Regina Doherty (Meath East, Fine Gael) | Oireachtas source

I thank Deputy Penrose because I know and appreciate he is acting in good faith and I know exactly what he is trying to do in respect of this Bill. I hope he appreciates that both I and the Government share his concerns. The overriding priority for the Government is to provide additional protections for pensioners and members of pension schemes to ensure the future viability and sustainability of the defined benefits, DB, pension system and to ensure continuing trust in the pensions system as a whole. However, the Government opposes this Private Members' Bill as it has already committed to bringing forward legislation in this area and for the reasons I will set out now.

It is essential that any new measures are carefully considered and recognise the current pension landscape in Ireland. When imposing a statutory duty on employers, it is important to ensure that a balanced, proportionate approach is achieved and that unintended negative consequences do not unknowingly arise.

Under existing pensions law there is no legislative obligation on the employer to make any contributions to a scheme. Nor is there an obligation on an employer to provide notice to members or consult in advance of ceasing contributions that they may already have been making.

As the House is aware, the general scheme of the Social Welfare and Pensions Bill 2017, now the Social Welfare, Pensions and Civil Registration Bill 2017, was published in May 2017 and contained a number of key measures relating to DB pension schemes. Unfortunately, a number of provisions could not be brought forward on the initial Second Stage reading of the Bill. However, I have announced that I am committed to bringing them forward on Committee Stage. Those provisions will, among other things, ensure that an employer cannot walk away at short notice from a pension scheme it is supporting, by providing for a 12 month notification period. In addition, where a scheme is in deficit and no agreement is reached on resolving it, these provisions will enable the Pensions Authority to make a funding obligation direction specifying payments to be made by a sponsoring employer to the pension scheme within a specified time period.

In short, these amendments will act to support existing provisions in our current Pensions Act and will encourage employers to ensure that schemes are well-funded and managed. Given the need to achieve a balanced and resilient solution, it has been necessary to consult with and obtain numerous legal advices from the Office of the Attorney General in respect of various aspects of this policy. That work is under way.

As Deputies will know, the Government's Roadmap for Pensions Reform that I published in February 2018 commits the Government to advancing the Social Welfare, Pensions and Civil Registration Bill and I will do that once I receive necessary legal clarifications that I need.

This Private Members' Bill, introduced by Deputy Penrose, proposes to insert a new section 44A to impose obligations on employers as to deficiencies in the funding standard by providing that, in certain circumstances, a debt can be placed on the employer which may be recouped by the trustees in a court of competent jurisdiction. It sets out that a new section shall apply where a relevant scheme, that is, a defined benefits scheme, is being wound up and where the employer concerned is not insolvent, and the scheme does not satisfy the funding standards. It provides that an amount sufficient to enable the scheme to satisfy the funding standard is deemed to be a contract debt due from the employer concerned to the trustees of the scheme.

It sets out, for the purposes of the section, the circumstances in which a scheme is deemed to be wound up and an employer insolvent. It does not prejudice any other right or remedy the pension trustees may have in respect of a deficiency in the resources of a scheme and it applies to defined benefit schemes that came into operation before its commencement.

I reiterate I recognise that the intent of the Bill is to protect the pension benefits of scheme members but there are a number of reasons for opposing the Bill. Before outlining them, it is important to state the decision to wind up a scheme is generally a matter for the trustees, and while in some cases the Pensions Authority may direct trustees to wind up a scheme, it is not necessarily the decision of a company, solvent or otherwise, to do so. The trustees of a scheme have a fiduciary duty under trust law to act in the best interest of all the scheme members.

The reasons for opposing the Bill include that it seeks to place the full obligation on the employer for any funding deficit in a scheme. Defined benefit pension schemes in this country are voluntary tripartite arrangements among employees, employers and trustees. Accordingly, they depend on the willingness of employers and employees to contribute to, and maintain schemes for, all their members. Ultimately, the responsibility rests with the parties for ensuring that the scheme is properly managed and funded to meet the promised level of benefits set out in the first instance. The Bill fails to take account of the individual circumstances of defined benefit pension schemes and the implications arising for sponsoring employers of such schemes.

More fundamentally, the text of the provisions set out in the Bill are so narrow in focus that they cannot be considered to fulfil its purpose. For example, it seeks to address cases solely where a defined benefit pension scheme has been wound up, by reference to the specific meaning given to the term "wind up" set out in the Bill. As a result, it will not ensure the provision of ongoing adequate funding and support to schemes by sponsoring employers.

In addition to applying only in a wind-up case within the meaning of the term specified in the Bill, the provisions will also only address cases where a scheme is in deficit. Accordingly, it will have no effect in cases where a scheme satisfies the funding standards but fails to provide any additional protection to scheme members of such defined benefit pension schemes. By contrast, the Social Welfare, Pensions and Civil Registration Bill 2017 includes provisions that will ensure ongoing support by sponsoring employers in addition to facilitating early dialogue between the employer and trustees to resolve any funding deficit and to oblige employers who intend to cease making contributions to their scheme to provide a minimum notification period of 12 months before they do so.

The narrow focus of the Bill is further reinforced by the manner in which the provisions specifically link a scheme wind-up to changes in the employer's accounting treatment of the scheme. This is a relatively rare occurrence and in any case does not represent the wind-up of a scheme in the true sense, as a change in the accounting treatment would not mean that the scheme would cease to operate with the resources distributed to its members. The linkage to the accounting treatment of a scheme renders the Bill incapable of having the widespread impact envisaged. The wind-up scenario proposed in the Bill relates to the manner in which sponsoring employers of defined benefit schemes represent the scheme on their balance sheet as per relevant accounting standards. Such standards, however, have no relevance in pensions legislation and the circumstances proposed in the Bill could not be viewed as a wind-up under such legislation.

Irrespective of how sponsoring employers of defined benefit schemes represent their schemes on their balance sheets, such schemes are defined benefit schemes under pensions legislation and as such are required to meet the funding standard requirements in any event. The funding standard is how Ireland meets its EU legal requirements in respect of technical provisions for pensions. Consequently, as matters stand, where a defined benefit scheme fails to satisfy the relevant funding standards, that is, where the scheme is in deficit, action is required by the trustees of the scheme to restore the scheme's funding position, such as by agreeing and submitting a funding proposal under section 49 of the Pensions Act. As the Bill places a full obligation for a scheme deficit on the sponsoring employer, it completely bypasses existing mechanisms and processes contained in the Pensions Act, such as the development of funding proposals.

The Bill fails to recognise the position of bona fide employers who have over many years provided significant support to their pension schemes. If, at some future point, a deficit should arise in a scheme through no fault of a sponsoring employer that has maintained support, it is questionable whether it is justifiable, reasonable or equitable to place the full responsibility for addressing the funding deficit on such an employer.

The Bill also fails to take account of, or have due regard for, the circumstances of individual sponsoring employers and the negative consequences that may arise for them and their employees, contractors and creditors from placing a full obligation on them to fund the scheme deficit.

The Bill proposes that an employer's insolvency shall be determined in accordance with the Protection of Employees (Employers' Insolvency) Act 1984, as amended. It is understood, however, that the Act would not necessarily cover all insolvent employers. In brief, that Act provides for the payment of certain moneys, such as unpaid wages, holiday pay and pension contributions, due to employees of a company where those payments or contributions remain unpaid at the date of insolvency. If, however, a company had paid any and all payments due to employees as of the time of insolvency, no applications for payments under the Act would or could arise. Accordingly, an insolvent company as I described would not be identified as such by the provisions of the Bill and, therefore, a debt could not be placed against that insolvent employer.

The Bill sets out in subsection (3) that the proposed new section 44A would not "prejudice any other right or remedy the trustees have in respect of a deficiency" in a scheme. The consequence of the Bill, however, would be to place an obligation on the employer for the debt in respect of the full scheme deficit, irrespective of any existing provisions under the Pensions Act. Given that the Bill bypasses existing provisions of the Act, it is difficult to ascertain how subsection (3) could be read or interpreted harmoniously with the other provisions of the Bill or the existing provisions of the Act.

While the Bill is well-intentioned, it lacks proportionality as it would place the full obligation for a scheme deficit on the sponsoring employer and does not take into account the ongoing support that employers have provided to their schemes, or the dialogue and engagement such employers have with trustees and scheme members to address funding deficits. The need to support further any such dialogue and engagement will be provided for in Committee Stage amendments to the Social Welfare, Pensions and Civil Registration Bill 2017. For the multiple reasons I have outlined, the Government will oppose the Bill before the House.

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