Dáil debates

Wednesday, 8 July 2009

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Labour)
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Question 32: To ask the Minister for Finance the estimate of the liability of public sector pensions, including those pension funds recently earmarked for transfer to the National Pension Reserve Fund in the Financial Measures (Miscellaneous Provisions) Act 2009; and if he will make a statement on the matter. [27984/09]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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The latest estimate for the accrued liability for public service occupational pensions is €75 billion as of 2007. This accrued liability figure is a single monetary amount representing the present value of all expected future superannuation payments to current staff and their spouses in respect of service to date, plus the full liability for all future payments to current pensioners and to their spouses. It includes those liabilities relating to pension funds transferred to the National Pension Reserve Fund under the Financial Measures (Miscellaneous Provisions) Act 2009. The large size of the figure is due to the fact that it represents a projection of aggregate pension payments that will be spread over perhaps 70 years into the future.

The estimate of the accrued liability should not be confused with the actual cash funding that will be required in the future. The more immediately relevant measure of public service pension costs is the actual annual outgoing on pensions, which amounted to approximately €2.5 billion in 2008 or 1.3% of GDP. This annual outgoing is projected to rise to 2.5% of GDP by 2050, almost doubling. The projected increase arises from the growth in public service employment in the past and from increasing longevity.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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I ask the Minister to update the House on the number of public servants who have decided to take the Government's offer of early retirement and the number of public servants, including people such as principal teachers, who are retiring and in some cases have full service so they are not part of this special offer. Has the Minister examined whether he will proceed with the suggestion which arose from the chairman of An Bord Snip Nua, that the lump sum payment received by public servants would be subject to taxation? Has this been the subject of any paper or research?What is the annual cost of lump sum payments? If the Minister is proposing to tax them, would it be on the same basis as the taxation of redundancy and retirement payments in the private sector? It should be remembered that somebody who has built up a private sector pension can receive 25%. In the case of Mr. Fingleton, whose pension pot was approximately €30 million, he was entitled to take approximately one quarter of that tax free. Is the Minister proposing that public and private sector treatment of redundancy and retirement payments would be treated the same? What is the Minister proposing in that regard?

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
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That is well beyond the scope of the question.

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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Indeed, and the factual matters were beyond the scope of the question as well but I will try to help the Deputy by getting that information together for her. I will ask my officials to do that because I do not have it on my brief in regard to, for example, the take-up in the early retirement scheme. I understand a few hundred applications have been received but the deadline date is 1 September and generally, with any scheme of that type, a larger volume arrives nearer the deadline date.

Regarding the question of the lump sum, I am not aware that the chairman of the expenditure control group had expressed any views on this particular matter. The matter is being considered not by the expenditure control group but by the Commission on Taxation and my understanding is that it is examining this question and will include any proposals it may have in that regard in its report.

Photo of Richard BrutonRichard Bruton (Dublin North Central, Fine Gael)
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What is the Minister's view of the need to reform public pension provisions in the light of this figure? I understand from my colleague, Deputy George Lee, that the total value of private sector funds, which cover four times as many workers, is virtually the same as the value of the liabilities of the public sector. That gives one an impression of the scale of difference in provision for the pensions of different categories of worker. I would be interested to know where now stand the Government's proposals in respect of pension reform.

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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As Deputy Bruton is aware, the Government has considered in some detail the recommendations of the group set up to examine the issue of pensions. There has been an amount of discussion by the Government about an appropriate pensions policy, and it has formed part of the discussions with the social partners as well, but the reality is that in the middle of the financial storm we are in it is very difficult to devise a pension policy for the future. It is clear the pension policy will have to be reorientated for the future. It involves considerations not just of public sector pensions but also of the basic State pension provision and the whole question of the supplement that can be offered to private sector workers to supplement what they have already accrued on their State pension, and what they can add to that.

There is a very wide range of considerations in that respect and the Minister for Social and Family Affairs and I are devising policy for the future in that regard but it is difficult in the current climate because defined benefit schemes have seen considerable exposures in the current economic climate. We have tended to give attention to that and how we can protect the position of those who are in danger of having no pension in the first instance.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick East, Fine Gael)
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With the €11 billion, sorry the €7 billion, that has been put into the two main banks from the National Pensions Reserve Fund is the Minister confident that, come 2025, the National Pensions Reserve Fund will be able to adequately fund public sector pensions from 2025 on?

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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First of all the figure, which is €7 billion, and Deputy O'Donnell corrected himself-----

Photo of Kieran O'DonnellKieran O'Donnell (Limerick East, Fine Gael)
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It is still a huge figure.

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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In regard to that investment, €4 billion was taken from existing funds in the pension fund which were realisable in the form of cash, bonds or the like which could easily be marketed.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick East, Fine Gael)
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The very same.

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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The remaining balance of €3 billion was borrowed through front-loading the borrowing for the contribution to the pension fund. That is how the funding of AIB and Bank of Ireland capitalisation took place and those shares now rest in the pension fund. The shares, and the State's participation in these institutions, has seen an increase in value in recent months and already, because of where the institutions were when the capitalisation took place, the pension fund to date has seen an appreciation in value on those investments. Given the very low scale of the quoted share price at the time of the investment, there is every probability that the pension fund will benefit substantially from that particular investment. Would that the picture was as happy in all the financial institutions.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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In respect of the institutions like the universities whose pension funds were taken over, the Minister took over the assets, basically giving an off-balance sheet benefit to the State in terms of assets, but he did not take on the liabilities. The universities have powers and apparently it is the practice among some of them to give added years of service when certain staff are retiring, perhaps in recognition of their contribution to the institution. Could the Minister tell me if that practice is widespread and, if so, is a cost identified with it? Is there any oversight of when added years of service are given? I was a bit surprised to see that.

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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I would appreciate it if the Deputy tabled a separate question on that some day to which I could reply because I do not have the information to hand. I will have to check it out for the Deputy.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Fine Gael)
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Question 33: To ask the Minister for Finance if he has received a report from the steering committee established at the time of the bank recapitalisation on credit availability to small and medium enterprises and on the promised extensions of lending capacity. [27874/09]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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An independent review of credit availability was agreed in the context of the recapitalisation of Allied Irish Bank and Bank of Ireland. The purpose of the review was to ascertain the position on credit availability to small and medium sized enterprises in Ireland. The steering group for the review consisted of representatives of the Departments of Finance and Enterprise, Trade and Employment, Forfás, Enterprise Ireland, the Irish Banking Federation and the six main banks involved in lending to small and medium sized enterprises, business representatives from ISME, Chambers Ireland and the Small Firms Association. The final report of the review of lending to small and medium sized enterprises has just now been received. The report is quite extensive, running to almost 100 pages together with appendices. It will be considered by the Cabinet Committee on Economic Renewal, which is meeting now, and the intention is that it will be published shortly.

With regard to the extensions of lending capacity, Allied Irish Bank and Bank of Ireland re-confirmed their December commitment to increase lending capacity to small and medium enterprises by 10% and to provide an additional 30% capacity for lending to first-time buyers in 2009. If the mortgage lending is not taken up, then the extra capacity will be available to small and medium sized enterprises. AIB and Bank of Ireland have also committed to public campaigns to actively promote small business lending at competitive rates with increased transparency on the criteria to be met. Compliance with this commitment is monitored by the Financial Regulator. The banks make quarterly reports to ensure compliance and the first reports to the end of March 2009 were received on time.

The report is quite extensive and will require further consideration but from an initial reading there are a number of key conclusions. Total lending to the SME sector by the banks which participated in the review, which included not just Bank of Ireland and Allied Irish Bank but National Irish Bank and Ulster Bank, remains static in the period at €34.5 billion but the value of new applications for credit decreased by 42%. This conclusion is consistent with our own Central Bank published data.

Demand for credit remains significant, with 52% of those surveyed indicating they had requested credit in the previous year. Bank data indicates rates of refusal of credit applications of an average of 14% but a customer survey indicates an average refusal rate of 24% rising to 30%. The reason for that is interesting because often the customer takes an informal refusal as a refusal whereas a financial institution tends to take a more formal view in devising statistics. The difference primarily results from a difference in perception of what constitutes an application for credit. Banks do not record informal queries or requests but a customer whose informal request is rejected counts that as a refusal.

Refusal to businesses with fewer than ten employees were highest at 30%, with lower refusal rates for larger businesses. Requests for new credit were predominantly for working capital and cash flow reasons to address reductions in revenue and slow downs in debt collection.

Photo of Richard BrutonRichard Bruton (Dublin North Central, Fine Gael)
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These figures are extremely worrying. There is a 24% approval rate and static credit, and it appears there is no system in place to carry that on to ensure that people are properly informed. The Minister reported that there would be a 30% increase in capacity for first-time buyers and a 10% increase to SMEs. We hear from the Minister that a report he received in April is still being studied and nothing is being done about it.

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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I received the report today.

Photo of Richard BrutonRichard Bruton (Dublin North Central, Fine Gael)
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The Minister said the report which was due in March 2009 was submitted on time and he proceeded to tell us the findings of the report, under the recapitalisation package.

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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The findings I read out are in today's report.

Photo of Richard BrutonRichard Bruton (Dublin North Central, Fine Gael)
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That is not the impression I received.

The issue, then, is that we have commitments to increase capacity by 30% and 10% and that is not happening. Since this has been the Minister's central concern throughout the whole banking crisis, does he now believe that specialist negotiations with the banks to deliver certain types of package are needed? Within what timeframe will Government deal with that? What was the outcome of the April report from AIB and Bank of Ireland, which he has had for two and a half months? Was any action taken on foot of that report, which, no doubt, showed similar trends?

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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The Bank of Ireland and Allied Irish Bank met their requirements for dedicated pools of lending, as recapitalised banks. The core problem is that there has been a substantial de-leveraging in Ireland by the external banks which provided credit to Ireland. At the beginning of the decade, we saw a substantial increase in credit from these institutions. We are now seeing a substantial de-leveraging by them, with much less credit being advanced by them. That has reduced the overall amount of credit available in the economy.

The Government has established a clearing group to monitor the availability of credit for the recapitalised banks. That clearing group is chaired by a Government representative and includes representation from business interests and State agencies. It identifies specific patterns of events where the flow of credit to viable projects-----

Photo of Richard BrutonRichard Bruton (Dublin North Central, Fine Gael)
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Is the Minister saying the 40% capacity from AIB and Bank of Ireland was delivered?

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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Yes.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick East, Fine Gael)
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How does the Minister define capacity?

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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One cannot look at Bank of Ireland and AIB in isolation from the whole banking sector. The critical factor in the banking sector is that there has been a substantial de-leveraging by the externally owned banks in Ireland. That has led to a considerable reduction in the overall amount of credit. Taken with the stresses in Bank of Ireland and Allied Irish Bank, it clearly points the way towards the NAMA operation in terms of making these banks far more vigorous in expanding their operations.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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The Government has put in €3 billion into Anglo Irish Bank and recently promised another €1 billion. The bank has acknowledged that it is giving out almost no new lending. In fact, the figure for new lending for the first quarter was less than €35 million. Who is codding who? We are putting €4 billion into a bank which is not lending to any sector. It is simply minding developers and capitalising and rolling up interest payments. Can the Minister comment on that?

Photo of Kieran O'DonnellKieran O'Donnell (Limerick East, Fine Gael)
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Has the review group looked at the level of overdraft reduction in existing businesses? Does the Minister now admit that the level of credit available to small businesses in Ireland is reduced and is there a need for a Government guarantee scheme to ensure that funds flow to small businesses?

Photo of Arthur MorganArthur Morgan (Louth, Sinn Fein)
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Can the Minister or his Department do anything to get funding to small and medium enterprises? I do not want to hear what he has done to date. It has not worked. Today's report is evidence of that. Can he tell us what he can do to get finance to SMEs?

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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Deputy Burton raised the question of Anglo Irish Bank. I have made my position very clear on numerous occasions. Anglo Irish Bank must retain its banking licence and operate as a bank so that worse liabilities are not triggered. The State made clear at the time of nationalisation that any capital required would be provided. That remains the case.

The issue of overdraft reduction was examined in today's report. I do not have the finding before me but it has been examined. The findings will be published and the matter dealt with. Deputies will appreciate that the report was received only today.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick East, Fine Gael)
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Will the Minister recommend publication?

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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I will recommend publication.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick East, Fine Gael)
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Will he also recommend publication of Mr. Colm McCarthy's report?

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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Let us leave Professor McCarthy alone.

All our efforts are directed at improving credit to small and medium enterprises. This, along with the establishment of the clearing house and various other operations in connection with the banks, is designed to ensure that the banks can resume their role as motors of the economy.