Sean Barrett (Independent) | Oireachtas source

I welcome the Minister of State, Deputy Tom Hayes. He chaired a committee related to these matters at one time. The Minister, Deputy Burton, has a background in accounting and has always taken an interest in this issue. She has really pushed it forward.

I was pleased the Minister found that 40% of the schemes are fully funded, because there has been something of a panic in the pensions sector. She also found that 20% are poorly funded, but many of these schemes have put funding proposals to the Pensions Board to get them back on track. The problem, as Jill Kirby observed in The Sunday Times, is that we have new rules but we retain many of the same old pensions problems, although there are fewer according to the Minister's findings. The situation relating to defined benefit schemes looks a little more optimistic than we thought.

We approach this after the problems in many financial institutions and banks, with accountants not performing and, indeed, pension funds as well. Many of the funds are in deficit, so one must ask, if the problems are not to recur, what new rules there will be to ensure the trustees of pension funds do not get into these bankrupt situations. Their duties were defined by the Pensions Board in 2010. They include acting in the best interests of beneficiaries, acting fairly between beneficiaries and acting prudently and diligently. Perhaps, just as stricter regulation of bankers and their accountants was required, stricter regulation of pension funds is required as well.

Some of the reasons the pension funds have put forward for the difficulties they got into strike me as more a tribute to their lack of competence than anything intrinsic. They underestimated longevity. Lloyd George introduced the old age pension for people of 65 years of age at a time when the majority of people did not live until 65. It appears to me that it is quite easy to predict longevity and the fund managers should have factored that in, not offered it as an excuse as to why they ran out of money and had to be rescued through this Bill. They also cite poor investment returns. That is, in a sense, an acknowledgement of their incompetence as investors. Yet again, the taxpayer is invited to bail them out. I hope they will up their performance in respect of poor investment returns. They also cite the downturn in financial markets.

The briefing documents we received refer to the reluctance to raise the retirement age. I have no such reluctance. When the pension age of 65 years was introduced it was greater than life expectancy. If we are living for many extra years we should at least find out, on a voluntary basis, how many people would prefer to work and thereby reduce the strain on pensions funds. In fact, the troika included that requirement in its early look at the situation in Ireland. If people are living much longer, the cost to the funds will be greater and the contributions could be increased by asking people to work for longer. Many would be prepared to do it. I know people who retired very much against their better judgment. They missed being at work and the comradeship and so forth.

There are elements of moral hazard in this, in that the taxpayer must pay, through the levy, as well as those in well-run defined benefits schemes and those in defined contribution schemes. That is a trend we must get away from in financial management in Ireland. It is always the good guys who are required to pay for somebody else. I do not think the Minister could have avoided that, but I will mention some quotes later to show that we need a much stricter regime for the regulation of this sector. It is coming here after the banks with their accountants and so forth to tell us it is broke and is seeking yet another bailout. There are also the credit unions. We all know the list; it is very long. We must require the sector to improve its performance.

With regard to some of the criticisms, one is that pensioners could face losing up to half of their income under the planned rule changes.

I do not see it.

Another complaint is that a sum of €12,000 will leave people in poverty, but the Minister has explained there are two payments of €12,000, that is, the minimum amount from the defined benefit scheme plus the State pension. I understand the maximum one will lose is 20%. One newspaper article suggested a pension of €36,000 could be cut by up to €18,000 in the worst case scenario. I do not see this from what has been said. The same article also claimed someone on a defined benefit pension of €20,000 could lose up to €2,000, which is considerably less than half. On the claim that 50,000 people could be out of pocket, the situation in respect of defined benefit schemes may be better than we have been led to believe and the Minister has noted that many of them are solvent. We must look at the reasons the schemes got into trouble and how the trustees conducted themselves. Stricter rules should be applied to them.

The expert group made an interesting observation on the public service reform plan for integration of the regulatory functions of the Pensions Board and the Central Bank. If we are moving to defined contribution schemes, we need a different scheme of regulation as per normal financial services. I hope we have put such a scheme in place. The group noted that defined contribution pension schemes shifted responsibility for savings and investment decisions to members and also transferred the associated risks to members. Effective regulation and supervision of these schemes, therefore, require a different mix of expertise, authority and programmes than for defined benefit arrangements. It went on to argue that such schemes necessitated a focus on the integrity of the fund transfers from employers to investment managers, the reliability of record keeping for the accounting of individual fund balances, the suitability of investment products, the quality of investment management and the appropriateness of fees. That makes their oversight more akin to the supervision of retail investment products than occupational defined benefit schemes, in which the sponsors underwrite these risks and are, therefore, regulated with a focus on the probity of governance and long-term financial solvency.

We need new institutional arrangements not only for defined benefit schemes but also for defined contribution schemes. There are transfers, albeit smaller than the transfers to the banks, and we still have not caught up with the accountants who advised on them. The message from this legislation has to be that the State is doing its bit with the levy to impose costs on some pensioners to fund badly run schemes. The Central Bank was a party to the document to which I referred on integrating the Pensions Ombudsman with the Financial Services Ombudsman. Given our dreadful experience with the figure of €64 billion, a figure that is expected to increase, and the problems in the pensions industry, we need tighter and more conservative financial regulation. I hope that will be part of what we are proposing.

Some Members argue that we should have more time to debate this Bill rather than take all Stages on Thursday. We may have suggestions that would be of value to the Minister and her Department. I commend the Bill to the House. It is something that needed to be done because we require much better performance from the pensions industry.