Joan Burton (Dublin West, Labour) | Oireachtas source

The question of what one does with somebody's lump sum on retirement is a very delicate and tricky investment strategy. In terms of regulation, a company director and experienced businessperson may be in a rather different place when it comes to managing their retirement fund than somebody whose practice has been in the medical or legal field and who is not used to managing investments. It is a big issue for defined contribution schemes, which are increasingly what we have nowadays. The practice has been to provide for a retirement annuity.

As the Senator conceded, since 2012, we have successfully introduced sovereign annuities because the previous annuity that was available was through and related to German bonds. Given what happened in the financial markets, because of their value and desirability, German bonds became extremely expensive and offered almost no return. We have developed an alternative product of sovereign annuities based on a mixed basket of annuities. If memory serves me correctly, since their establishment in 2012, there has been an investment of about €1.3 billion into sovereign annuities which, as the Senator noted earlier, have returned quite attractive yields. However, it is a basket of annuities rather than German annuities which have been considered the safest in the context of the eurozone.

Senator Walsh's proposal is to invest in an approved retirement fund. The problem is that depending on the level and the rate of distribution the fund may run out. In his example he said that with an annuity somebody who lives for a limited period of time will not have utilised his or her full capital. Equally in an approved retirement fund, at the other end of the scale if people live for an extended period of time, the time may come when that person has utilised the ARF. We are trying to balance risk and longevity, which is not fully known. We have simply taken the best advice available.

The Senator seemed to imply that people in a defined contribution scheme could not get involved in an ARF. My understanding is that they can get involved in an ARF. Perhaps I misunderstood what he said. In a defined pension scheme, because of how the schemes have been structured, it has taken the annuity route. Particularly since the development of the sovereign annuity we have taken into account the points he is making of the extraordinary expense with low level of return of the annuity. The modified sovereign annuity addresses some of the issues he has raised.

I understand the Senator's concerns but I do not propose to accept the amendment because I believe the arrangement around the annuity is such that while at particular times it can be difficult at other times it makes considerable sense and it provides for a lifetime, whereas the Senator's proposal has a risk that at a certain point the ARF will become exhausted.