Eoghan Murphy (Dublin Bay South, Fine Gael) | Oireachtas source

I thank Deputies for their contributions to the debate. It has been informative and helpful to have a detailed debate around the issues relating to defined benefit pension schemes, which have over 660,000 members in Ireland. The problems of defined benefit pension schemes involve different issues which interact and require diverse potential policy responses. Due to demographic, economic and financial factors, the cost of providing benefits has increased at a rate that has not been covered by the investment returns earned by pension schemes. Unfortunately, there are no simple solutions to these issues. These problems are not unique to Ireland. As we have seen from BHS and Tata Steel in the United Kingdom, even the existence of debt on the employer and a pension protection fund have not prevented problems from happening. The key objective for all of us is the same, namely, to ensure that scheme members are protected in so far as is possible while maintaining the balance between the key stakeholders of the members, the sponsoring employer and the trustees.

I would like to reiterate some of the points made earlier by the Minister, Deputy Leo Varadkar. The imposition of both a pension protection fund and a debt on the employer was considered thoroughly a number of times in recent years due to the problems encountered with defined benefit schemes. There are clear advantages to such proposals, but there are also strong reasons they are not desirable. A pension protection fund may impose additional costs which lead to defined benefit scheme closures; it may lead to unintended consequences, for example, the under-funding of pensions in advance of liquidation; it may result in riskier investment strategies; it may increase pension benefits rather than wages in companies at risk; it may lead to the early retirement of directors taking substantial benefits; it may make stronger companies cross-subsidise the weakest; it may drive companies overseas to avoid paying; it may be prone to economic cycles - for example, in a downturn, it is exposed to significant demands which it may not be able to meet; and it may be administratively complex and costly.

A debt on the employer may threaten the company's financial stability and, in some circumstances, render employers insolvent; it may impact on the company's creditors; it may impact on company debt, investment and growth and the employers' ability to raise funds; it may give a competitive advantage to employers which never provided a pension and those with "risk-free" defined contribution schemes; it may prompt well-funded schemes to wind up to avoid future debt; it may need complex and costly structures to administer such arrangements; and it may result in increased and detailed State involvement in sponsoring employers' business decisions.

The changes that were made in recent years to the Pensions Act had the central objective of making the situation more sustainable and these changes have provided a level of stability. Rather than implementing a solution of putting a debt on the employer with unknown consequences, the approach taken to date is to support schemes to gradually move to a better funding position using regulation and the benefits of a strengthening economy. Changes such as the pensions insolvency payments scheme, sovereign annuities, the introduction of a risk reserve and allowing for the restructuring of scheme benefits are all measures which have been introduced with this approach in mind.

I understand the intention behind the Bill is to alleviate the issues that are continuing in defined benefit schemes. Nobody thinks it is right for sponsoring employers which have made commitments to walk away from their obligations. However, the position is not as black and white as that. There has to be fairness in the playing field between employers which have provided well for their staff over the years by contributing to a good pension scheme and those which have not. There has to be a balance between an employer being able to continue to operate and keep employees in jobs and living up to pension commitments made to those employees and former employees. In any legislation, there is a danger of unintended consequences, so any changes need to be carefully analysed and crafted, and followed by a thorough debate on proposed changes.

It is worth recalling some of the dangers and possible unintended consequences of the Bill. Rather than being protected as they are currently, the Bill could expose existing pensioners who are already retired to having their pensions cut substantially in the event of a wind-up. In some cases, stopping a pension scheme from winding up or "extend and pretend" will result in a far worse outcome for some scheme members, particularly younger ones. The scheme would have to continue with solvency potentially deteriorating, and older members using up the assets before younger members retire. The extra funding burden would accelerate the closure of defined benefit schemes in the private sector. Therefore, the result of such a change, designed to protect the position of defined benefit pension members, would be the opposite of that intended. Few, if any, such defined pension schemes would remain. It could jeopardise the viability of the business and the jobs of those employed, given employers lack of capacity to absorb this extra cost. In such cases, people could lose their jobs long before becoming eligible for a pension. It could encourage imprudent investment behaviour by trustees and any losses would have to be made good by the employer.

Pension reforms impact not just on what is happening now but can have huge repercussions on outcomes for people for decades to come. The Minister will in the near future bring forward proposals to address certain aspects of the funding standard for defined benefit schemes. This will include looking at annuity costs in funding standard calculations, perhaps providing additional flexibility for schemes where funding proposals have gone off track, and taking account of employer commitments to support their defined benefit schemes. These will be carefully thought out and fully analysed to help support schemes and their members.

I assure Deputies that the Government is very conscious of the issues raised in the Bill. The over-riding priority for the State in this area is to ensure pensioners and members of pension schemes are protected and the future viability and sustainability of their schemes is ensured and made safer. I hope Deputies now understand why the Bill is being opposed and that the changes proposed would do more harm than good.

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