Joan Burton (Dublin West, Labour) | Oireachtas source

The amendment broadly entails placing a debt on employers and we discussed this on Committee Stage. Defined benefit pension schemes are set up and maintained by employers on a voluntary basis. There has never been a statutory obligation on them under Irish law to contribute to their pension scheme, although scheme rules can place some level of obligation. However, a robust regulatory structure is now in place and that is set out in trust law and in the Pensions Acts.

As set out in previous discussions, many schemes are making great efforts to ensure their ongoing viability. The process is generally managed through dialogue between trustees, employers and members where efforts are made to reach agreement regarding the steps that must be taken to secure scheme viability, which may include a mix of measures such as increased employer-member contributions, longer working and amended benefits.

It is important to recall that the biggest cause of the under-funding of Irish pension schemes has been, among other things, the change in population structure. Many of these schemes, including that referenced now by Senator Norris, were set up a long time ago when the expectation of the length of time that somebody would claim a pension subsequent to their retirement was a fraction of what it is now. The promises often made by good employers when such schemes were commenced and the structures were established were reflective of the life expectancy of the times and, therefore, what could be promised in good faith. The difficulty that has arisen is that longevity post-pension has changed beyond all recognition from what it once was. It has improved considerably, which is good news. The issue that now arises is how this enormously increased longevity is to be funded. These are funded pension schemes. Ultimately, all pension schemes are funded in one way or another.

What we are trying to do by way of this Bill is ensure fairness for current pensioners. In this regard we are introducing a number of rules, including protection for people whose pension is lower than €12,000, a contribution by people who pensions are between €12,000 and €60,000 and a higher contribution by those whose pensions are greater than €60,000. However, the longevity issue remains a problem for many schemes. As stated by different contributors to this debate, the international financial markets have been in turmoil and in many instances returns have collapsed. In many cases, according to reports by the Pensions Regulator, some of the investments made were the wrong type of investment at the wrong time. In some cases there was over-investment in equities and bonds, which investment strategies did not work to the collective advantage of the scheme.

As I stated, current and former pension members are collectively protected by a broad and detailed range of measures to safeguard their interests. The trustees of DB pension schemes have a fiduciary duty under trust law and the pensions Act to act in the best interests of all scheme members. There are further regulatory safeguards and oversights by the pensions board and scheme trustees have to apply to the pensions board before they can reduce benefits. Also, prior to trustees making an application to the board they must consult with the employer, the scheme member, pensioners and the authorised trade union representing scheme members. Trustees must also have undertaken a comprehensive review of the scheme with a view to its long term stability and sustainability. They must have requested from the employer contributions sufficient to ensure the long-term stability and sustainability of the scheme and to take legal advice on their powers and duties and on the obligations on employers to contribute to the scheme.

I said previously that a great deal of consideration was given during the deliberative process to placing a statutory obligation on the employer to provide a base level of scheme funding which would secure a certain level of benefits in the event of a scheme wind-up or restructuring.

The advantage of placing a minimum obligation on the employer would be to reduce further the possible risk to the State. It would also protect the benefits of current and former scheme members. As has been said, it might also prevent the employers from walking away from defined benefit schemes. It would encourage them to ensure the scheme is well funded and managed. However, there are strong arguments against the introduction of an employer obligation. There is uncertainty about the overall impact of such a measure and the potential for it to have unintended consequences. One of the industry commentators, Deloitte, has argued that "if implemented, this "debt on employer" measure has the potential to effectively eradicate the provision of private DB pensions in Ireland". That is really the net point.

I understand what the Senators are trying to achieve in this amendment - their general intention or objective is to conserve and secure, in so far as is possible, direct benefit schemes to provide for the current and retired members of such schemes - but I am concerned that this amendment carries the risk of having the direct opposite effect. There is a danger that in order to avoid debt - a debt on the employer is proposed in the Fianna Fáil resolution - some employers with underfunded schemes would wind up those schemes in advance of the completion of the legislative process, which would be complex and would take some time to put in place. Experience in the UK has shown that complex anti-avoidance structures with the requisite resources and expertise were required to prevent employers from restructuring in order to avoid their obligations. This complexity includes application to single employers and multi-group schemes. Particularly in the case of Ireland, employers with multinational parent companies might well walk away to avoid a further debt on the employer, perhaps in the context of the group finances in a country like Ireland. That is a serious and present risk.

As I have said, most employers are good and honourable in relation to pensions. The problem is that the levels of promises given and the levels of funds entered into have not been sufficient to cope with the increased longevity of people claiming from the fund. The turmoil in the international financial markets happened after people made decisions on the basis of expensive actuarial and pension fund advice which often turned out to be wrong. I am reminded of the consequences for patients when doctors differ. Concerns have been expressed that debt on employer schemes may encourage imprudent investment behaviour by trustees as losses are seen to be backed by a kind of guarantee. In the current economic circumstances, in which many employers do not have the capacity to meet this extra cost, the imposition of additional costs on employers might have a counterproductive impact on the viability of businesses and the jobs of those employed. The imposition of a debt on the employer might threaten the company's financial stability. In some circumstances, depending on the particular circumstances of the case, it has the potential to render an employer insolvent. That, in turn, would have an impact on the company's creditors, who might take a view on the obligations imposed on the employer in the context of the debt on employer approach. That would affect company debt, investment and growth and the employer's ability to raise funds.

I understand that the Senators have tabled this proposal because they wish to protect the interests of existing pensioners, in particular. The problem is that they are advocating the use of a double-edged sword. If this approach results in an excessive debt the employer is not in a position to meet, or to fund through the markets, its ultimate consequence might be the closure of the scheme, which is most certainly not what the Senators intend.

Moreover, in some cases, it could lead, as a consequence, to the potential insolvency of the employer. Employer guarantees have been considered by the Pensions Board a number of times and it has recommended against such a measure. Again, I note the Pensions Board is comprised of a wide variety of people from different backgrounds. It includes people from both employer and trade union organisations, as well as representatives from the pensions industry who are experts in this regard. Given the complexity and the number of unknowns regarding the impact and the current time constraints, I do not propose to accept the amendment and intend to proceed with the measure.