Martin Mansergh (Tipperary South, Fianna Fail)

This Bill is a miscellaneous legislative package and contains a number of distinct and individually important provisions. Broadly, it may be broken down into four distinct parts, namely, a provision to give effect to the continued operation of existing direct debit mandates after the introduction of the single euro payments area direct debit scheme; provisions for the transfer of assets of certain pension funds to the National Pensions Reserve Fund, including the pensions funds of the Institute of Public Administration and the ESRI, included through a Dáil amendment; a provision to allow the Minister to extend the period for which financial support can be provided under the Credit Institutions (Financial Support) Act 2008; and a number of amendments to other Acts.

Section 17 of the Bill is an enabling provision to allow in the near future for the extension of the guarantee contained in the Credit Institutions (Financial Support) Act 2008 beyond the current expiry date of 29 September 2010 by ministerial order. I emphasise that the implementation of this enabling provision is not unfettered and includes a number of important oversight mechanisms. First, in making an order to provide financial support on an extended basis, the Minister must be satisfied, following consultation with the Governor of the Central Bank and the Financial Regulator, that the circumstances set out in section 2 of the Credit Institutions (Financial Support) Act 2008 continue to apply. In addition, EU state aid approval is required for any financial support provided under the Act. Moreover, the Minister, in making a scheme to provide financial support in the form of a guarantee, must secure the positive approval of both Houses of the Oireachtas in accordance with section 6(5) of the Credit Institutions (Financial Support) Act 2008. In other words, the current bank guarantee scheme cannot be extended using the provision in the Bill, unless a new scheme is approved by the Oireachtas. Senators will recall that the Minister signalled on a number of occasions, in particular on 7 April in his supplementary Budget Statement, the Government's intention to revisit the current guarantee, subject to European Commission approval and consistent with EU state aid requirements, in ways that would support banks in Ireland to access longer term finance. EU state aid approval only will be available for financial support measures that are limited in time and scope and which include a remuneration mechanism for any aid granted by the State.

I wish to address the details of each section of the Bill in turn. Part 2 pertains to direct debit instructions and mandates. Section 2 of the Bill provides for the continued operation of existing direct debit mandates after the introduction of the single euro payments area, SEPA, direct debit scheme. The SEPA direct debit scheme will be introduced from November 2009 and will be a major step change in the development of a single EU market in payment services. It will enable customers of any EU bank to set up a direct debit on their account, no matter which country they are living in, and has the potential to make travelling and working in other member states much more flexible in terms of paying utility bills, for example. A major hurdle in the introduction of the SEPA direct debit scheme is the need to ensure existing direct debit instructions continue to be valid. The Bill will enable the Minister for Finance to make regulations to provide for the continuing validity of existing direct debit instructions and for the regulations to make provision that customers be informed of the fact that their direct debits will be transferring to the SEPA direct debit scheme.

Part 3 of the Bill pertains to the transfer of assets of certain pension funds to the National Pensions Reserve Fund. Sections 3 to 14 in Part 3 contain provisions to allow the transfer of pensions funds in the universities and certain non-commercial semi-State bodies to the National Pensions Reserve Fund in return for the Exchequer taking over responsibility for the payment of pensions under these schemes which it would do on a pay-as-you-go basis. The Bill provides that the value of the assets transferred will count against the Exchequer's obligation to make a contribution equivalent to 1% of GNP to the National Pensions Reserve Fund each year. The funds to be transferred are set out in Schedule 1 to the Bill. They are the pension funds of the five older universities - Trinity College, University College Dublin, University College Cork, the National University of Ireland, Galway and the National University of Ireland, Maynooth - and a number of non-commercial semi-State bodies - Forfás, Shannon Development, FÁS, Bord Bia, the Arts Council, the Institute of Public Administration, the Economic and Social Research Institute and Fáilte Ireland's regional tourism authorities. The fund for former CERT employees is also covered. Actuarial valuations of the schemes' assets and liabilities were carried out at the end of 2008 at the request of the Department of Finance. The relevant figures will be set out later when I refer to the general government balance implications of the fund transfers.

I propose to set out the background to the measures provided for in Part 3 of the Bill. The five older universities, like certain non-commercial State-sponsored bodies, have particular characteristics that have given rise to the need for the State to take over their pension funds. They are unique in terms of their structure and relationship with the State. It is recognised that the pension funds of the non-commercial semi-State bodies concerned which are part of the public service are ultimately the responsibility of the State. These pension liabilities must be seen in that context. I am conscious that some Members of the House represent the university sector. The universities covered by the Bill have part-funded pension schemes. Retirement lump sums and basic pensions are paid from these funds, while post-retirement increases are paid by the State on a pay-as-you-go basis. This is different from the position in respect of the pensions of the newer universities and in respect of entrants to the older universities from 2005 onwards. In such cases, benefits are paid on a pay-as-you-go basis, using the core grant provided by the State. Universities were required under the Universities Act 1997 to introduce new pension schemes based on the public service model. Since 2005 the funded schemes are no longer available to new university entrants who are subject to the new arrangements in line with the public service model.

The minimum funding standards under EU law require public service funded schemes to meet the standards set in the IORPs directive, unless they are exempted by having a State guarantee, for example. The universities concerned must be able to show that their schemes are in a position to meet the potential liabilities arising. Alternatively, the State could clarify its supporting role to give the cover required. The situation was examined some time ago by a Higher Education Authority working group which recommended that the best way forward was for the State to initiate discussions with the trustees and administrators of the funded pension schemes in question who would then consult their members with a view to winding up these schemes and having the State take over the assets in the funds. The liabilities of the schemes would then be met on a pay-as-you-go basis in the future, with the assets transferred to the National Pensions Reserve Fund. It is not possible to predict whether the assets will eventually prove to be sufficient to meet future liabilities. This will depend on how they perform over time.

The transfer of the assets of pension funds in the universities and certain non-commercial State bodies to the National Pensions Reserve Fund, where the assets will be managed as part of the reserve fund, is the most efficient way of dealing with such pension funds. Rather than having a number of relatively smaller funds attempting to manage their deficits, while at the same time meeting current pension benefit outgoings, it is preferable to have the assets become part of the overall investment portfolio of the National Pensions Reserve Fund. As Senators are aware, the purpose of the reserve fund is to meet as much as possible of the cost to the Exchequer of social welfare and public service pensions from 2025 on. As no drawdowns are allowed before 2025, the National Pensions Reserve Fund can accept periods of volatility as a trade-off for achieving a long-term return that will make a meaningful contribution to Ireland's future pension costs and the sustainability of the pension system.

The summary on page B12 of the document setting out the recent supplementary budget measures states:

It is proposed to transfer to the Exchequer the assets and liabilities of certain pension funds in Universities and non commercial State agencies. The liabilities of the funds at the end of 2008 are estimated to be approximately €3 billion with the assets valued at €1.7 billion at that time. The current classification of these funds under EUROSTAT rules is such that the transfer of the assets of the Universities' funds and the SSB funds established under Trusts would impact positively on the General Government Balance (GGB) when received. The initial revenue and subsequent investment return would be offset in the future by the payment of pension benefits which would be recorded as Government expenditure at the time of payment.

In line with that announcement, Part 3 of the Bill provides for the transfer of the assets of the relevant funds to the National Pensions Reserve Fund. It includes an undertaking that the State, through the individual bodies, will meet the pension liabilities on a pay-as-you-go basis as they arise, under the same scheme rules that currently apply to members of the funded schemes. A transfer order will be made by the relevant Minister, with the consent of the Minister for Finance, to give effect to the transfer of each pension fund on the conditions set out in the Bill and to set the date of effect of the transfer. The transfer order will list or otherwise reference all of the instruments or documents which comprise the scheme rules. No subsequent amendments to the pension schemes can be made without the approval of the relevant Minister and the Minister for Finance. In the case of the universities, the approval of the Higher Education Authority will also be required under the Universities Act 1997.

Where existing approved scheme rules have provided for trustees or bodies to have discretionary powers, provision is made for the continuing exercise of these powers by the relevant Minister and the Minister for Finance. The Ministers may, in certain cases, delegate that discretion to the bodies - to the Higher Education Authority in the case of the universities - if they deem it appropriate to do so. A measure is also included in the Bill to provide that the value of the assets of the funds transferred to the National Pensions Reserve Fund will be offset against the Minister's obligation under section 18(2) of the National Pensions Reserve Fund Act 2000 to make annual contributions, equivalent to 1% of GNP, to the reserve fund. That matter arose during discussions that took place in a different context earlier this year. A similar provision was included in section 6 of the Investment of the National Pensions Reserve Fund and Miscellaneous Provisions Act 2009 which was passed earlier this year. That provision relates to investments in listed financial institutions made by the reserve fund under direction from the Minister for Finance.

Section 3 of the Bill defines terms used in Part 3. It clarifies that the assets to be transferred do not include assets covering additional voluntary contributions on a defined contribution basis. Following the transfer, the funds of additional voluntary contribution schemes will be held in a separate trust for the contributing members.

Section 4 provides an interpretation of the phrase "relevant pension scheme" both before and after the transfer of the assets in relation to a covered pension fund. This provision is important in the context of continuing the benefit structure of each scheme member following the transfer.

Section 5 provides that the relevant Minister may, with the consent of the Minister for Finance, make an order transferring the assets of a covered pension fund to the National Pensions Reserve Fund. The transfer order in respect of a particular fund will determine the date of effect of the transfer of the fund. It will also confirm the instruments and other documents underpinning the "relevant pension scheme" referred to in section 5. A transfer order shall be laid before each House of the Oireachtas with a notice published in Iris Oifigiúil.

Section 6 provides that the effect of a transfer order made under section 5 is to transfer the assets of the fund subject to the transfer order to the National Pensions Reserve Fund. It also provides that any trust deed relating to the assets of the fund is terminated and that the trustees and bodies cease to be liable for anything done in relation to the fund on or after the date of effect set out in the transfer order.

Section 7 provides for the continued operation of any pension scheme for which a transfer order has been made, subject to the provisions of the Bill. It also provides that, following the transfer, the board of directors or governing body of the State body or university in question becomes the administrator of the pension scheme. This section also makes provision for the continuation of scheme membership for those who were members on the date of transfer.

Section 8 provides an exemption from any form of taxation for any assets transferred under a transfer order. Section 9 provides that a transfer order has effect, notwithstanding any provision in the Pensions Act 1990. It also provides that, following the date of a transfer, the 1990 Act will continue to apply to a relevant scheme to the same extent as it did prior to that date in order that the protection of the Act will apply to members following the transfer. I refer to the right of appeal in the event of a dispute, for example.

Section 10 provides that assets transferred to the National Pensions Reserve Fund pursuant to a transfer order shall be taken to be in satisfaction or part-satisfaction of the obligation of the Minister for Finance under the National Pensions Reserve Fund Act 1990 to make contributions to that fund.

Section 11 provides that any discretion contained within a covered pension scheme in relation to rights and benefits of members, either individually or collectively, shall, after the making of the transfer order, be exercised by the relevant Minister and the Minister for Finance, who in turn may delegate the exercise of the discretion. Section 12 provides, subject to the provisions of this section, for the continuation of obligations of members and employers to make contributions to the scheme and for the bodies to pay benefits relating to the scheme in relation to any covered scheme after a transfer order has been made. Section 13 provides that section 25(7) of the Universities Act 1997 and the Fifth Schedule to that Act, which provide for the approval of the terms and conditions of any university superannuation scheme, continue to apply in relation to a covered pension scheme after a transfer order has been made.

Section 14 provides that nothing in Part 3 of the Bill or in any transfer order affects the jurisdiction of the Pensions Ombudsman or procedures relating to internal dispute resolution established under section 132 of the Pensions Act 1990. If a relevant pension scheme confers on a Minister the function of settling disputes, the relevant Minister continues to have that function after the making of a transfer order.

Part 4 deals with guarantees by Minister for Finance. Section 15 deals with construction of certain provisions when the Minister for Finance guarantees non-equity securities, etc. Section 15 amends the Prospectus (Directive 2003/71/EC) Regulations 2005 and the Investment Funds, Companies and Miscellaneous Provisions Act 2005 to protect the Exchequer by removing any legal liability on the State as guarantor of certain debt securities for the accuracy of information contained in prospectuses that relate to the guarantor and the guarantee.

In regard to the amendments of other Acts, section 16 provides for an amendment to the Central Bank Act 1989. Section 16 is an amendment required to give full effect to the transposition of the assessment of acquisitions in the financial sector directive of 2007. The directive establishes a harmonised legal framework, setting out the procedure to be applied by competent authorities when assessing acquisitions on prudential grounds in the EU-EEA. The amendment in section 75(1) of the Central Bank Act 1989 disapplies the existing regime for acquisitions in the case where the regime created by SI 206 of 2009 now applies, thus ensuring that the directive is transposed correctly and that there is no dual acquisitions regime in the State.

Section 17 provides for an amendment of the Credit Institutions (Financial Support) Act 2008. As Senators will be aware, Ireland was the first EU member state to make a guarantee available to its financial sector at the end of September 2008. Many other EU countries have since implemented bank guarantees such as, for instance, Denmark, France, Finland and Sweden. Our guarantee is a blanket two-year guarantee to 29 September 2010. Guarantee schemes in other member states in contrast apply to longer-term debt issuances. To level the playing field, it is proposed to extend the guarantee set out in the credit institutions guarantee scheme for a period which will allow banks to access new, longer-term funding and which will make a significant contribution to further strengthening of their financial standing and overall stability.

The House will understand that, as the term of the guarantee proceeds, the importance of providing scope for extending the term of the guarantee increases, so it is appropriate to provide scope for addressing the issue in this Bill. Section 17 therefore amends, via the Schedule to the Bill, the Credit Institutions (Financial Support) Act 2008 to allow for the extension of the period of financial support beyond 29 September 2010 by ministerial order. Access to longer-term funding, in line with the recent mainstream approach in the EU, will contribute significantly to supporting the funding needs of the banks and to securing their continued stability. As stated earlier, the implementation of this enabling provision is not an unfettered power and includes a number of important oversight mechanisms, not least Oireachtas approval of a draft guarantee scheme.

The purpose of the amendment of Acts in sections 18 and 19 is to address a regulatory gap in existing legislation. Currently, under the Insurance (No. 2) Act 1983, the Financial Regulator can only present a petition to the court for an order for the administration of a non-life insurance company and the appointment of an administrator. Such a petition cannot be presented for a life insurance or a reinsurance company. The option of appointing an administrator is an important regulatory tool for the Financial Regulator as it permits it to intervene when it feels that the business of the insurer is being or has been conducted in such a way that inadequate provision has been made for its debts, including contingent and prospective liabilities. In the absence of such a provision, the regulator is quite limited in what it can do when a life insurance company or a reinsurance company is in difficulty, thereby explaining why we need to make this amendment. This proposal also ensures a consistent treatment of all insurance companies, whether they be a non-life, life or reinsurance company, in relation to the appointment of an administrator.

Section 20 amends the Netting of Financial Contracts Act 1995 to insert a new definition of "party" in that Act. This amendment clarifies the application of that Act for netting agreements where one party agreement has created a security interest in favour of a third party. The Netting of Financial Contracts Act 1995 encompasses only bilateral netting agreements. However, the creation of a security interest by either party to a netting agreement could result in an interpretation that the agreement is between more than two parties. In such a scenario, the protections afforded by the Netting of Financial Contracts Act in the event of insolvency may not apply. The amended definition of "party" clarifies that it does not include any person in whose favour a security interest has been created.

Section 21 deals with amendments to the Taxes Consolidation Act 1997. In the context of the transfer of the pension funds' assets, there are a number of amendments to the Taxes Consolidation Act in Schedule 2, Part 6. These amendments are technical in nature and clarify that the assets of the National Pensions Reserve Fund, in addition to the NPRF Commission, are also exempt from Irish tax.

As outlined, the issues addressed in this Bill largely relate to some important, albeit technical, issues. The Bill will also address a number of technical reforms to various Acts falling within the Minister's remit. I trust, therefore, that the House will be amenable to a positive and constructive consideration of the Bill's provisions. I commend the Bill to the Seanad.