Joan Burton (Dublin West, Labour) | Oireachtas source

The Senator will be aware that I published the first comprehensive Government report on charges attached to pension provision in Ireland last October. The purpose of the pension charges report was to gather information on the level of pension charges levied in Ireland, to assess whether charges are reasonable and transparent, to report on the findings and to make recommendations. The report obtained information from occupational pension scheme trustees, pension providers, pension advisers and investment managers. It highlighted a wide range of issues related to pension charges and identified a number of serious problems. While it was fully recognised that the provision of pension schemes cannot be cost free, it was clear that there are major challenges to be addressed in two main areas: reasonableness and transparency of charges.

With regard to reasonableness, the report concluded that there is a considerable variation in the range of charges imposed. Some schemes and individuals appear to be paying excessive fees. Smaller occupational schemes and individual pension arrangements appear to be comparatively expensive.

With regard to transparency, the report concluded that there are deficiencies and inconsistencies in current practice and that a culture of providing clear information in a simple manner is not evident. A move towards greater clarity and transparency of pension charges is needed, in particular so that consumer can understand that a modest charge can have a very large impact on the final pension. In recent years people, many of whom are public servants, who invested in an additional voluntary contribution, AVC, were often very shocked, and continue to be shocked, when they see the value that the AVC achieves as they approach retirement and wish to avail of it.

The report discusses the optimum means of capturing all charges. It assesses the different measures, including reduction in yield and total expenses ratio. These were the two approaches used to capture the data. There have also been discussions about alternative ways to capture charges data. Total expense ratios are relevant to investment management costs and incorporate the additional operational costs of investment funds, such as fund administration and audit fees. However, commission costs such as administration and distribution costs can also impact on pension charging structures. These costs are not reflected in total expenses ratios. It is important that any comparator provides full and complete information on all the charges to achieve full transparency for the consumer. The report recommends monitoring developments in the area.

Following the publication of the report last October, I invited interested parties to submit comments and observations regarding the report within a three month period and 19 submissions were received during the consultation period. Last April, having regard to the submissions made on the report, the Government approved the implementation of the recommendations in the report. I am now proceeding with the implementation of the recommendations contained in the report.

Each of the Department of Social Protection, the Pensions Board and the Central Bank has a core role to play in enhancing transparency and understanding of such charges.

In order to initiate actions that follow up on the recommendations of the report, these organisations will continue to co-operate and co-ordinate activity. The primary change to occupational pension provision, which I am introducing in the Bill, is to give effect to the recommendations of the critical review undertaken by the Pensions Board and the Pensions Ombudsman as part of the public service reform plan. In this regard, section 29 of the Bill provides for the establishment of a pensions council, as we just discussed, to advise the Minister for Social Protection of policy matters on its own initiative or on request by the Minister. I look forward to the new pensions council bringing a fresh perspective to the formulation of pension policy.

The first task I am giving to the new council will be to monitor the implementation of the recommendations in the report on pension charges and to advise me of what further actions are needed. This will be the first job for the new council. It is very important that we have a clear structure of charges. At the moment people in small pension funds and individual pension funds can incur significant charges. The second task for the council will be to examine transparency. People should get regular reports and be able to access regularly the total charges for their particular pension structure. I refer to a variety of charges such as fund charges, administration charges and commission charges. People must be empowered through information to able to compare and contrast what is available or business journalists could further communicate what schemes and structures are particularly expensive and advise consumers of the facts.