that no law applies to defined benefit pension schemes in Ireland is incorrect. However, they come under a particular structure that has applied to them since they were first set up. The trust deeds and rules differ from scheme to scheme because there are three parties - the employer, the trustees who administers the scheme under trust law and the employees. The employees are split into three groups: pensioners - retired employees; active members currently contributing to the scheme who generally are employees of the company; and deferred members - people who have not reached pension age but who have left the employment of the company. All three categories have rights under the scheme as contributors.

I refer to what has happened in the past ten years. The funding standard expert group of the Pensions Board recommended against the introduction of a debt-on-employers in 2004 and again in 2005. I highlight this because at that stage the economy was doing extraordinarily well and the State had been a generous contributor to the schemes over a long period via tax reliefs. The expert group viewed this proposal as introducing a retrospective cost on employers and feared it would undermine the voluntary basis on which defined benefit pension schemes were set up. It is interesting that the OECD's report recommends that, as a society, we debate a supplementary pension scheme in addition to the State pension contribution which is all that many people have to rely on and which is worth approximately €12,000 annually. However, somebody retiring on a State contributory or non-contributory pension equating to that amount will sometimes get a shock, although, comparatively, it is a high pension rate within the European Union. It is a comment on Ireland that members of all political parties and none have been strong supporters of strong State contributory and non-contributory pensions.

A Green Paper on pensions was published in 2007. It considered the debt-on-employer provision and referred to what had been said in 2004 and 2005. The high watermark of the Celtic tiger era was in 2007. At the time there were many difficulties with defined benefit pension schemes because of changes in businesses and because of the changes brought forward by FRS 17, an international accounting standard that did not originate in Ireland. In 2010, following a public consultation process on the Green Paper, the national pension framework was published by the then Fianna Fáil Minister and it did not include a debt-on-employer provision at a time when the financial circumstances in Ireland were unbelievably benign.

If the Deputy wants an honest discussion on this, he should examine the history of what all the parties have said about pensions at a time when the country was prosperous and read the OECD report which I commissioned in order to start a debate on the issue. The OECD's review of the Irish pension system recommended a degree of risk sharing and concluded that the priority currently given to pensioners before other members when a scheme is wound up creates significant inequalities across members. It also recommended that the priority currently given to pensioners over other members where a scheme closes because of sponsored bankruptcy should be eliminated. It is easy to say this, that or the other could be done if we had the money. This issue was previously debated in the Dáil during a period when the country was prosperous but I do not recall any dissent onthe Green Paper or the national pensions framework. They were regarded as broadly progressive documents. I raised issues regarding the application of large amounts of tax reliefs and the fact that some people were able to create extraordinary levels of pension provision through generous and uncapped tax reliefs.

In 1997, 2,242 defined benefit pension schemes were subject to the funding standard. At the end of 2007, when the Green Paper was issued and when the economy was enjoying a peak of prosperity, even if it was built on a bubble, the number of schemes had dropped to 1,319. The difficulties in defined pension schemes have not arisen overnight. Unfortunately, they have been ongoing for 20 years. As the end of 2012, there were 993 schemes and currently there are just over 800 schemes. The good news is that more than 50% of schemes have introduced restructuring arrangements that allow them to continue in operation. However, between 10% and 20% of schemes have severe difficulties.

The purpose of the legislation is to nurse as many schemes as possible to continuing health and to make provision for currently active members who are paying into schemes and deferred members who paid into schemes during their periods of employment. On Committee Stage we discussed the pros and cons of imposing a debt on an employer. This debate has gone on for a long time. Deputies have argued that imposing a debt on the employer would protect all scheme beneficiaries because the employer would meet all of the requirements. I will not speak about the capacity of an employer to meet such an obligation. Deputies also argued that it would prevent employers from walking away, encourage them to ensure schemes are well funded and managed and reduce the potential risks for the State. The arguments against the proposal are equally important and relate to protecting the parties to the scheme. There would be a threat to the financial stability of the companies concerned which, in some cases, could render them insolvent. Deputy O'Dea referred to that issue. A large number of the companies based in Ireland are subsidiaries of international parents and may have been bought and sold on several occasions. The employer which originally established a scheme may subsequently have been replaced by an international employer without any deep loyalty to the scheme and is prepared to make only a limited contribution to it.

Deputy Shortall asked about the amount of discussion we have had on these matters. I do not think I have discussed another issue with more individuals and groups on all sides of the argument. I assure her that my Department continues to engage in extensive discussions with stakeholders and the Pensions Board. It is not correct to say there has been no discussion. In many cases there has been agonised discussion about achieving the right balance.

An employer obligation will impact on company debts, investment and growth, as well as the employer's ability to raise funds for a pension scheme. If companies are raising funds on the open market it may face problems in terms of employer debts. I am not saying that I approve of there being a problem but modern international finance is complex and companies have to fund themselves. If a company is not able to find finance on reasonable terms and conditions, its future may be undermined. There may also be competitive advantages for employers who never provided a pension scheme or operate relatively risk free defined contribution schemes, which are now the norm among younger people.

If we end up prompting well funding schemes to wind up in order to avoid future debts, that would be an unintended consequence of the good intentions behind the amendments. Some industry experts have suggested that a statutory obligation on employers has the potential to eradicate the provision of private defined benefit schemes in Ireland. The experience of the UK and internationally has shown that complex anti-avoidance structures, with requisite resources and expertise, were required to prevent employers from restructuring to avoid their obligations. There was also an impact on companies' general creditors in terms of whether they continued to offer credit in the event that the debts accrued on pensions cannot be funded. Internationally, the structures in large economies such as the UK and the United States are both extensive and expensive. I do not know whether it is possible to have these kinds of structures in Ireland given the costs they entail, as well as the anti-avoidance mechanisms that would almost certainly be required.

We are all aware of the magnitude of tax planning in this country by corporates. Things are much the same in terms of pension planning.

Many employers that set up defined benefit schemes - as some commentators have stated, they were not required to do so; it was done on a voluntary basis, and employees were enrolled in the schemes as part of their employment - have been good in seeking to renegotiate their schemes in a way that benefits all parties to the scheme, including pensioners, deferred members and active members. It is important to recognise that rather than assuming complete bad faith on the part of employers, and to recognise their commitment to their employees, who, as it has been rightly stated, make their businesses successful.

I refer also to representations and commentary made to me as Minister by a variety of groups representing different aspects of Irish society which are stakeholders or have an involvement in pensions. They asked for the current section 48 framework on restructuring to be changed for a number of reasons. With regard to the fact that insolvent schemes have been winding up, thankfully, with the restructuring we hope to get as many schemes as possible safely across the line. More than 50% of schemes are now in such a position - which is, by the way, a much better outcome than was predicted when this process started. The groups referred, secondly, to the risk carried by the shrinking population of active and deferred members, which will become more pronounced in the future as schemes are closed to new entrants. The level of protection for pensions, they went on to state, is not compatible with the concept of intergenerational risk sharing among active and deferred members, and it is possible that active members who have increased their contributions or agreed to reductions in their benefits in order to sustain a scheme would receive no benefits on a subsequent scheme wind-up. Those who contacted me about this - I am summarising some of their views - included employers, the society of actuaries, representatives of trade unions and employees, and representatives of the Irish Association of Pension Funds - the pension funds sector. It is a difficult issue. For the record, that is what they had to say.

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