Sean Barrett (Independent) | Oireachtas source

I move amendment No. 3:

In page 14, between lines 16 and 17, to insert the following:
“(c) a statement of the reasons for the application to include administration costs, the award of added years to retirees, the extent of underestimated longevity, poor investment returns, failure to increase the retirement age and other reasons for the inability of the resources of the scheme to discharge its liabilities.”.

I welcome the Minister to the House following her weekend visit to Kerry.

On the purpose of these amendments, pension funds can go broke for a number of reasons. I did not want an open door to the Minister's Department or the Department of the Minister, Deputy Noonan, without putting some constraints upon it. That is the so-called moral hazard problem in that if people who make the wrong choices do not bear some of the consequences, they will continue to make the wrong choices. As the Minister knows because we have discussed it many times, Ireland has been more prone to that than virtually any country we can name. We have had a posse of people from the financial sector into the Department of Finance taking large amounts in supports and bailouts including insurance companies, which have been doing it since the mid-1980s, failed banks and credit unions, which is a recent development involving €52 million. We have had unreliable accounts forming the basis for Government acquisitions, and we find now that the deficit is far greater than we hoped, and badly-run pension funds might go broke because of many factors that we have mentioned.

There is a wish in society that we would no longer live in the unrealistic expectation that whatever mistakes one makes one will be bailed out by some fund or other, and that there is always somebody who will pay. It weakens the standing of financial services here to have a trail of mendicants going into the Minister's office and the office of the Minister for Finance, Deputy Noonan.

What the Bill requires of somebody seeking this assistance is that an actuary shall prepare a statement on the difference between the liabilities in respect of the benefits referred to and the resources of that scheme that are available to discharge these liabilities. Under subsection (2) that statement is then sent on by the trustees to the Pensions Board and a copy of the statement under subsection (1).

The amendment proposes to seek other types of information we believe should properly be part of the assessment of that request from the Irish financial sector for assistance. They include administration costs. Page 1 of the Department's 2012 document on pension charges states that if somebody aged 35 put €250 a month aside for 30 years there would be a fund of approximately €200,000, with a pension of about €10,000 per annum. If an average charge for administration of 2.18% per annum is applied, the final fund is reduced to €62,000, resulting in a lower pension of €6,900 per annum. That is a 2.1% decrease, and some funds in Ireland have a higher administration cost. That contrasts with the United Kingdom, which was aiming for a figure of 0.75%, and the Legal & General company, which we discussed on Committee Stage, which says it should be done at 0.5%.

If one of the reasons this fund is looking for assistance from the Minister, and a recommendation from the Minister for Finance, is that its administration costs are too high, I am trying to give the Minister the power to say we should emulate Legal & General or the UK system and have a 0.75% administration cost or, better still, an administration cost of 0.5%. If people have excessive administration costs, and the Minister's example shows how much that is reducing pensions already, can we put the grip on the pensions industry to ensure it does not get itself into trouble as a result of excessive administration costs? That is the purpose of the first amendment.

My second point is on the award of added years. That was a custom during the unrealistic era the Minister described recently. It is surely a measure of irresponsibility that people around a table decide to award themselves more money, bankrupt a fund and then confer that debt on the future members of society. The Minister should have an ability to say she does not think much of the awarding of additional years that got them into trouble. I presume the practice of awarding extra years has stopped. It was a form of insider dealing in pension funds in that the people in the room were very happy but they piled a huge bundle of debt either onto the Minister, the Minister for Finance, Deputy Noonan, or the other members of the scheme.

The Minister referred to the extent of underestimated longevity in the introduction. In response to that case being made by actuaries, we have the graph on that. The Department of Health and the Central Statistics Office have known for years that life expectancy was increasing. Why did it never dawn on those people running pension funds?