Joan Burton (Dublin West, Labour)

Inevitably, an initiative such as this takes time to bear fruit but is an important and radical step.

I am also bringing forward several other important changes to the social welfare system in this Bill. The Bill will apply restrictions on the payment of mortgage interest supplement to provide that it will not be payable for a person in the first 12 months of the mortgage arrears resolution process, as set out in the code of conduct on mortgage arrears applying to mortgage lenders. The intention is that the financial institution would provide at least 12 months forbearance to borrowers in respect of their mortgage obligations and only after this 12 month period would mortgage interest supplement be available. It is important that borrowers who are experiencing difficulties with their mortgage obligations engage with their lender as soon as the difficulty arises. In this way, they can work together to put in place a solution for both parties.

There are two categories of people who will be affected by this change. The first category comprises people whose mortgage difficulty is resolved within the first 12 months, for example, when they return to work, and potential claimants who will no longer qualify for a payment until they have received 12 months forbearance from their lender. This year, the Department will spend at least €50 million on mortgage interest supplement supports which, of course, goes to the banks. Having listened to one mortgage difficulty case on the media this morning, it must be agreed that the supplement will have to be used in a way that compels lenders to engage with customers in a meaningful way rather than being a payment the banks can pick up automatically. The code of conduct on mortgage arrears makes specific provision for forbearance and all lenders are obliged to sign up to it. MABS, the Money Advice and Budgeting Service, gives detailed advice to people with complex debt situations. It is important all our efforts go on stabilising family debt problems over time with the agreement of the lenders. This will be included in the legislation on which the Minister for Justice and Equality, Deputy Shatter, is working. It is particularly complex due to certain constitutional problems that may arise.

I will also be introducing several measures designed to tackle fraud and abuse of the social welfare system. Welfare fraud is a serious crime and the Department of Social Protection is doing all it can to crack down on people who abuse the system. When high-risk areas are identified, targeted control measures are put in place to reduce the risk of fraud and abuse of the system. Over the past year, Senators raised various concerns with me in the House about welfare fraud and I believe these are reflected in this Bill.

My Department has begun the phased introduction of the public services card with key security features, including a photograph and signature, which will be used to authenticate identity of individuals. One of the advantages of the public services card is that it will help to reduce fraud and error which result from the incorrect identification of claimants. We have a growing problem in the system of claimants using multiple identities. Under the existing legislative provisions there is no mandatory requirement for a person to allow for his or her photograph and signature to be captured and reproduced in electronic format for purposes of a personal public service number, PPSN, allocation, public services card and claims for social welfare benefits. I will be proposing a change to provide for the introduction of a new condition for any new claim for social welfare payment that the claimant must satisfy the Department as to his or her identity, including allowing for electronic capture of photograph and signature. I will also be strengthening the powers of social welfare inspectors to make inquiries in various circumstances at ports and airports, a point often raised here and in the Dáil. Inspectors will have powers to make inquiries with landlords in connection with rent supplement claims, obviously for the purpose of determining that the people availing of the accommodation are those in receipt of the rent supplement. These powers will strengthen the interagency operations between the Garda, customs, Revenue and social welfare inspectors against social welfare fraud giving them the appropriate powers to inquire in cases of suspected fraud.

I am introducing a number of amendments to the occupational pension provision in the Bill. The amendments provide for a requirement for defined benefit pension schemes to hold a risk reserve in addition to the funding standard requirements set out in the Pensions Act. The sustainability of pensions in the longer term is a critical issue. As the House will be aware, the OECD is looking at the direction of Irish pensions policy for the future. The purpose of the amendments is to further underpin the legislative provision applying to defined benefit schemes generally and which is to help provide a secure pension for the members of defined benefits schemes in the future and ensure the sustainability of defined benefit pensions. Defined benefit pension schemes are an important element of pension provision in Ireland. However, the number of defined benefit schemes has been gradually reducing over many years. At the end of 2010 there were over 1,000 such schemes with 222,000 active members, down from 1,500 schemes in 2003 and just over 2,500 in 1991. Many defined benefit schemes are mature schemes and closed to new members.

Following the downturn in the financial markets, the previous Minister and the Regulator had the funding standard suspended in late 2008 to allow the trustees of pension schemes to assess the impact of historically high volatility in the financial markets and the significant losses experienced. This suspension was extended on a number of occasions to allow for changes to the Pensions Act in 2009 and 2010 to assist trustees to respond to the funding difficulties facing many pension schemes. A consultation process also took place on proposals for a new defined benefits model which would address the persistent difficulties being experienced by defined benefit schemes and support their sustainability in the future. The amendments I am introducing facilitate the reintroduction of the funding standard and the full regulatory structure. The proposal in the Bill to introduce a risk reserve reflects the outcome of the consultation process. The introduction of a risk reserve will provide a buffer to assist schemes to absorb financial shocks in the future and in this regard will enhance the protection of the pension entitlements of scheme members against future volatility in the markets.

It is recognised that many defined benefits pension schemes are in deficit and will need time to recover their funding position. It is, therefore, intended to introduce the risk reserve requirement over an extended time period. The funding standard will be introduced initially and from 1 January 2016 pension schemes will be required to hold a risk reserve. However, schemes will be given up to 11 years from the re introduction of the funding standard to satisfy the risk reserve requirement. It is estimated that the risk reserve will increase the liabilities of a defined benefits scheme. However, this will depend on the investment profile of each scheme. Changes to the funding standard guidelines will give credit to schemes that reduce their equity risk and assist schemes to satisfy their funding requirements.

Scheme trustees have options in this regard. Legislation has been introduced to provide for sovereign annuities. The Pensions Board published guidelines to assist potential providers with the development of sovereign annuity products. As part of this initiative, the NTMA will issue, subject to market yields, sovereign bonds of a long duration that will allow pension schemes to better match their assets to their liabilities. This initiative provides pension schemes with an option which was not previously available. Irish pension schemes have the majority of their assets invested outside Ireland and as well as being a mechanism for more prudent investment, the initiative has the potential to attract pension fund investments into the economy. There is in excess of €70 billion in various pension fund products in Ireland, but most of this money is invested abroad. There has been a great deal of work done to develop the sovereign annuity product in the Irish market. The Pensions Board is also giving consideration to the provision of an enforceable employer guarantee to meet the risk reserve requirements.

I am aware that many trustees and sponsors of defined benefit schemes have been working hard to enhance the sustainability of their schemes and making difficult decisions in that regard. It is important in addressing current deficits in a pension scheme that the trustees are aware of changes to the defined benefits model in order that they can bring forward funding proposals which will meet the future requirements. The amendments and the reintroduction of the funding standard will give trustees the certainty they need in preparing realistic funding proposals for submission to the Pensions Board.

I am also introducing a technical change to ensure the revaluation rate required in respect of deferred members of a pension scheme does not put them in a more favourable position than active members. This change will track the annual consumer price index rate and keep any adjustment to preserved benefits more in line with changes in the wage-salary rate. The amendments are designed to make defined benefits pension provision more sustainable, stable and secure in the future.

I will now outline the main provisions of the Bill. Section 1 provides for the Short Title, construction and any necessary commencements. Section 2 provides for the definition of certain common terms used throughout this Part of the Bill.

Section 3 provides for an increase in the minimum number of paid PRSI contributions required to be eligible to become a voluntary contributor from 260 to 520. This affects no more than 1,000 persons who are special voluntary contributors. There was some confusion that this provision had general application. It is to meet a particular special voluntary contributor category.

Sections 4 and 5 make a number of amendments to the one-parent family payment to provide for the phased reduction in the age limit that applies to the youngest child in the family for qualification purposes from 14 years to seven. The age limit for the youngest child is being reduced in three steps: from 14 years to 12 from May 2012, from 12 years to ten from January 2013; and from ten years to seven from January 2014. For those already in the system, these changes will take effect from 2015 and 2016. The arrangements to which I referred apply to new recipients and there are transitional arrangements for others.

Section 6 amends and extends the list of bodies specified in the Social Welfare Consolidation Act 2005 as being authorised to use the personal public service number, PPSN, for the purposes of carrying out transactions with members of the public, for sharing personal data and information among themselves for the purposes of carrying out relevant transactions, and for exchanging data. The Office of the Pensions Ombudsman is now included, while VECs are specified for the purposes of sections 262 to 270, inclusive, of the Act. They are currently specified for the purposes of section 266 only.

Section 7 provides for an extension to the list of social welfare payments excluded from the disqualification of concurrent receipt of a weekly social welfare payment where a person is also participating in a community employment scheme. It is now being extended to include all weekly and monthly supplements payable under the supplementary welfare allowance scheme, that is, in addition to the current exclusion of rent supplement, mortgage interest supplement and diet supplement are also being excluded. That is to ensure those participating in community employment schemes who would qualify for these payments can continue to qualify for and receive them.

Part 3 of the Bill provides for the amendments to the Pensions Act 1990 necessary to give effect to the Government's decision to introduce a risk reserve to the funding standard. The funding standard needs to be met by defined benefits pension schemes to ensure a pension scheme can live up to its pension promise. This is intended to improve the sustainability of pension schemes and the security of members' benefits and provide a buffer against the volatility of financial markets. The measure will allow pension schemes a long lead-in time to develop the required level of risk reserve. The level of risk reserve will be linked with the level of risk the pension scheme is carrying in its investment strategy.

Part 3 and sections 20 to 40 provide for amendments to the Pensions Act 1990. Sections 20 and 21 provide for the definition of the principal Act for the purposes of Part 3. Section 22 amends section 7A of the Act to provide that guidance issued by the Pensions Board or any other person specified by regulation under this Act cannot be changed without the prior consent of the Minister for Social Protection. Section 23 amends section 33 of the Pensions Act to provide for a change to how the preserved benefits of deferred scheme members - former employees - are re-valued in line with the consumer price index. Section 24 amends section 34 of the Act to clarify that the Pensions Board can issue guidance on the calculation of the transfer value of pension rights.

Sections 25 to 37 amend the funding standard to require schemes to hold a risk reserve. The proposed amendment to the funding standard will require a defined benefit pension scheme to hold a funding reserve in addition to the level of funding required under the funding standard at present. The existing funding standard provisions in Part IV of the Act, which require pension schemes to maintain sufficient assets to meet the liabilities of a scheme, will be extended to require pension schemes to hold a risk reserve. The trustees of pension schemes are currently required to submit an actuarial funding certificate to the Pensions Board to indicate whether the scheme satisfies the funding standard. If it does not satisfy the standard, the trustees are required to submit a funding proposal to the board to restore scheme funding. The amendments to the Pensions Act will, in addition to the submission of an actuarial funding certificate, now require the trustees of a pension scheme to submit an actuarial funding reserve certificate. If either certificate indicates that the scheme does not satisfy the funding requirements the scheme must, except in certain circumstances, submit a funding proposal to the Pensions Board to restore funding by the next funding certificate date. The Pensions Board will have discretion to extend this period. The provisions relating to the failure to comply with the funding requirement are also being strengthened. Section 25 inserts definitions for the purpose of this Part IV of the Act.

Section 26 amends section 41 of the Act to disapply the risk reserve requirement to regulatory own funds scheme as those reserve requirements are dealt with in Part IVB of the Act. Section 27 amends section 42 of the Act to require relevant schemes to submit an actuarial funding reserve certificate to indicate whether the scheme satisfies the risk reserve requirement. Section 28 amends section 43 of the Act to specify the date on which the assets and liabilities of the scheme for the purpose of preparing an actuarial funding reserve certificate are assessed and the timeframe for submission of the actuarial funding reserve certificate to the Pensions Board.

Section 29 amends section 44 of the Act to set the level of reserve required to be maintained by relevant schemes. The reserve will be the aggregate of two amounts. The first is 15% of the amount of the funding standard liabilities less the value of EU bonds and cash and any other prescribed assets held. The other is the amount by which the funding standard liabilities would increase on the effective date of the certificate if there was a 0.5% fall in interest rates. The Minister for Social Protection will have the power to prescribe a higher or lower percentage. Section 30 amends section 45 of the Act to change the reference from section 44 to section 44(1). This is consequential to the insertion of section 44(2) by section 16.

Section 31 amends section 46 of the Act to specify the matters to which an actuary must have regard when completing an actuarial funding reserve certificate just as the actuary is already required to do when completing an actuarial funding certificate under that section. Section 32 amends section 47 of the Act to ensure there is no doubt as to the power of the Minister for Social Protection to prescribe different requirements for different calculations for the purposes of Part IV of the Act. Section 33 amends section 48 to clarify the scheme liabilities which must be discharged before any resources can be returned to an employer on the wind-up of a scheme and to clarify the benefits to which the purchase of an annuity with fixed rate increases can apply.

Section 34 extends section 49 of the Act to require the trustees of a pension scheme to submit a funding proposal to the Pensions Board where a pension scheme fails to satisfy the funding standard reserve requirements. Pension schemes will be required to restore funding by the date of the next funding reserve certificate. The Pensions Board will issue prescribed guidance setting out the requirements for a funding proposal and will have discretion to extend the date by which scheme funding must be restored.

Section 35 amends section 50 of the Act to include failure to submit a funding standard reserve certificate as an additional circumstance under which the Pensions Board may issue a notice under section 50 to reduce scheme benefits. Section 50 is also amended to oblige trustees to implement the benefit reductions proposed to the Pensions Board and to comply within the time limit for implementation of the proposal specified in the notice under that section. Failure to comply could result in a prosecution. A new subsection (4) is being inserted in section 50 of the Act to empower the Minister for Social Protection to prescribe the guidance of the Pensions Board as regards the form and detailed requirements of an application by scheme trustees to reduce scheme benefits.

Section 36 extends section 51A of the Act to include the completion of funding standard reserve certificates in the responsibilities of actuaries in relation to pension schemes. Section 37 amends section 53E of the Act by deleting the definition of "funding standard liabilities" which is being inserted in section 40 of the Act by section 12 of this Bill.

Section 38 amends section 55 of the Act to require the trustees of a pension scheme to include a statement in the annual report indicating whether the scheme satisfies the funding standard reserve requirements. If it does not it must notify the Pensions Board within a time limit which may be prescribed by the Minister for Social Protection. Section 39 amends section 59G of the Act to require the consent of the trustees to an application for early retirement under the rules of the scheme where the actuary is not satisfied that the scheme would satisfy the funding standard reserve requirements at the date of the commencement of retirement. Section 40 amends Part B of the Second Schedule to the Pensions Act and is consequential to the change to the revaluation of benefits at section 23 above. Part B is amended to clarify the reference point for the revaluation of scheme benefits.

In addition to the aforementioned sections, Part 2 of the Bill contains 12 other sections which make various changes in other areas of the social welfare code. Sections 8 to 11, inclusive, relate to the PRSI system. Section 12 limits entitlements to mortgage interest supplement. Section 13 relates to the use of the PPS number in the education sector. Sections 15, 16 and 17 give additional powers to inspectors for the control of fraud. Social welfare inspectors will have powers to question people at ports and airports and make inquiries with landlords regarding rent supplement. Section 18 is a technical amendment on the financing of the social insurance fund.

We have to ensure that the neediest in society are protected and supported in these difficult economic times. In particular, we must ensure for the sake of those who have contributed to the system, such as pensioners, that sufficient people of working age are employed to provide for retirees and young children. All of us aspire to a good social welfare system which supports young people, children and pensioners in particular. To make such a system sustainable, however, we must ensure people of working age, in so far as is possible, are contributors.

The Government will invest €20.6 billion this year in social protection for its citizens. One of the greatest tasks I face is how to reform the system to ensure some of that spend is leveraged as an investment in people and to ensure that investment has consequences for our economy, where the people in whom we invest are in a position to contribute as workers to the economy and, thus, return to the system the investment in them. Social welfare is a particularly western European concept which was developed more than 100 years ago, but in the context of the frailty and turmoil of financial markets nowadays, we must see how we can look upon this figure as an important spending stimulus in the Keynesian sense. American economists recognise that western Europe has a unique form of stimulus, which is its investment in widescale social welfare payments to people in different categories. We must try to leverage that investment to help our economy to recover and grow, particularly in regard to people of working age in order that they will find work and become contributors in due course.

Our friends in the troika take a detailed interest in social welfare. Sometimes they pore over expenditure in this area and they seem extraordinarily knowledgeable about the 50 to 60 schemes, categories of people and stages of life that social welfare covers. They were satisfied with their current visit and presumably that means their continued approval of the country committing so much expenditure to social welfare, in particular to support people who are finding these times difficult. My objective is to continue to do that with the support of the House and to leverage the expenditure in interesting ways to support the return to economic health of our economy.