Joan Burton (Dublin West, Labour)
Link to this: Individually | In context

Last Sunday's edition of The Sunday Tribune carried a front page story of a leaked memo from the Minister for Social and Family Affairs, Deputy Hanafin, to Government that there is a potential deficit on certain private sector pension funds of between €20 billion and €30 billion; that the majority of defined benefit pension schemes are probably in deficit because of the fall in the value of equities and that many pension schemes are at risk of being wound up.

As there are approximately 250,000 employees and 90,000 pensioners in defined pension schemes, it is understandable that the leaking of the memo caused grave concern to workers and pensioners in such schemes. The subsequent statements by the Minister, Deputy Hanafin, in media interviews did little to allay fears. The Minister's suggestion that people would always have the State pension to fall back on anyway was insensitive to say the least. During its 11-year reign in power, Fianna Fáil has continually talked about pension reform but done nothing.

In terms of the immediate crisis facing pension schemes, a number of suggestions have been made by the Minister and some of her colleagues, among others. One suggestion was to extend the period by up to two years on the requirement to purchase an annuity for people about to retire. The second was a relaxation of the current rules governing defined benefit schemes to allow a breathing space in the context of depressed equity markets. Is it the Government's intention to implement either of those two proposals to give some relief and space for people coming of pension age at present and funds that may have particular short-term difficulties?

The Government's failure to reform pensions is on a par with the model of regulation that it chose for the banks — regulation with a light touch, which has left many workers dangerously exposed to their pensions losing value. The Government has offered generous tax breaks for investments in pensions. However, for many ordinary workers on modest wages in the private sector, much of the tax relief has been eaten up by the high level of charges the Government has allowed for pension schemes in Ireland, unlike in other European countries. Prudent fund management would dictate that as workers approach retirement age, their funds should be invested in less risky investments such as Government-backed bonds. However, since Charlie McCreevy's time, the Government has been encouraging and permitting pension funds to invest more and more in equities. While this was a way of boosting profits while stock markets were running high, it now leaves many coming up to retirement age perilously exposed to the collapse in stock market prices.

The Government can be accused of encouraging both pensioners and pension funds, through the attractiveness of tax breaks, to take unnecessary risks. Now that, unfortunately, those risks have materialised, it is extraordinarily high handed of the Minister for Social and Family Affairs to wash her hands of the issue and casually remark that "most of these people would have a State pension — €230.30 per week — and the State pension is a good guarantee to fall back on". That smacks of Marie Antoinette and her advice to the peasantry of pre-revolutionary France, "Let them eat cake".

I want the Government to put on record tonight what concrete proposals it has to protect the tens of thousands of workers affected. We need a national solution to the problem. People need a pension for their retirement. It is right for the Government to encourage people to save and invest wisely for their retirement but the Government has created extraordinarily attractive schemes for the high rollers and the multimillionaires to invest in pension funds but, unfortunately, many middle income workers have been left far behind the high rollers.

The time for Government PR, Green Papers, discussion documents and task forces is long past. We need a Pensions Ombudsman with much greater powers to protect workers in schemes. We need an immediate response from Government to address the difficult issues facing people due to retire in the short term, and those pension funds that the Minister has indicated in her memo are at risk.

I welcome the fact that the Minister is in the House tonight because it is important that she put some positive statements on the record and tell us whether the Government will permit the extra two years for the purchase of annuities. Will the Minister provide an active mechanism for pension funds to vary some of the conditions in the context of the current depressed equities market?

Mary Hanafin (Dún Laoghaire, Fianna Fail)
Link to this: Individually | In context

I welcome the opportunity to discuss the issue in the House because the memo that was leaked and covered in the newspapers on Sunday did have the effect of causing unease among a huge number of people even though many would have known that pension funds are investment funds and the way the markets have gone would affect the financial status of the funds. I set out to allay people's fears in subsequent media interviews by pointing out that no pension fund has gone bust and no pensioner has been left without a pension. However, we know there are some who are bound to experience difficulties given the current state of the market. It is true that those people who are many years away from receiving a pension will have an opportunity to allow their funds to build back up when the markets turn, as they will. I appreciate the fact that many people are in pension schemes and those coming close to retirement feel somewhat uneasy about the information that was leaked.

The overall number of active defined benefit schemes registered with the Pensions Board at the end of 2007 was 1,319. The number of active defined contribution schemes was 98,483. The active membership of those schemes at that time was 530,933 and 269,465, respectively. That is a total of approximately 800,000 people who are involved in pension funds of one kind or another.

The Pensions Act provides for a minimum funding standard which defined benefit pension schemes must meet on an ongoing basis. Generally speaking, the standard requires that schemes maintain sufficient assets to enable them to discharge accrued liabilities in the event of a scheme winding up. Where schemes do not satisfy the funding standard the sponsors-trustees must submit a funding proposal to the Pensions Board to restore full funding within three years. In certain circumstances the Pensions Board can allow a scheme up to ten years to meet the standard.

In 2007, 81% of defined benefit schemes reporting to the Pensions Board passed the funding standard. Most of those schemes that failed the test had a funding proposal in place. It is expected that the number of schemes failing the funding standard will increase significantly in the coming year.

Estimates suggest that defined benefit pension schemes have sustained approximately €20 billion of investment losses this year. While it is expected that the number of schemes failing the standard will increase sharply as a result of current market conditions, the extent of the problem will not be fully apparent until schemes carry out end of year actuarial assessments and report the results to the Pensions Board, as required under the Pensions Act.

In recognition of the current market difficulties and the difficult decisions that pension schemes will face, the Government has put in place a number of short-term measures to ease the pressure on schemes. It has been agreed with the Pensions Board that an additional six months will be allowed for trustees to prepare funding proposals. That will mean schemes will have 18 months to review the situation with sponsoring employers and formulate proposals for recovery. Those actions are being taken to alleviate the current situation.

Members of defined contribution schemes have also been exposed to investment losses. In such schemes the risk is borne in full by the member. Many of those schemes are relatively immature and for many people there will be adequate time to recoup some or all of the losses that have occurred.

There are particular concerns for those who may be at, or close to, retirement. Good practice would suggest a conservative approach to investments in the last number of years before retirement but anecdotal evidence suggests that may not have been applied in some cases. Members of defined contribution schemes are required to purchase an annuity at the point of retirement. In the current environment, those scheme members could realise a significant loss in the value of their pension fund. In the circumstances, the Department of Finance is currently working out the details on how such scheme members could avail of a period of up to two years to purchase an annuity. There is, of course, the risk that those availing of the deferment option could sustain further losses and that will be clearly outlined in guidance notes.

The Government is working with the Pensions Board, representative organisations and the social partners to find ways to ease the pressure on schemes by striking a balance between the long-term nature of pension savings and the need to ensure short-term security of accrued benefits. As outlined, it has taken some short-term measures in this area. The long-term response is being considered in the context of the Green Paper on pensions and any changes proposed will be announced in the context of the overall framework for pensions which the Government has indicated it will announce in the near future.

While appreciating the concern people have about their pension funds, we recognise funds can be in difficulty because of the markets. We are working closely with the Pensions Board and have no hard factual information to the effect that any scheme is in difficulty. No scheme has run into difficulty to date and no one responsible therefor has indicated that this is the case. No pensioner or prospective pensioner has lost out. Where there were difficulties with schemes in the past, the employers made them good. They are very willing to support those who are dependent on pensions. We are certainly working on this issue and very much on top of it. I allay any fears that the unfortunate leak might have aroused.

Joan Burton (Dublin West, Labour)
Link to this: Individually | In context

When will the arrangement for the annuity be introduced?