Willie O'Dea (Limerick City, Fianna Fail)
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45. To ask the Minister for Social Protection his views on the fact that a profitable company can close down a defined benefit pension scheme whilst the scheme is in deficit to the detriment of existing and deferred pensioners; his plans to rectify the situation; and if he will make a statement on the matter. [3027/17]

Willie Penrose (Longford-Westmeath, Labour)
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49. To ask the Minister for Social Protection the action he will take to prevent profitable companies from winding up their defined benefit pension schemes; and the way he will ensure the pension rights of workers and those already retired are protected. [3026/17]

Willie O'Dea (Limerick City, Fianna Fail)
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The Minister will be aware of the controversy before Christmas that indicated a major gap in Irish law, namely, that a solvent company can walk away at will from a defined benefit pension scheme. I ask the Minister if there are any proposals to change that situation.

Leo Varadkar (Dublin West, Fine Gael)
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I propose to take Questions Nos. 45 and 49 together. I am very much aware of the public concern highlighted by the recent publicity surrounding defined benefit schemes.

The provision of occupational pensions in this country is on a voluntary basis and depends on the willingness of employers and employees to contribute to, and maintain schemes for their members. Traditionally, many such schemes were organised on a defined benefit basis. This is now much less common. In recent decades, defined benefit provision has been under pressure because of volatility in the stock markets and increasing liabilities arising from demographic pressures, longer life expectancy, lower interest rates and regulatory requirements. Accountancy standards, which make pensions liabilities very apparent on a company's balance sheet, also contribute to the pressures under which defined benefit schemes are operating. During the financial crisis, the decline of defined benefit pension schemes accelerated to the extent that the whole pension sector was possibly at risk.

As a consequence of all these factors, the movement from defined benefit to defined contribution schemes has become a feature of the pensions landscape, even in cases where firms are very profitable. Almost all defined benefit schemes have a rule that allows the employer to cease contributions, usually after a notice period. There is no legislative obligation on the employer to make contributions and no further liability on the employer where contributions cease. Where changes to these schemes are being sought by employers, I am strongly of the opinion that they should first engage in discussions with the trustees and employee representatives or unions. The introduction of a debt on employer - as proposed by some - would raise a range of issues including possible negative consequences for defined benefit schemes, some of which may not be beneficial for members or the employees in the companies concerned. Neither the Minister for Social Protection nor the Pensions Authority has the power under legislation to intervene to freeze the winding-up of a scheme or to compel the employer to make contributions to a scheme. In recent years, however, the Government has amended pension legislation to protect the pension sector and to ensure fairer and more equitable outcomes for all scheme members. These changes make more resources of the scheme available in the initial distribution of assets to active and deferred scheme members. At this stage, further regulation may only serve to add to the pressures on defined provision and could be counterproductive.

While there are strong arguments in favour of the introduction of greater employer obligations, it is also important that we consider the less desirable side effects. These could include: prompting well-funded schemes to wind up to avoid future new obligations; threatening a company’s financial stability; rendering some employers insolvent; or giving a competitive advantage to employers that never provided a pension or put defined contribution schemes in place.

While I have no immediate plans to bring forward amending legislation to enhance the provisions in the Pensions Act regarding defined benefit schemes, I assure Deputies that the issues in respect of defined benefit schemes are continually scrutinised by my Department, especially in the current environment.

Willie O'Dea (Limerick City, Fianna Fail)
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I take the Minister's point about these being voluntary and depending on the willingness of the employer to engage in them, but everything the Minister has said applies equally to the defined benefit schemes in the United Kingdom. The UK has introduced legislation to prevent a solvent company from winding up a defined benefit scheme until such time as it makes up the deficit that is owed to the scheme. Why is Ireland different to the UK? If the UK can do it, surely Ireland can follow suit. If it is right and fair and proper that it should be done by our neighbouring jurisdiction, what is the insurmountable barrier that is preventing us from doing it here? Has the Minister taken any cognisance of how the system has worked in the UK? What has he learned from that? Does he not think that such a system could be used here, with the appropriate adjustments for the particular circumstances in Ireland?

Leo Varadkar (Dublin West, Fine Gael)
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There are two points. First, it is important to point out that the law in the United Kingdom has been different for a very long time. When employers established those defined benefit schemes decades ago, they knew they would have a liability in terms of making up any deficit. We know, unfortunately, that even though the law in the United Kingdom is different, employers there have found any number of ways to get out of that obligation. This was seen in a number of scandals in the United Kingdom where companies used mechanisms to avoid their obligations. Even though the law is very different, it is not necessarily successful. In this State, we must consider what the impact would be if we were to change the rules, effectively retrospectively, and impose a liability on employers for past liabilities accrued. Consider a situation where, for example, a company is solvent but where the pension fund associated with it is not. One could turn the company insolvent and the consequences would be that the employees would lose their jobs, receive only the statutory redundancy and, potentially, lose their pensions also. Consider the consequences for a company that plans on expanding. Having that liability added to its balance sheet would mean it could not expand any more. Consider the difference between two companies, let us say, for example, two airlines. Perhaps I should not use airlines as an example because I do not mean what people may think I mean. Consider one factory next door to another. One is a good employer that traditionally has a defined benefit pension scheme and the other does not and never did. If one imposes an employer liability on the factory that had the defined benefit scheme, it would be placed at an enormous disadvantage against the factory next door that never provided anything for its employees' pensions. Thus, the good employer would be punished and the bad employer rewarded. All those issues must be considered.

Willie Penrose (Longford-Westmeath, Labour)
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Solvent employers can legally walk away from their liability to fund defined benefit pension schemes, as required under the employment contracts with current or former employees, simply by deciding to wind up the scheme. It is possible because most defined benefit scheme trustees and rules allow an employer to wind up a pension scheme and cease contributions while ignoring any deficit in funding of the scheme and its inability to pay the benefits promised. It is most unsatisfactory that an employer's liability to fund the deficit of a scheme on wind-up is determined solely by the trustees rather than by legislation. Ireland is one of the few countries that does not underpin this right with legislation. My pensions amendment Bill will deal with this. I put it to the Minister that accountancy standards require employers to recognise the liabilities of pension schemes either on their financial statements or balance sheets.

Removing those liabilities from the balance sheet has a major transformative effect for the employer, as we saw in a recent case. That malaise is spreading across the country, which Deputy O'Dea knows from events in his constituency. These companies are running amok because there is an incentive to walk away from a defined benefit pension scheme. My Bill includes a provision to end that incentive and allow for the crystallisation of the debt there and then, which would enable the trustees to sue the company for the debt. Does the Minister agree this is a simple way to deal with the matter once and for all? Deputy O'Dea is right that we are no different from the UK or anybody else. The companies that are running away from these schemes are profitable. They are skidallying out the door and leaving their unfortunate workers behind. If we do not do something for those workers, we will have even more problems.

Leo Varadkar (Dublin West, Fine Gael)
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I explained in my initial reply the difference between our regime and that of the UK. The Deputy has spoken passionately about his concerns for workers and his desire to do something for them. Will he consider the possibility that there may be unintended consequences of legislation such as he is proposing? Will he consider the situation of a company that is doing okay, is solvent and making a small profit, but has attached to it a pension scheme that is in trouble and with a large deficit? If that deficit is imposed as a legal liability on the employer, the company will become insolvent and where, then, will the workers be? These are the kinds of things the Deputy must consider if he is genuinely concerned for workers. I presume he does not want to bring forward a Bill that has unintended consequences, the result of which will be workers losing their jobs.

Willie O'Dea (Limerick City, Fianna Fail)
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The Minister, in comparing the UK system with the Irish system, said that Deputy Penrose and I are trying to achieve something retrospectively. Everybody knows defined benefit pension schemes were in place in the UK before the relevant legislation was introduced, and its introduction did not have all the dire consequences the Minister has outlined today. The Minister's position seems to be that we should do nothing because there were technical difficulties with the UK legislation which allowed people to get around it. Surely, with the knowledge of those technical difficulties, we can draft proper legislation which addresses the issues? I take the Minister's point about driving companies into insolvency. There has been a great deal of discussion around the UK legislation, including a detailed review by a parliamentary select committee, and the possible consequences of its provisions. The UK Government has indicated it will introduce legislation to provide the necessary modifications to the existing legislation and ensure the threat is greatly reduced. Instead of doing nothing, as the Minister tells us is his intention, surely we should attempt to do something along those lines?

Willie Penrose (Longford-Westmeath, Labour)
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The attitude the Minister is displaying in the Chamber today will come as an awful shock to the working people of this country. Does he realise he is condoning an incongruous situation whereby the workers of a very profitable company with a pension fund deficit will be left with nothing? Moreover, many of those funds will not be in deficit within the next 12 months given that inflation and bond yields are coming back. Meanwhile, where there is double insolvency, that is, an insolvent fund and an insolvent company, the State has to ride to the rescue. That anomaly must be remedied and the only way to do so is through the legislation Deputy O'Dea and I are bringing forward. The Minister could have his input and we could resolve the matter in the Chamber. I am astounded the Minister, above all people, is becoming a prisoner of the bureaucrats in his Department. I never thought I would say that about him because he generally takes a great independent stance. I ask him to throw off the shackles of the Department and work with us to deal with this matter. We will co-operate with him to resolve it. It needs to be done within the next month because there is a cascade coming. These companies are running for the hills and they are not troubled firms. In fact, they are the corporate beasts of this country, some of which have tax-free status and pay nothing to the Exchequer. I advise people to watch this space in the coming month.

Leo Varadkar (Dublin West, Fine Gael)
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I will check to confirm this but, as far as I understand, the UK legislation has been in place for decades. It was introduced at a very different time when there were not such extensive liabilities arising from defined benefit pension schemes. Certainly, the pension protection fund has been in place for decades. I am not sure about the employer guarantee but I will check to confirm. I assure Deputy Penrose that my only concern is for people's pensions and their ongoing employment. I do not want this House to put through legislation that jeopardises people's employment and potentially their pensions. We must be very careful that in an effort to do something good, we do not do enormous harm. That is why the only legislative changes I will recommend to the House, in association with the pension authorities, are ones I am confident will do good and not unintended harm. If Deputies Penrose and O'Dea and colleagues from other parties want to come together to put through legislation that could potentially do untold harm to many people, they should by all means do so. However, the consequences will be on their heads.