Séamus Brennan (Dublin South, Fianna Fail)

The Senator asks me to reverse an amendment which I put forward and dealt with on Committee Stage in the Dáil. When I spoke in the House on Second Stage, the amendment broadened the regulatory power to allow borrowing for more than liquidity purposes, as the Senator noted. I made the amendment to allow me flexibility to respond to concerns raised in a significant volume of correspondence received by me and some comment in the media regarding borrowing by pension schemes for investment purposes.

I do not want to interfere with the proper running of pension schemes and do not see any difference between a scheme with 100 members and one with 95 members, for example. The prudential concerns are the same in both cases. That said, I am not convinced that the same prudential concerns arise in regard to single member schemes. I am concerned that changes in this area could adversely impact on coverage. I am conscious of the advice I have received from the Pensions Board. Moreover, there are prudential requirements in regard to PRSAs, which are effectively single member schemes.

The borrowing issue cannot be seen in isolation from other investment rules which may, in any event, indirectly impact on any facility to borrow. All of these issues need careful consideration and for this purpose I am establishing a working group comprising my Department, the Department of Finance, the Revenue Commissioners, the Pensions Board and the Irish Financial Services Regulatory Authority. I have asked the group to examine all issues related to borrowing and investment. I will consider its view fully before making the regulations.

I inserted an amendment in the Dáil which will allow me to make the regulations I will have to make before September, when the directive kicks in. Before then, the working group comprising the various bodies involved will consult as to how best to make any such regulations.

With regard to U-turns, it depends on from where one starts. The present situation is that one can borrow for single member schemes and the Bill does not change this situation. Rather, it might be suspected that we are reverting to the previous position which is that, as the former Minister for Finance, Mr. McCreevy, arranged last year, one could borrow for small single member funds.

I take the Senator's point that an issue arises in that for a person to buy a property for a pension fund is not the purpose of a pension. That said, my responsibility concerns the prudential side rather than tax breaks for pensions, which are a matter for the Minister for Finance and a broader issue. The issue concerns whether one is to allow a person who wants to buy a property as a pension to borrow money to buy that property. Do I have prudential responsibilities to protect an individual pensioner from himself or herself?

Large pension funds are not allowed to borrow because they have a multiplicity of members and are administered by pension trustees, as are small funds. They must have a mix of investments, equities, bonds and properties and, therefore, the members are a long way back. As a result of this, they must be protected by law, which is what the EU achieved as does our directive. However, with regard to an individual who buys a property and puts it into a pension fund, although there is a legal distance, there is not a great distance between the pensioner, the trustees and the investment manager. Arguably, one might be talking about three people in a closely knit pension fund.

We will examine whether we need to close this loophole. However, as one is allowed to do this, no U-turn has taken place yet. It could be argued that if I was not to do what I am doing, I could be accused of a U-turn. I am closing a gap that currently exists. One is currently allowed to borrow money for small schemes. I have taken power to allow the possibility of continuing this because that is my thinking at this time. However, we have until September to allow the group to consider how far we should go. It may be that the group, comprising IFSRA, the Revenue Commissioners, the Department of Finance, the Pensions Board and my Department, will come to a conclusion and advise me that some limitation on borrowing or some ratio between borrowing and the fund might be useful. If they recommend that, we will consider it. I hold no brief for people amassing properties but I hold one for extending coverage. I do not want to make speeches up and down the country, begging people to take out increased pension cover and protect themselves by building a pension fund and then introduce legislation which makes it harder for them to do that. I am trying to extend coverage, to give people options to provide for themselves. I see the tax issue as separate and broader but from a prudential point of view, we must encourage rather than discourage the individual providing for his or her future in a pension fund.

I will take account of what the Senator has said as an input to the deliberation of the group between now and September but I need to be convinced of any need to change the situation. We will see if the group has strong views on that. The legislation merely gives us the powers to make those regulations. We are not currently making them.