Seanad debates
Tuesday, 8 March 2005
Social Welfare and Pensions Bill 2005: Report and Final Stages.
5:00 pm
Paddy Burke (Fine Gael)
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I remind the House that a Senator may speak only once on Report Stage, except the proposer of an amendment who may reply to the discussion on the amendment. On Report Stage, each amendment must be seconded.
Amendments Nos. 1 to 3, inclusive, are related and may be taken together by agreement. Is that agreed? Agreed.
Sheila Terry (Fine Gael)
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I move amendment No. 1:
In page 22, between lines 41 and 42, to insert the following:
"30.—The Principal Act is amended in section 10 by inserting the following new paragraph after paragraph (a):
(aa) to carry out periodic reviews in order to ensure that there is a fair consumer-provider balance in the regulation and control of the pensions industry.".
I apologise for boring the Minister but I want to conclude the debate on amendments Nos. 1 to 3, inclusive, which began on Committee Stage as amendments Nos. 8 to 10, inclusive.
Senator Jim Walsh intervened in the debate on Committee Stage. He may have come to the House late because I do not believe he heard exactly what I said earlier in respect of the amendments. I stated that I was concerned about the extent of the tax relief the Government is giving in terms of occupational pensions scheme contributions. I inquired whether it is obtaining value for money from this tax relief provision that has been extended to the pensions industry. I am not advocating that reliefs to this industry should be withdrawn, I merely wish to ensure that the Government and taxpayers are getting value for money from them. I made the point that if the tax relief were withdrawn, it could be spent elsewhere and perhaps used to increase the non-contributory old age pension and extend it to others. We are giving generous tax reliefs to the pensions industry and we should receive value for money in respect of them. Will the Minister ensure that value for money is obtained when tax reliefs are extended to this sector and others?
The Minister is now extending the funding period by seven years, from three to ten years, to companies which find themselves with schemes that are underfunded. I cannot see how he will alleviate the difficulties experienced by companies with these underfunded schemes. We were told as far back as 1996 that schemes were underfunded and in difficulty. By extending this funding period to ten years, we will not be in a better situation in seven years' time. This is facilitating the pensions industry and we are not demanding anything in return. The Minister said that if he obliged the companies to have their pension schemes fully funded in three years, then many companies could go to the wall. What about the pensioner who is not getting his paid-up pension? By giving this seven year extension to companies, we will be in an even worse situation in seven or ten years' time.
I accept that companies are in difficulty, but they are not doing everything they can to ensure that pensions are preserved. While the pensions industry is doing everything it can to ensure that the industry will not be out of pocket, pensioners will be out of pocket and this funding period will do nothing to help the problem. Instead, it is putting off that day when the industry will have to face up to its responsibilities, yet its schemes will still be underfunded.
I ask the Minister to accept these amendments. We should ensure that the consumer is protected. I have suggested simple measures that could be put in place to provide some protection for the pensioner and that will help to ensure that the pensions industry is not always seeking extensions that are changing their funding schemes from defined benefit to defined contribution.
It is time the Minister stood up to the pensions industry. It is time he ensured that the trustees looked after the money with which they are entrusted on behalf of their employees. The Minister has been given one hour to reconsider my amendments. I hope he sees the value in them and accepts them.
Kathleen O'Meara (Labour)
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I second the amendment. I support what Senator Terry said about the consumer and the protection of the consumer. We only have to think of the changes brought in on the way banks publish details which were hidden in the past, such as APR rates on loans. It became necessary to specify clearly what banks were required to publish for the customer. If it had not been required in the legislation, we know that it would not have happened. Companies are not inclined to tell people the full story.
Amendment No. 3 deals with advertising by pension providers so that consumers would be alerted to the risks, fees and all charges associated with taking out and maintaining a pension. That is a useful amendment and the Minister should consider accepting it so that the consumer can be protected. One could say that we are bending over backwards, but it is necessary to do that as we have seen from our experience with the banking industry. Banks are required to write to inform us how much we are being charged for each transaction, cheque and so on. Such information was buried inside statements in the past, but it is now published in separate statements. That has made a huge difference. This amendment would support the Pensions Board in acting on behalf of the consumer.
Séamus Brennan (Dublin South, Fianna Fail)
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I thank Senator Terry for moving this amendment again. While I do not have any difficulty with the concepts in these amendments I am seeking a fair balance between the consumer and the provider and a code of protection for the consumer informing the participants about charges and so on. All of these are covered in the various regulations about which I spoke on Committee Stage. The Director of Consumer Affairs is on the Pensions Board. There are requirements to inform people about charges and there are a host of regulations regarding the work and responsibilities of the Pensions Board. The objectives laid down in these amendments are well and truly covered.
I want to protect the consumer in the same way as every other person in this House. I will examine anything else that can be done to reassure consumers. I take the point that Senator Terry made about the €3 billion deficit in the pension fund in the top ten Irish plcs. That is an accountancy deficit and is not something that would be called on immediately. It is the result of the changes in bonds and yields from bonds. If one was to react and demand immediate compliance and full cover, then matters could be made much worse. It is better to get them into shape than drive them out of business.
However, I have an open mind on this issue. I have the same objective as the Senators, which is to protect the consumers and the pensioners. I am advised by the Pensions Board, which is required by statute to advise me, that the best way to do it is to give the extra number of years to monitor the pension funds on a monthly basis. They can gradually be brought to a situation where we have full funding.
I brought forward, from 2006 to the summer of 2005, the report of the investigation of the Pensions Board into the adequacy and the coverage of pensions. The board will consider the funding standard and how we can improve matters in that area. I do not wish to be blasé about this and state that there is no cause for concern. There are issues surrounding pension funds, such as accountancy deficits and funding standards which have to be addressed. There is a movement from defined benefit to defined contribution, as well as changes regarding the risk which is transferred to the employee. All of these changes are ongoing and I am well aware of them.
The funding standard is formally monitored on an annual basis. Companies would receive regular information from the funds as to how they are meeting the funding standards. They are formally required to make an annual assessment of the measure against the funding standard that is required. I support the direction in which the Senator is going with regard to these amendments but I am arguing that currently, by and large, they are taken care of.
However, that is not to say that there are not other issues concerning further consumer protection. The best protection for consumers is to ensure that their funds are fully funded and adequate to meet requirements. The Pensions Board is working on that issue and monitoring it daily for me. I will continue to examine what more I can do to ensure those funds are fully able to meet its requirements.
Sheila Terry (Fine Gael)
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I wish to reiterate my disappointment that the Minister is not accepting any of the three amendments. I thought that, at least, he could take on board amendment No. 3, which states:
All advertising carried out by or on behalf of pension providers shall include a warning (of equal prominence as the substance of the advert) alerting consumers of the risks, fees and all charges associated with taking out and maintaining a pension.
Banks do that, although I am not sure if they are obliged to do so. However, it is something the pensions industry should be doing as a matter of course. The Minister is extending money to the Pensions Board for its public awareness campaign, which covers the promotion of pensions. Some of that money should also be spent on alerting people to the risks associated with taking out occupational pension schemes, especially the defined contribution schemes. That is the least the Minister could have accepted.
Séamus Brennan (Dublin South, Fianna Fail)
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On a point of information, in the case of PRSAs, IFSRA insists on advertising carrying the kind of warning the Senator is seeking. Therefore, what the Senator wants to achieve with regard to PRSAs is already the case. IFSRA insists upon it.
Sheila Terry (Fine Gael)
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While that is to be welcomed, why can it not be extended to all occupational schemes?
Séamus Brennan (Dublin South, Fianna Fail)
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I presume that members of all occupational schemes are made fully aware of the conditions of the schemes and are fully informed of their contents.
Sheila Terry (Fine Gael)
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I hear of many schemes being advertised yet there is no warning attached to them. There should be. Perhaps the Minister could examine that matter.
Sheila Terry (Fine Gael)
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Such a provision does not have to be included in the legislation but the Minister could introduce it at any time. I am left with no option, therefore, but to withdraw the amendment.
Sheila Terry (Fine Gael)
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I move amendment No. 4:
In page 26, between lines 16 and 17, to insert the following:
"33.—The Principal Act is amended by inserting the following new section after section 36:
36A.—(1) A pensions provider operating or providing a service in the State shall, as and from 1 January 2006, furnish evidence acceptable to the Minister that the pensions provider, has entered into an arrangement satisfactory to the Minister for the protection of persons who, enter into contracts with the pensions provider.
(2) The arrangement referred to in subsection (1) of this section is in this Act referred to as 'the Bond'.
(3) The Bond shall provide that, in the event of the inability or failure of the pensions provider concerned to meet its financial or contractual obligations in relation to the provision or maintenance of pensions, a sum of money will become available to the Minister, or to any person nominated or approved of by the Minister, as trustee, to be applied for the benefit of any customer of the pensions provider concerned who has incurred loss or liability because of such inability or failure to meet financial or contractual obligations.
(4) The Minister or, as the case may be, the person nominated or approved of by the Minister, as trustee, shall keep all proper and usual accounts, including an income and expenditure account and a balance sheet, of all moneys received by him on foot of a bond and of all disbursements made by him or her from any such moneys.
(5) As soon as may be after the end of each year, accounts kept in pursuance of this section shall be submitted to the Comptroller and Auditor General for audit and, immediately after the audit, a copy of the income and expenditure account and of the balance sheet and a copy of the report of the Comptroller and Auditor General on the accounts shall be laid before each House of the Oireachtas.
(6) Without prejudice to any existing right of a customer of a pensions provider to recover damages in relation to breach of contract, nothing in this section shall be construed as enabling such customer to recover any damages out of any sum of money made available under the Bond.
(7) The Minister may, by regulations, provide that—
(a) arrangements in relation to the Bond shall be entered into only with persons of a class or classes specified in the regulations, and
(b) the Bond shall be for such minimum sum and valid for such minimum period as may be specified in the regulations.".
This amendment is timely in that it represents a continuation of the debate we have just had. It seeks to put in place a bonding scheme to which all pension providers would have to sign up.
The proposed section 36A(3) states
The Bond shall provide that, in the event of the inability or failure of the pensions provider concerned to meet its financial or contractual obligations in relation to the provision or maintenance of pensions, a sum of money will become available to the Minister, or to any person nominated or approved of by the Minister, as trustee, to be applied for the benefit of any customer of the pensions provider concerned who has incurred loss or liability because of such inability or failure to meet financial or contractual obligations.
I am seeking a bonding system to be put in place as a safety net where a company fails to meet its obligations, where its scheme is underfunded or where the scheme is wound up. We know that is happening today. Perhaps the Minister could provide me with the figures concerning schemes that are currently underfunded, as well as those which have been wound up or are in the process of being wound up. The Pensions Board must be made aware of those situations. Will the Minister provide me with the number of such schemes?
If such a bonding scheme was established, it would provide a safety net for the individuals concerned. Consumers are entitled to that. Bonding schemes are already in operation in many other industries. For instance, it has been a valuable tool in the airline industry in cases where holiday makers are left stranded abroad. Under the scheme, the airline industry can step in at a moment's notice to fly individuals home. If an airline goes bankrupt before a voyage occurs, people can be refunded the cost of their holiday.
The amendment would provide the Minister with another option to provide a safety net for consumers. Given the profits that pension companies are making, they should be providing such a service. In light of the generous extension of the funding period the Minister is affording such companies, he should request them to provide this service in return for his generosity. The Minister has been extremely generous to pension companies in giving them a further seven years to ensure their schemes are fully funded, yet he is not asking for anything in return. We should aspire to ensuring that our consumers are protected.
Kathleen O'Meara (Labour)
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I second the amendment and support the idea of a bond, in principle. I would be interested to hear the Minister's response to this proposal. As Senator Terry said, it has been found necessary to put such a bonding system in place in other sectors. Given the impact on people of losing their pensions, should a provider fail to do what it says it will do, the idea certainly seems to be worth considering.
Séamus Brennan (Dublin South, Fianna Fail)
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I thank Senators for raising this issue, which needs to be considered. It involves many complicated aspects. The Pensions Board has advised me that it does not support the immediate introduction of a protection fund. However, the board has recommended me to consider it in the medium term, taking into account the UK experience, in particular.
The pension benefit guarantee corporation has operated in the United States since the mid-1970s. More recently, arrangements have been made for the new pension protection fund in the UK. On a recent visit to London, I discussed the operation of that fund with the authorities there. I came to the conclusion that they are not yet fully satisfied that the fund will do what is required of it. They want to take some more time to see how it works.
The issue of pension protection for defined benefit schemes was considered by the Pensions Board during the recent review of the funding standard. They came to the conclusion of which I have just informed the House. The pension benefit guarantee corporation in the United States is funded by insurance premia, investments and assets of plants that are taken over. The UK's pension protection fund will be funded by a levy on all defined benefit schemes. I am told that is having certain effects already in pushing people out of defined benefit schemes and into defined contribution schemes. They do not have to pay the levy because they are in contribution schemes as opposed to defined benefit schemes. That seems to have been an unintended consequence of the establishment of the new fund.
The Pensions Board recognises, as I do, the substantial potential benefits of a well-designed pension protection fund. I do not rule out a protection fund or a bonding system but we are not in a position to address the matter in this legislation. It is too complicated. A great deal of practical and technical issues require further discussion in this House, the other House and at Government level.
I have taken into account examples from other jurisdictions. On my visit to the United Kingdom, I detected considerable uncertainty there as to how the pension protection fund will work out. In the United States the protection fund, the Pension Benefit Guarantee Corporation, is itself in considerable deficit and a degree of uncertainty now surrounds it.
I do not say "No" to this proposal. In the medium term some form of protective net may be required. Bonding is one approach, protection funds are another but no matter what we do we must ensure we make matters better not worse.
I have details of the number of defined benefit schemes that failed the funding standards up to November 2004. I can provide Senator Terry with tables detailing the information. If she wishes I can provide her with the current position in writing. In 2003, 484 funding certificates were received. This was the board's experience of funding certificates and proposals from the beginning of 2003 to 5 November 2004. The number of funding certificates increased to 549 in 2004. A total of 408 out of 484 schemes satisfied the funding standards in 2003. A total of 317 out of 549 schemes satisfied the funding standards in 2004. I can provide Senator Terry with more detail on the matter and will correspond with her on the subject as soon as possible.
Senator Terry must wonder why I am not doing what I say. I cannot do it in the way she prescribed. It is worthwhile in the medium term examining whether some protective mechanism can be put in place, either by means of UK or US-style protection funds or a bonding system such as in the example Senator Terry gave in regard to the travel trade and other professions. I am not in a position to address the matter now.
The Pensions Board looked at this issue during its examination of the funding standard and did not recommend the immediate introduction of such a fund. However, it recommended its consideration in the medium term. It is watching very closely how the UK experiment, in particular, works out. That is probably the prudent thing to do. We will keep it very much on the agenda. Although I do not accept the amendment I will keep the matter on the Government's agenda. We need to find out more about how it works, especially in the UK, and see if we can learn lessons from that experience.
Sheila Terry (Fine Gael)
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I welcome the Minister's understanding and his sympathetic approach to this matter. I hope he will consider such a protective fund for the consumer. I do not accept that people are moving from defined benefit schemes to defined contribution schemes in the UK as a result of the charge. I believe people would be willing to pay if they thought their funds would be protected. It is like an insurance policy. That makes sense to me, as there is no protection for them at present. It is something worth examining. I believe there would be a large take-up if people could pay an insurance fee to protect and hold on to their defined benefit schemes.
I thank the Minister for the figures he outlined. As I have only raised the matter I accept that they may not be comprehensive in terms of the number of schemes that are underfunded or have been wound up. If my calculation is correct, 232 schemes were either underfunded or were wound up in 2004. That is a worrying increase on the 2003 figures.
Séamus Brennan (Dublin South, Fianna Fail)
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They were not wound up.
Séamus Brennan (Dublin South, Fianna Fail)
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They did not meet the funding standard, which was very conservative.
Sheila Terry (Fine Gael)
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That is the same as being underfunded. If schemes do not meet the funding standard, they are underfunded. The figure for 2004 is most worrying. We can take it that by the end of 2005 the figures will have increased even more. That is a worrying trend. The number of schemes that do not qualify is spiralling. Extending the funding period to ten years, as the Minister has proposed, will do nothing to address that situation.
The Minister should advance the bonding proposal. It would be a most welcome measure that might make the pensions industry sit up and take notice of its obligation to look after consumers, rather than just lining its own pockets with profits from the exorbitant fees and charges it demands. I take on board what the Minister said. I look forward to him coming back in future with a proposal in this regard to protect scheme members before the situation gets any worse. Matters are disimproving on an annual basis.
Sheila Terry (Fine Gael)
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I move amendment No. 5:
In page 30, line 19, after "may" to insert "carry out some borrowing only for liquidity purposes and on a temporary basis".
This matter is one which causes me great concern. I was not convinced on Committee Stage that the Minister was looking after the best interests of the consumer. I am sorry to attack the Minister all the time but, as I said earlier, it is nothing personal.
I read the EU directive carefully. It states that the home member state shall prohibit the institution from borrowing or acting as a guarantor on behalf of third parties. However, member states may authorise institutions to carry out some borrowing only for liquidity purposes and on a temporary basis.
I am sorry to have to remind the Minister again that he agreed with that in the Dáil when he spoke on the Bill on Second Stage. He took the view that if this was a prudent rule for some schemes, it was prudent for all, an approach supported by the Pensions Board. Somehow or other, between Second Stage and Report Stage in the Dáil the Minister changed his mind. He did a U-turn and introduced an amendment that would allow him to exempt certain schemes from this prohibition by regulation. Article 18.2 is clear in its terms and it is not subject to any derogation. The Minister knows the clause to which I refer, as I previously read it out. For the most part, section 36 of the Bill as initiated gave effect to this requirement. Paragraph 15 of the preamble to the directive allows member states to exempt schemes of fewer than 100 members from this requirement. As a result of the Minister's U-turn, we face the prospect of Ireland being sanctioned by the Commission for being in breach of EU law. Member states have an obligation to transpose directives. The Minister will be aware that while there is some degree of flexibility with regard to how member states go about implementing directives, there is no flexibility in terms of the objective to be achieved. Article 22.1 provides that member states shall bring into force the laws, regulations and administrative provisions necessary to comply with the directive. Under Articles 22.3 and 22.4 member states are permitted to postpone the implementation of Articles 17.1, 17.2 and 18.1(f) but there is nothing in the directive which releases the Government from fully implementing Article 18.2 within the deadline provided.
Will the Minister explain under what provision of the directive he is permitted to allow for borrowing in any circumstances as the Bill provides? He must explain what motivated him to make this U-turn. He should state whether he or his officials had meetings with pension industry representatives who raised this point and explain why he did not take the advice of the Pensions Board not to make this amendment.
The Minister stated earlier in the debate that he did not want to prevent a person from providing for his or her pension by buying a property for his or her business. That is not the purpose of pensions. If an individual wants to buy a property, whether residential or commercial, there are ways of doing so. For example, he or she could borrow the money from a bank if capable of making the repayments. However, to use a pension fund to allow somebody to buy property is not the purpose of the pension fund. This would not abide by the directives whereby we must have a good spread of investment and it does not provide for somebody buying a property for his or her pension.
As Senator O'Meara noted, many people are buying property for their pensions instead of buying into pension industry schemes. However, the Bill is not a vehicle for doing this and it is strictly prohibited in this EU directive, which we are obliged to implement. We can only borrow for liquidity purposes and this must only be on a temporary basis. What the Minister is providing for is not for liquidity purposes. The wording in his amendment flies in the face of what is provided for in the EU directive. I would like to hear the Minister's response.
Kathleen O'Meara (Labour)
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I second the amendment. What Senator Terry stated is important. Her suggestion that the Minister may have changed his mind since speaking on the Bill in the Dáil is a matter of some consequence. I would like to hear the Minister's response because important issues relate to the amendment. I thank Senator Terry for proposing it.
Séamus Brennan (Dublin South, Fianna Fail)
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The Senator asks me to reverse an amendment which I put forward and dealt with on Committee Stage in the Dáil. When I spoke in the House on Second Stage, the amendment broadened the regulatory power to allow borrowing for more than liquidity purposes, as the Senator noted. I made the amendment to allow me flexibility to respond to concerns raised in a significant volume of correspondence received by me and some comment in the media regarding borrowing by pension schemes for investment purposes.
I do not want to interfere with the proper running of pension schemes and do not see any difference between a scheme with 100 members and one with 95 members, for example. The prudential concerns are the same in both cases. That said, I am not convinced that the same prudential concerns arise in regard to single member schemes. I am concerned that changes in this area could adversely impact on coverage. I am conscious of the advice I have received from the Pensions Board. Moreover, there are prudential requirements in regard to PRSAs, which are effectively single member schemes.
The borrowing issue cannot be seen in isolation from other investment rules which may, in any event, indirectly impact on any facility to borrow. All of these issues need careful consideration and for this purpose I am establishing a working group comprising my Department, the Department of Finance, the Revenue Commissioners, the Pensions Board and the Irish Financial Services Regulatory Authority. I have asked the group to examine all issues related to borrowing and investment. I will consider its view fully before making the regulations.
I inserted an amendment in the Dáil which will allow me to make the regulations I will have to make before September, when the directive kicks in. Before then, the working group comprising the various bodies involved will consult as to how best to make any such regulations.
With regard to U-turns, it depends on from where one starts. The present situation is that one can borrow for single member schemes and the Bill does not change this situation. Rather, it might be suspected that we are reverting to the previous position which is that, as the former Minister for Finance, Mr. McCreevy, arranged last year, one could borrow for small single member funds.
I take the Senator's point that an issue arises in that for a person to buy a property for a pension fund is not the purpose of a pension. That said, my responsibility concerns the prudential side rather than tax breaks for pensions, which are a matter for the Minister for Finance and a broader issue. The issue concerns whether one is to allow a person who wants to buy a property as a pension to borrow money to buy that property. Do I have prudential responsibilities to protect an individual pensioner from himself or herself?
Large pension funds are not allowed to borrow because they have a multiplicity of members and are administered by pension trustees, as are small funds. They must have a mix of investments, equities, bonds and properties and, therefore, the members are a long way back. As a result of this, they must be protected by law, which is what the EU achieved as does our directive. However, with regard to an individual who buys a property and puts it into a pension fund, although there is a legal distance, there is not a great distance between the pensioner, the trustees and the investment manager. Arguably, one might be talking about three people in a closely knit pension fund.
We will examine whether we need to close this loophole. However, as one is allowed to do this, no U-turn has taken place yet. It could be argued that if I was not to do what I am doing, I could be accused of a U-turn. I am closing a gap that currently exists. One is currently allowed to borrow money for small schemes. I have taken power to allow the possibility of continuing this because that is my thinking at this time. However, we have until September to allow the group to consider how far we should go. It may be that the group, comprising IFSRA, the Revenue Commissioners, the Department of Finance, the Pensions Board and my Department, will come to a conclusion and advise me that some limitation on borrowing or some ratio between borrowing and the fund might be useful. If they recommend that, we will consider it. I hold no brief for people amassing properties but I hold one for extending coverage. I do not want to make speeches up and down the country, begging people to take out increased pension cover and protect themselves by building a pension fund and then introduce legislation which makes it harder for them to do that. I am trying to extend coverage, to give people options to provide for themselves. I see the tax issue as separate and broader but from a prudential point of view, we must encourage rather than discourage the individual providing for his or her future in a pension fund.
I will take account of what the Senator has said as an input to the deliberation of the group between now and September but I need to be convinced of any need to change the situation. We will see if the group has strong views on that. The legislation merely gives us the powers to make those regulations. We are not currently making them.
7:00 pm
Sheila Terry (Fine Gael)
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The directive is clear in setting out what a member state institution can do. It can borrow only for liquidity purposes and on a temporary basis. Investing in a property through a pension fund does not improve anyone's liquidity and is certainly not on a short-term basis.
I see no need for this working group. The Minister could withdraw his amendment tonight, accept mine or contact the EU Commission, which I am surprised he has not done, to see if we will be materially breaching this EU directive. If the Minister proceeds with this tonight, I will contact the Commission and ask if the Minister is in breach of the directive.
The Minister did not answer a number of questions I put to him about who convinced him to change his mind on this matter on Report Stage in the Dáil. He said he received correspondence. I would bet my bottom dollar that the correspondence was from the pensions industry because this is a very lucrative loophole for it.
The Minister referred to newspaper articles, which I also read. The sequence of events is interesting. Those articles were published on Sunday, 27 February. At that stage the Minister had not done his U-turn. The articles indicated that the Minister might make a U-turn. They make interesting reading. While the journalists' bylines were attached, I would also bet they were written by those in the pensions industry. These articles greatly encouraged the Minister to make a U-turn and, lo and behold, he came to the Dáil on Tuesday, 1 March and did so. In last Sunday's newspapers, there was no mention of that U-turn. The articles' purpose was to influence the Minister and they did so, along with the correspondence the Minister received and any other contact he had with the pensions industry.
This confirms much of what I have been saying, namely, that the Minister is greatly influenced by the pensions industry and bends over backwards to facilitate it. However, I have heard nothing from the Minister tonight regarding efforts to protect the consumer, nor have I heard anything from the industry in that regard. I am also concerned about the EU directive. If the Minister contacts the Commission tomorrow it will give him the advice he needs. If I am wrong, I will admit it. The Minister does not need to set up this working group.
The Minister should accept my amendment tonight or at least return to the Bill as initiated because if he continues down this road we will be in trouble. I do not want to wait until September to see whether another working group will tell the Minister he is right or wrong.
I am not convinced of the Minister's argument about encouraging people to buy properties through their pension funds. The Minister knows well that only very wealthy individuals with very large pension funds will do that. The ordinary PAYE worker on a modest income will not be availing of it. Once again, it is the wealthy who will be helped by this and who will avail of further generous tax reliefs. That is not how we should be dealing with our pension schemes.
Séamus Brennan (Dublin South, Fianna Fail)
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I can save the Senator a telephone call to the Commission because those calls are expensive nowadays. The directive states:
With the exception of Article 19, member states may choose not to apply this directive in whole or in part to any institution located in their territories which operates pensions schemes which together have less than 100 members in total.
It is quite clear from this, Article 5 of the directive, that we are fully authorised to introduce an amendment if we wish not to apply the directive in whole or in part in certain cases. That is what the Commission would tell the Senator. I am exercising the option given.
Senator Terry insists that I am somehow working for the pension industry in this matter and she continues to talk of a U-turn. People were already allowed to borrow money as individuals, as one-member pension funds, to buy themselves a property or something to provide for their pensions for the future. I have not altered that. If I implemented the directive in full I would remove that provision. Senator Terry argues that I should remove it. We are heading in that direction but cannot fully make that decision yet. Thousands of people — I do not know the exact number — have used the existing law to borrow from the banks in order to buy properties to provide a pension for themselves and their families. Other than suggesting pension funds are a sinister force, Senator Terry has provided no good reason for me to tell people that I need to protect them against themselves.
I see nobody losing on the present arrangement so I am not minded to change it. I will not suggest that people get themselves sorted with pensions and at the same time tell them I am taking away their rights to set up their own pension funds, buy themselves properties and borrow money to do so. The Senator has given me no good reason to stop people from looking after their individual pensions through the purchase of individual properties if that is their choice.
Senator Terry may have an argument on the tax side but that is a separate issue. Tax breaks for this type of arrangement are a bigger issue. On the pension side, in terms of prudence, many people would disagree with Senator Terry. She herself has half made the argument to me. If a member of her family was joining a pension fund, she might be the first to advise him or her to stick with a shop in a shopping centre, an industrial unit or an apartment.
One would be better off doing this than subjecting one's money to the whims of the Stock Exchange where an Elan-type fall might occur and wipe out one's money in a split second. Culturally, Irish people are attached to bricks and mortar and seem to feel safer with property. The Senator has taken me to task for retaining an existing situation. I will not change it without an extremely good reason and a catch-all directive from Brussels is not enough, particularly when it permits me to make an exemption for such scenarios. I have not yet heard a good reason to prevent ordinary citizens from covering themselves for a pension but if I hear an impressive valid reason, I will consider it.
Sheila Terry (Fine Gael)
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The Minister put it up to me again. I thought I had provided the Minister with numerous reasons he should not continue on his current route. Anyone I know who wishes to buy a property goes to the bank to borrow the money to do so, if they can afford to make the repayments. Pension funds should not be used to do so. I obviously have not made the argument sufficiently well. I thought the terms of the directive clearly implied that one can only borrow for liquidity purposes. I have lost the argument and will await the findings of the Minister's working group.
I thank the Minister and his officials for the time they have given me on this Bill. I ask him to consider a number of the points I raised during the debates and at other times regarding pensions. I raise the issue because a considerable number of people known to me are extremely concerned about their pension provision and suffer at the hands of the pensions industry. The industry is going through a difficult period and people will not receive the pension they had expected and worked for all their lives. Something must be done and people need protection. The pensions industry must do more to ensure that pensions are protected for the future. If they cannot do so, the Minister will be obliged to step in and devise another model. He has previously suggested that he will examine the issue to see whether some other mechanism could be used to provide for pensions. There may be, given the fantastic uptake of the SSIA scheme which people have embraced and from which they will benefit. We are a nation of savers.
I no longer have the statistics to hand, but many people do not have protected pensions schemes. It is all very well for the Members and for State employees who have a protected pension to look forward to. However, a very large percentage of our population does not have a protected pension and thousands more do not have a pension at all. The Minister is spending money in an effort to encourage people to take out pensions but is wasting it, because they will not do so. However, if he can offer something similar to the SSIA scheme, they will take it up. People are not taking up the PRSAs either, as they are not guaranteed. I ask the Minister to consider a number of my points to see if we can work together to make some improvements. I again thank the Minister and his officials for the time that has been put into the Bill.
Kathleen O'Meara (Labour)
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I thank the Minister and his officials for their work on this important legislation. The Minister has onerous responsibilities. The Bill shows this clearly, as it ranges from social welfare to pensions and people's futures. These futures rely on decisions made by the Minister. I acknowledge the work of Senator Terry in raising a number of important issues regarding pensions. SSIAs are very popular because of their attractive return. If the return on PRSAs were as attractive, people would queue to sign up for them as they did for SSIAs. Hopefully, we can return to debate the pensions issue. It would be important to discuss means of ensuring that those who do not have protection get some and those who can make decisions at present to safeguard their future do so. With the help of the Minister and the Pensions Board we should examine how we might facilitate or encourage that to happen.
Margaret Cox (Fianna Fail)
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I thank the Minister and his officials for coming before us today and on previous occasions to discuss the Bill. It is a tremendous achievement. We have had a very detailed discussion about pensions but we should not lose sight of the fact that this is the most significant piece of social welfare legislation that has come before us to date. Social welfare spending is at an all-time high. This year, major increases will make a real difference to the lives of hundreds of thousands of people in receipt of child benefit, disability payments, pensions, respite care grants and a range of benefits paid to the less well off. The Bill also recognises the importance of pensions.
Senator Terry should be complimented, irrespective of whether we agree with the thrust of her specific points on pensions. Her contribution forces us to analyse the information and the work being carried out on pensions. If the working group on pensions reports to the Minister in September, it will have had plenty of food for thought which can only lead to a better situation. I am delighted the Minister has reiterated that next year will see the finalisation of the Government's commitments on child benefit. We also look forward to the introduction of the two-tiered child benefit payment that may address some of the concerns we have about child poverty. I am proud to be on this side of the House, having passed a piece of legislation enabling the highest ever spending on social welfare. I compliment the Minister on the way he must have fought his corner at the Cabinet table.
Séamus Brennan (Dublin South, Fianna Fail)
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I thank the Senators for their consideration of the Social Welfare and Pensions Bill. As I stated earlier, I deliberately used the word "pensions" in the legislation's title for the first time. It would normally be termed a Social Welfare Bill but I included the word to demonstrate my concern about the pensions issue and to acknowledge that an important directive was being transposed.
I thank every Senator who contributed to this debate, particularly Senator Terry who put in a considerable amount of work and raised some challenging issues. I listened carefully to all the arguments that were put forward and have an open mind on these matters. My objective is to bring about better pensions and more adequacy, coverage, security and certainty for our pensioners going forward. I will do whatever it takes to realise that objective.
My reluctance to accept amendments at this stage comes from the complexity of the issues. Some of them are at too early a stage for me to form a definite view on them. I will form a view as soon as possible. As Senator Cox noted, the social welfare aspects of the Bill are also extremely important given that child benefit is such a major investment by the Irish taxpayer. I thank all the Senators for their contributions, I noted carefully what they have said and I will act on it at the earliest opportunity.