Joan Burton (Dublin West, Labour) | Oireachtas source

As Senator Bradford stated there are a number of reasons pension funds in Ireland got into trouble. Most importantly, significant promises and commitments were made by employers in good faith about levels of pension coverage when people retired but, unfortunately, the Irish economy crashing was a key contributor to very difficult performances by pension funds. Another issue is that funds established 30 or 40 years ago were for people who may not have had a life expectancy of much in excess of 15 years but this has all changed dramatically. Some of the promises made were large and significant, but as time has passed we have had a huge increase in the number of pensioners, who if they are in a scheme are all contributing, and in the longevity of the pensioners, and the fund was never intended to cover this level of longevity.

In fairness to most trustees and members of most schemes, and employers and trade unions in particular, enormous efforts have been made, including in the ESB, over a prolonged period of time to address the gaps and deficits which have arisen. The Bill addresses very difficult issues of equity and fairness which have been under very careful consideration for some time. The legal issues involved are incredibly complex. The issues date back over most of the past decade and they were raised by Fianna Fáil in the 2007 Green Paper on pensions and the 2010 national pensions framework. As far as Fianna Fáil was concerned, the economy was booming in 2007 but it did absolutely nothing much in this regard, except very shortly after the economy was hit by the bank guarantee in 2008 it decided to suspend the funding standard, no doubt in the hope things would turn around because there were always green shoots around the corner. When Fianna Fáil is being critical of legislation being brought forward now it must explain to us in all honesty the long decade in which it did nothing but suggested everything was wonderful.

It is not the case the levy on direct contribution schemes will assist defined benefit underfunding. The levy was set and established by the Minister for Finance prior to the previous general election at the request of significant sections of the pensions industry. Let us not forget it was the pensions industry which came up with proposals for the levy. A bit like people in the former Government party, there is a little amnesia on the part of those who suggested the levy. It was actually the pensions industry, accompanied by very large advertisements.

In fairness, Fine Gael adopted that policy in its manifesto and went to the people with it.

In his recent Budget Statement the Minister for Finance highlighted the fact that the 0.6% levy, in place on all schemes since 2010, would terminate at the end of 2014. He also announced that a separate levy of 0.15% would apply to all pension fund assets to continue to help to fund the jobs initiative, including the continuation of the reduced 9% VAT rate in the hospitality sector, for which I have heard much praise in the Chamber, and to make provision for potential State liabilities which might emerge from pre-existing or future pension fund difficulties. I welcome that second indication from him in the context of this Bill.

The trustees of defined benefit pension schemes have a fiduciary duty under trust law and the Pensions Acts to act in the best interests of all scheme members. There are three kinds - pensioners, those on an existing pension and active members currently paying in. This difficulty was highlighted. Somebody who is 65 or 67 years and has retired is receiving full benefits, whereas without the protection of this Bill, somebody who is 62 or 63 years and within shouting distance of retiring could be left with absolutely nothing. The Bill is being brought forward to balance that position. There are regulatory safeguards and oversight by the Pensions Board in the case of restructuring. Before the trustees make such an application, they have to consult the employer, the scheme member and any person receiving benefits from the scheme, and the authorised trade union representing scheme members in advance of an application to the Pensions Board. It is very important that there be all-round consultation with the different stakeholder interests. The Pensions Board will have discretion as to whether it should issue a direction following an application by the trustees.

I am considering in some detail the OECD review of the Irish pensions system and will come back to the Government with proposals. This will include proposals to gradually achieve universal pensions coverage, with a particular focus on those on low incomes and those in atypical employment where they are moving from employment to employment. As Senator Terry Brennan pointed out, defined benefit schemes were set up in the days when a boy joined the ESB at 16 years of age and expected to retire at 66, having served his time and moved up through the ranks of the company. However, very few of us now know people who take up employment at 16 years of age and are still in the same job at 66; therefore, we have to bring forward arrangements to meet the changes in employment to ensure low-paid workers, including women who may be in and out of the labour force, and other atypical workers have adequate pension coverage.

To answer Senator Hildegarde Naughton's question, in the case of a single insolvency, an individual on €40,000 and subject to a reduction of 10% will have the reduction applied to the total pension of €40,000, that is, €4,000. However, this will be subject to the funding level of the scheme. The better funded the scheme is, the less that will apply. An individual on a pension of €60,000, where the State pension accounts for €12,000 of it, will be subject to a reduction of 10% on €48,000. I re-emphasise that the State pension, contributory and non-contributory, is not affected in any way by this legislation. It is important to clarify that aspect.

In respect of the indexing of pensions, future benefit entitlements will be calculated by trustees on a scheme by scheme basis in accordance with the trustee rules applying to a scheme. Senators Fiach Mac Conghail and Jim Walsh both raised that issue. Legislation in 2009 gave trustees the option of not paying those affefcted by a wind-up to facilitate a fairer distribution of funds. Post-retirement increases are provided for in about one third of schemes as per the trust arrangements of a scheme, but the 2009 legislation, brought forward by Senator JIm Walsh's party, gave trustees the option of not paying in the event of a wind-up to facilitate the distribution of funds. Perhaps the Senator look back at this and see whether he still agrees with it.