Willie Penrose (Longford-Westmeath, Labour)
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I thank the Ceann Comhairle for selecting this most important topic for debate, and I thank the Minister, Deputy Burton, for her presence here, which indicates clearly that this is an issue to which she attaches significant importance. This is a very sensitive and complex issue, which requires detailed analysis, focus and consideration, as undoubtedly there will be impacts as a consequence of any proposed change, but it must be tackled and addressed. The the last thing we should do is to adopt an ostrich-type stance, with the wish that the circumstances relating to pension fund wind-ups, deficits arising and employer exposure will go away. Clearly, that will not suffice because of the pressing nature of events surrounding defined benefit schemes.

We are all aware that currently, when a defined benefit pension scheme is wound up, pension legislation and the trust deed require that the scheme's assets be applied to provide for members' benefits after payment of the expenses incurred necessarily in the wind-up, in the following order: first, benefit entitlement relating to members' additional voluntary contributions, AVCs, or relating to a transfer of rights from another scheme; second, the continued payment of pensions currently in payment, excluding any future increases; third, deferred pension entitlements for members who have not already retired, including statutory revaluations up to retirement age but excluding future increases post-retirement age; and fourth, post-retirement pension increases on the above benefits, in so far as they are required under the rules. It is possible, therefore, in the context of these priorities, that some people will receive 100% of their benefits while others will receive much reduced benefits or no benefits.

Prior to the Waterford Crystal case, in which judgment was delivered by the European Court of Justice, ECJ, in April 2013, the 1980 directive, which was updated in 2009, required the State to provide appropriate protection in the event of a double insolvency - that is, where both the employer and the pension scheme are insolvent at the same time. The insolvency protection scheme introduced in the 1980s provided for cover for contributions payable in respect of the last 12 months prior to wind-up, but in the current environment this can represent a small fraction of the deficit on a scheme.

Following on from the Carol Robins case in 2007, in which the ECJ ruled that the UK Government was not compliant with the directive, the then government introduced the pension insolvency payment scheme, PIPS, for a limited three-year period, which I believe will expire in February 2013, with an initial budget of €100 million. This facility is subject to a number of stipulations and conditions; in particular, it is limited to pensions at the date of insolvency, so it provides no relief for active and deferred members. That is the area on which we are trying to focus our attention, particularly with regard to those who are active members and nearing the end of their lives. They are particularly worried and concerned and this matter and great stress and anxiety is caused to many people in these situations.

The structure of PIPS is designed to ensure cost efficiency and to provide pensions in a more cost-efficient way than through the purchasing of an annuity contract. It can reduce the cost of an annuity purchase, which ensures there is more cash available, but it is still possible that a significant deficit can arise.

We are all aware of the most recent decision in the Waterford Crystal case, and I understand that it has gone back to the High Court for consideration. As it is before the courts, we cannot comment too much on it until it is finalised, and I appreciate the Minister's dilemma in that regard. The ECJ ruled that the Irish legislative mechanisms do not provide sufficient protection in these situations.

I am deeply concerned about this matter and it is one I feel very strongly about. I have raised it in parliamentary questions to the Minister. It is important that an appropriate scheme be put in place to protect workers' pensions rights - workers who are paying into pensions are deeply concerned about this matter - when an employer becomes insolvent and the relevant pension fund to which contributions have been made is in deficit. There is no doubt that consideration of an adjustment of the priority order to ensure that significant funds will be available to active and deferred members will have to be confronted and addressed and appropriate alleviating measures introduced.

I genuinely wish the Minister well in her efforts to devise an appropriate scheme. I know she has received a report, which I hope addresses this matter, and I hope the decision of the High Court in the Waterford Crystal case will feed into her consideration.

Joan Burton (Dublin West, Labour)
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I thank Deputy Penrose for raising this extremely important issue. The Pensions Act sets out the order in which the assets of a pension scheme are distributed in the event of the wind-up of a pension scheme. The statutory order of priority is of no consequence, as the Deputy knows, where a scheme winds up with sufficient assets to meet all of its liabilities. In the event of the wind-up of a pension scheme, all pensioner benefits except provision for post-retirement increases are given the highest priority after wind-up expenses and additional voluntary contributions made by individuals. Any remaining assets are then divided according to the accrued liabilities among active and deferred scheme members.

If a scheme is underfunded, the assets remaining after the distribution of assets in respect of payments to pensioners may not be sufficient to meet the liabilities pertaining to active and deferred members. In some cases, they may receive much less than the promised benefit after the commitments to existing pensioners have been satisfied.

The Government decision dated 4 October 2011 approved the drafting of legislation to change the current 100% priority given to existing pensioners on the wind-up of a deferred benefit pensions scheme in deficit by introducing a threshold on the amount and percentage of the pension payment. However, this is a complex and difficult issue which directly affects a group of people who are about to retire and those who are already retired and have little opportunity to increase their incomes. Given the significance of the proposed change, I have requested that the legislation not proceed for the moment pending broader consideration of some of the issues to which Deputy Penrose referred. A consultation process was completed in the last quarter of 2012. The process involved engagement with representatives of older people, the pensions industry, employers and trade unions. In addition, the Department engaged external expertise to assess the impact of possible changes on how the assets of a scheme are distributed on the wind-up of a scheme.

When I published the Social Welfare and Pensions (Miscellaneous Provisions) Bill 2013, I pointed out that I would not be proceeding at this stage with a change to the manner in which the assets of a scheme are distributed on the wind-up of a scheme. It must be remembered that while people are very conscious, as Deputy Penrose has said, of the impact that the wind-up of an underfunded pension scheme can have on a scheme member who is close to retirement, any change to the current arrangements is likely to involve a reduction in current payments to pensioners. It is a challenging issue and one which requires a determination of the fairest outcome for all beneficiaries, bearing in mind that the level of pension for many pensioners of such schemes, as the study shows, is relatively low. This is an important factor to bear in mind. The matter is under active consideration and, in light of the recent decision by the European Court of Justice in the Waterford Crystal case, the Government recognises the need for a comprehensive policy and legislative response that addresses the range of issues involved.

The Deputy may also be aware that the Pensions Act provides a procedure - that is, the funding standard - for determining whether a scheme has sufficient assets to meet its liabilities. The funding standard was suspended following the downturn in financial markets in 2008 until it was reinstated in June 2013 by me. Following the re-introduction of the funding standard, defined benefit pension schemes have until the end of June this year to submit funding proposals to the Pensions Board. It is considered prudent to await the submission of funding proposals by the trustees or plan sponsors of underfunded defined benefit schemes, as these will give a more comprehensive, in-depth picture of the funding position of defined benefit schemes. It will also allow for the impact of the many measures already introduced by the Government to be assessed, including the potential benefits to schemes, for instance, of the use of sovereign annuities or annuities. As such, I am keeping the situation under intense review and I will report back to the Government in the coming months. A wider package of legislative proposals and additional reforms will be considered at that stage.

Willie Penrose (Longford-Westmeath, Labour)
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I thank the Minister for her comprehensive reply. This is a very complex issue which needs to be addressed with great care, and consideration needs to be given to all of the various elements. There will be an impact on people who are currently in receipt of various pensions. That must be spelled out in the overall context that the Minister outlined. Defined benefit schemes are under pressure to submit funding proposals by the end of June and it will be quite difficult for them to reconcile this aspect and examine how it will affect benefits in terms of how they will proceed.

How will they reconcile this particular aspect of matters? How will it impact on benefits in respect of how they will progress? A good deal of company restructuring taking place in defined benefit schemes now is designed to keep the employer in existence and in operation. The net effect of employers agreeing to such restructuring is that their schemes do not come within the ambit or terms of the directive and this raises certain issues. Unless the matter is addressed an unusual conundrum could arise whereby, purely from a pensions perspective, pension scheme members may be better off if the employer goes into liquidation. A clear conflict can arise between the demands of the scheme and the survival of the employer and these need to be addressed quickly. It is an unusual conundrum and a difficult situation for everyone concerned, including those operating the schemes, the employers and the people who are making contributions to the schemes. There is a triangle of relationships in place and including the Department it is a four-sided stool or relationship. It is important that everyone gets together to ensure that the best outcome is available to all those concerned, especially those who are coming close to retirement and who have made contributions over a substantial period. These people are concerned about events and this is why it is important to bring finality and a way out of the significant difficulties that have arisen in this important area of people's existence.

Joan Burton (Dublin West, Labour)
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I appreciate the comments of Deputy Penrose, who clearly has a wide knowledge of this area. I am aware how worrying this is for the type of people Deputy Penrose has referred to who are coming close to retirement. Many defined benefit pension schemes have been contributed to by employees and, it must be said, employers in good faith. It is unfortunate that what has happened on the financial markets has delivered for several schemes the worst of all worlds.

It is important to get the indications from the submission of funding proposals with regard to where schemes stand. A great deal of work has been done in several schemes to provide for re-funding of schemes with contributions from workers and employers. My objective is to provide for the maximum protection for as many as possible. There have been discussions with the various stakeholders. As Deputy Penrose noted, this is a quadrangle or a stool of four legs, one of which is existing pensioners. The Deputy will be aware that many pensioners in defined benefit schemes are on pensions of below €12,000 and below €24,000. The number of pensioners on relativity high pensions are in the minority in many schemes.

We can all agree that people who have handsome pensions should contribute, but in many cases their contribution alone would be insufficient. Therefore, we need to consider where the balance should lie. We must consider the interests of current pensioners, many of whom are on a fixed income. Some have a supplementary State pension, depending on the type of employment they were in, but not all. There are deferred members as well. There are current members, paying in now, some of whom may be coming close to retirement. As Deputy Penrose stated, these are the people for whom this is a serious concern and I recognise and acknowledge that. There are the scheme trustees and the various advisers to schemes. The Government has a strong interest in providing the maximum protection in so far as it is possible to all the various parties. We need to consider the situation of the employers and the nature of the contributions they should make to ensure the survival of schemes and the best possible outcomes. I acknowledge the work good employers have done in this respect and it is important for that work to be understood. Promises were made in many cases but only when we see the funding proposals will we have a better picture of the extent to which those promises are capable of being fulfilled.

Deputy Penrose's question primarily relates to an insolvency situation. The Waterford Crystal case relates to a double insolvency situation, which is currently before the Irish courts. It will be interesting and important to see what view and approach the Irish courts will take in respect of the judgment of the European Court of Justice. The workers involved won their case comprehensively on all seven points put forward. I assure the Deputy that this issue has the highest priority in my Department. By the end of this month we will have a significant level of information on funding proposals submitted by the various schemes, as required by the regulator, and we will have a clearer picture of the situation of various schemes at that point. The regulator has undertaken to work with the various schemes to ensure the best possible outcomes in what is a difficult situation.