Paschal Mooney (Fianna Fail) | Oireachtas source

Go raibh míle maith agat. I welcome the Minister to the House. She has made great play of emphasising that the situation does not apply to the State pension but the legislation hides a number of inadequacies in the Bill. We believe that the legislation is too little, too late. Over the past three years the Government has repeatedly failed to address the inequality that stems from the current pension priority order, that is the order in which assets are dispersed when a defined benefit pension scheme winds up. The Government said it was committed to keeping defined benefit schemes intact but the uncertain legislative framework that it allowed to continue created incentives for companies to close them. A quarter of defined benefit schemes will close this year alone and full scheme wind ups are becoming more common. Over the three years many defined benefit schemes have closed and active and deferred pensioners have lost a part of their pension rights.

If the legislation is passed, pensioners will no longer be totally insured against any collapse of their pension scheme after they retire unless they have a relatively small pension. If benefits are reduced in order to secure the pensions of deferred or active employees then it must be done in a transparent manner with a right of appeal for affected pensioners.

Potential problems with the legislation are as follows. The Government is almost certain to face a legal challenge from pensioners over the loss of what are considered property rights. The new law continues to allow profitable employers to walk away from pension problems by winding up schemes that are in deficit. In fact the additional regulatory burden implicit in the legislation actively encourages them to do so. The OECD recommends that a minimum of 90% funding should be achieved before a scheme can be closed in a case where the parent company is in financial health.

The Government has not resolved what level of payment would accrue to deferred pensioners in a double insolvency case. The Waterford Crystal case was sent back to the Irish High Court after the ruling by the European Court of Justice, and the High Court has yet to decide what level of pension should be protected. In the UK a similar case saw almost 90% of pension rights protected after an earlier European Court of Justice ruling. Waterford Crystal staff representatives have said that the 50% rate of protection is inadequate so the Government is faced with a dilemma. I know that the Government awaits the High Court decision and, therefore, cannot make an input.

The legislation appears to pave the way for the pension levy to be made permanent. The Minister for Finance claimed that extending the levy would "make provision for potential State liabilities which may emerge from pre­existing or future pension fund difficulties". His statement underlines the unfairness of the levy as it will also hit defined contribution pension schemes even though they cannot benefit from such a scheme. It will undermine the incentive to save for retirement. Earlier today the Minister for Social Protection said that pension benefits up to €12,000 will be fully protected. However, given the manner in which State benefits for the elderly have been systematically eroded by the Government, there has never been a greater need than now for such a safety net.

There is nothing in the legislation about thresholds rising over time in line with consumer prices to ensure consistency. The Bill ignores the thousands of workers who have lost pension rights while the Government dithered over recent years. We suggest the following: thresholds should be increased annually in line with inflation; the legislation should apply to schemes wound up since 2010, keeping in mind those that have been wound up over the past few years; a going concern should not be permitted to wind up its defined benefit company pension scheme unless it has reached a minimum of 90% funding; an appeal mechanism should be introduced where trustees have decided upon reduced benefits for members so that pensioners can be assured that they have not been unfairly treated in a restructuring arrangement; and the Pensions Board should commit to urgently updating its statutory guidance on aspects of the Pensions Act for trustees following the introduction of the Bill.

I shall list the more long-term measures required. We believe that there is a need for a Minister for pensions as only someone with a seat at the Cabinet table would have the clout to insist that the situation is addressed, as a matter of extreme urgency. Action is also needed to improve pension coverage. Among OECD countries, only Ireland and New Zealand do not have compulsory saving for a pension.

Pension costs need to be tackled. One of the persistent criticisms of the private pension industry is that it is designed to make vast sums of money for the pension manufacturers, that is the fund managers, administrators and intermediaries. As I have said before, during various debates with the Minister, pension funds are often described as opaque, confusing and offering only mediocre to poor value for pension holders. A report compiled by the Department of Social Protection last year showed the impact of high charges, particularly in the case of small schemes. It showed that someone who saved €250 a month from the age of 35 could end up with a fund of €200,000 after 30 years. This would leave him or her with an annual pension of €10,000 in retirement, if there were no charges. According to the report, an average charge of 2.18% a year would reduce the fund by €62,000 and thus leave a pension of just €6,900.

In an extreme case, under current rules, if a scheme collapses, a person one day short of retirement can have his or her entire pension wiped out, while a person who has just retired will retain 100% of his or hers.

In the Waterford Crystal case, up to 1,200 workers were affected by the collapse of the company's defined benefit scheme when the company went bust in 2009. The scheme was understood to be worth €82 million, but liabilities to employees are estimated at up to €380 million. In a British case, in 2007 the European Court of Justice stated a figure of 49% was insufficient and the British Government subsequently paid out 90% of the fund. The Waterford Crystal workers took their case against the State to the High Court and it was then referred to the European Court of Justice. In April it ruled the State had failed to protect the pension interests of the Waterford Crystal workers in a case of double insolvency but gave no indication of how much of the shortfall the State should meet. That issue needs to be addressed urgently.

On the extension of the pension levy, the Minister for Finance, Deputy Michael Noonan, said the 0.15% increase in 2014 would raise an extra €135 million a year and that the proceeds could be used "to make provision for potential State liabilities which may emerge from pre-existing or future pension fund difficulties." Under the terms of the Social Welfare and Pensions (No. 2) Bill 2013, the levy has been given a specific purpose as a method of compensation for schemes in difficulty; therefore, it is likely to be extended indefinitely.

According to the National Pensions Board, only 54% of the workforce have pension coverage. This is a real problem, one that the previous Administration tackled also. Within the working population there are wide disparities. The level of coverage in the public service is more than 90%, while in some areas of the private sector the level of coverage is very low. The national pensions framework published by the previous Government in 2010 cited the examples of the hotel and restaurant sectors in which the level of pension coverage was 23%, while level in the wholesale and retail trade was just 36%.

Independent consumer research carried out on behalf of the National Pensions Board indicates that almost eight out of ten people who do not contribute to a pension scheme said the State pension would not meet their needs in retirement. Although employers are obliged by law to offer employees access to a pension scheme, 43% of those interviewed had not been offered such access, of whom 93% had never asked an employer about access to a pension scheme. Although the level of awareness of tax relief on pension contributions is relatively high at 73%, the majority did not know or had incorrectly understood the amount of tax relief that applied to them. The reason for the high level of awareness of the tax relief was the pension industry's own actions and activities in the weeks leading up to the deadline when there was a concentration of advertising. Therefore, it is not surprising that people would be so aware. However, it is interesting that they have not followed through, as the other statistics indicate.

The key issue for the Minister and the Government is how to improve the level of coverage. This will have to be done through a combination of incentives, including a soft-hard initiative. The issue of mandatory pension contributions will have to be given serious consideration. Among OECD countries only Ireland and New Zealand do not provide for compulsory pension contributions. In 2008 the Comptroller and Auditor General estimated the scale of pension liabilities in respect of public sector pensions at a staggering €108 billion. The amount has grown since.