Leo Varadkar (Dublin West, Fine Gael) | Oireachtas source

I propose to take Questions Nos. 45 and 49 together. I am very much aware of the public concern highlighted by the recent publicity surrounding defined benefit schemes.

The provision of occupational pensions in this country is on a voluntary basis and depends on the willingness of employers and employees to contribute to, and maintain schemes for their members. Traditionally, many such schemes were organised on a defined benefit basis. This is now much less common. In recent decades, defined benefit provision has been under pressure because of volatility in the stock markets and increasing liabilities arising from demographic pressures, longer life expectancy, lower interest rates and regulatory requirements. Accountancy standards, which make pensions liabilities very apparent on a company's balance sheet, also contribute to the pressures under which defined benefit schemes are operating. During the financial crisis, the decline of defined benefit pension schemes accelerated to the extent that the whole pension sector was possibly at risk.

As a consequence of all these factors, the movement from defined benefit to defined contribution schemes has become a feature of the pensions landscape, even in cases where firms are very profitable. Almost all defined benefit schemes have a rule that allows the employer to cease contributions, usually after a notice period. There is no legislative obligation on the employer to make contributions and no further liability on the employer where contributions cease. Where changes to these schemes are being sought by employers, I am strongly of the opinion that they should first engage in discussions with the trustees and employee representatives or unions. The introduction of a debt on employer - as proposed by some - would raise a range of issues including possible negative consequences for defined benefit schemes, some of which may not be beneficial for members or the employees in the companies concerned. Neither the Minister for Social Protection nor the Pensions Authority has the power under legislation to intervene to freeze the winding-up of a scheme or to compel the employer to make contributions to a scheme. In recent years, however, the Government has amended pension legislation to protect the pension sector and to ensure fairer and more equitable outcomes for all scheme members. These changes make more resources of the scheme available in the initial distribution of assets to active and deferred scheme members. At this stage, further regulation may only serve to add to the pressures on defined provision and could be counterproductive.

While there are strong arguments in favour of the introduction of greater employer obligations, it is also important that we consider the less desirable side effects. These could include: prompting well-funded schemes to wind up to avoid future new obligations; threatening a company’s financial stability; rendering some employers insolvent; or giving a competitive advantage to employers that never provided a pension or put defined contribution schemes in place.

While I have no immediate plans to bring forward amending legislation to enhance the provisions in the Pensions Act regarding defined benefit schemes, I assure Deputies that the issues in respect of defined benefit schemes are continually scrutinised by my Department, especially in the current environment.

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