Seanad debates

Tuesday, 10 June 2014

State Airports (Shannon Group) Bill 2014: Committee Stage (Resumed)

 

6:30 pm

Photo of Paddy BurkePaddy Burke (Cathaoirleach of Seanad; Fine Gael)
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I welcome the Minister for Transport, Tourism and Sport, Deputy Leo Varadkar, to the House.

NEW SECTION

Photo of Averil PowerAveril Power (Fianna Fail)
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I move amendment No. 17:


In page 31, between lines 24 and 25, to insert the following:
"34. The Air Navigation and Transport (Amendment) Act 1998 is amended by inserting a new section 32A as follows:
"32A. The IAS scheme shall not be allowed to close its pension scheme except where the scheme has reached a minimum 90 per cent funding standard.".".
The Minister referred to this amendment when discussing the Bill last week. Essentially, it provides for a recommendation made by the OECD report on pensions which recommended that in a single insolvency situation where the pensions scheme is insolvent but the sponsoring employer is not, the company should not be able to walk away from the scheme unless the assets in the scheme cover 90% of the pension liabilities. It is incredibly unfair that a company that is still profitable would be allowed walk away from a scheme without ensuring that proper financial provision has been made. The IAS scheme, a scheme into which employees paid contributions from their wages over extended periods, was used for redundancy payments in SR Technics and to incentivise early retirements from the Dublin Airport Authority and Aer Lingus. The employees were given an assurance that they were members of a direct benefits scheme.
We are in a situation where on foot of the legislation the Minister for Social Protection, Deputy Burton, introduced, to which I objected at the time, and the proposed section in this Bill, the IAS scheme will not only be able to wind up without the consent of the employees, under the earlier section which we discussed and voted on last week, but the employers will be able to walk away from the scheme without ensuring it is adequately funded. Whatever about a double insolvency position where the company is insolvent and does not have the money to make up the difference, it is wrong that a financially viable and profitable company should be able to throw people's terms and conditions out the window and close a scheme, into which those employees had paid over an extended period without making proper financial provision.

This is why we are tabling this amendment. It is based on a recommendation by the OECD, which is an expert on pension provisions across OECD companies. Unfortunately, the Government voted against an amendment we moved last week which would have ensured the IAS scheme could not simply be closed down and people's entitlements thrown out the window without their consent. We put the issue to a vote and the Government Senators voted against it. The least we should do now is to ensure that a scheme cannot be wound down unless it is properly funded and the employers' take their fair share of the responsibility for it by ensuring sufficient assets are available to meet liabilities.

6:35 pm

Photo of Leo VaradkarLeo Varadkar (Minister, Department of Transport, Tourism and Sport; Dublin West, Fine Gael)
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I will not be accepting the amendment. As I made clear previously, I cannot impose or prescribe solutions for the current difficulties in the IAS scheme. These are matters for resolution by the trustees, the employers and the Pensions Authority. If this amendment is accepted, it would add a further constraint to what is already a highly complex and inflexible pension scheme. It also carries the implication that the scheme could continue indefinitely with an unresolved substantial deficit in a manner that would be in conflict with the Pensions Act 1990. That is not a tenable situation. The Pensions Authority, as the national regulatory body for pensions, will be the ultimate adjudicator on any decision to wind up this scheme if the parties cannot agree on solutions consistent with the 1990 Act. As I explained last week, I am providing in the Bill for an alternative to a wind up situation should it prove impossible for the parties to agree an acceptable and sustainable way forward. Separately, and based on my own reading, the amendment may be flawed in terms of its intent because it provides that the scheme could not close except where it has reached a minimum funding standard of 90%. A simple way to reach a 90% standard is for the trustees to savagely slash the benefits. I imagine that is not what Senator Power is proposing but it appears that her amendment would allow that as a potential solution.

On Committee Stage I made an observation on the proposals issued by the trustees last March. I implied that the proposals were disproportionate as far as the deferred pensioners were concerned. The trustees have since been in touch with me to point out that what they are proposing is exactly the same for both active and deferred members of the IAS scheme. When I spoke on this last week, I meant to say that I regard the overall package, which incorporates substantial cash contributions from the employers as well as the trustees' proposals, as capable of being improved on as far as the deferred pensioners are concerned. These proposals are subject to ongoing discussions and the trustees have also asked that the position of deferred members and pensioners be taken into account in those discussions. Following a commitment I gave in this House, the expert panel has agreed to meet with the group representing deferred members.

Photo of Averil PowerAveril Power (Fianna Fail)
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I welcome the Minister's response regarding deferred members. It is unfair that they have not been part of the process to date and I welcome that a meeting will take place. I look forward to hearing further details on that subject. The group has done a considerable amount of work on the issue and its concerns deserve to be heard.

I am disappointed, although not entirely surprised given the intent behind this legislation, that the Minister will not accept our amendment on ensuring minimum funding of 90% before a scheme can close. As I pointed out to the Minister for Social Protection in regard to pensions legislation last year, it is wrong that employers are able to walk away scot free without being required to provide a certain level of funding, whether that is 90% or 80%. A profitable company should not be able to walk away from its pension schemes without being required by the Government to ensure they are adequately funded in line with OECD recommendations. It is a shame that the Minister is not willing to listen to reason on this issue and, for that reason, we will be pressing the amendment.

Photo of Sean BarrettSean Barrett (Independent)
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On the issue of pensions in general, trustees must face up to their responsibilities. In regard to the casual addition of extra years or early retirement schemes which run up deficits amounting to hundreds of millions of euro, people must examine their situations so that we do not get a repeat of what happened to the banks in 2008. I note there are complaints on the adjoining island about high administration costs and low investment returns. One of the excuses given for pension funds getting into difficulties is that increases in longevity were unforeseen. I noted previously to the Minister for Social Protection that it has been known for at least 100 years that longevity is increasing. Pension fund trustees have a responsibility not to present bankrupt situations to the Government and asking to be bailed out. In general, financial services in Ireland have not been regulated tightly enough, and pension funds are part of that. Irrespective of whether the board can manage alone or whether pensions schemes should be regulated by the Central Bank, it is part of the picture of a non-performing financial sector, which the Government should address. In regard to the casual way in which red ink appears on pension funds, with the potential consequence of causing disputes and strikes, the causes might bear examination. It would be useful to develop some procedure by which the trustees can explain to members how these deficits were run up.

Photo of Leo VaradkarLeo Varadkar (Minister, Department of Transport, Tourism and Sport; Dublin West, Fine Gael)
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For clarity, it is neither right nor fair to characterise the employers or companies as walking away from their responsibilities. The remaining employers in the scheme, DAA and Aer Lingus, have between them offered to put over €100 million into the scheme. It is not the case that they are walking away from their responsibilities. People are trying to find a solution to a pension scheme with a deficit of over €700 million, and regardless of Aer Lingus's profits last year or the paltry profits of the DAA, their profits would be wiped out for I do not how long if they were expected to come up with that sum of money. The DAA alone has a net debt of approximately €600 million. It is certainly not the case that the companies can bear the entire deficit. A compromise is required whereby the companies put in some money to shore up the scheme or create a new one, and the beneficiaries, whether deferred pensioners or active members, accept reduced benefits. That is the only way this will be solved and it is the way similar problems in direct benefit schemes have been solved. It is a shame that the matter was not resolved a long time ago.

We also should not forget those who have joined DAA in Shannon and Aer Lingus in recent years. This scheme has been closed to new entrants for quite some time, with the result that a considerable number of people working in the State airports and in Aer Lingus have no pension scheme. They are often forgotten in this debate. They have been working for a semi-State company in the case of DAA and a very successful company in the case of Aer Lingus but their only option is to set up their own personal private pension scheme or a PRSA. Part of the solution to this problem will be the establishment of a new sustainable scheme of which they can become members. There is too much keenness in this country to pull up the ladder on young people and new entrants. I want to ensure that whatever arises from this offers a solution to these individuals, about whom nobody seems to be speaking. It is interesting that we have debated the issue in this House for quite some time without anybody mentioning the hundreds or even thousands of relatively young people in their 20s, 30s or perhaps older who have no pension schemes.

6:45 pm

Photo of Averil PowerAveril Power (Fianna Fail)
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I can assure the Minister that Senators on both sides of the House want to see a fair and equitable resolution to the pension difficulties facing the scheme. It has been going on for a number of years and a fair solution needs to be found.

The Minister said he cannot interfere in those arrangements but that is precisely what he is doing in bringing forward this legislation. As my colleague, Senator Darragh O'Brien, pointed out last week, it is unprecedented for the Government to bring forward legislation that interferes with the private pension rights of employees in such as way. It has not happened with any other company and it is inappropriate.

It is also unfair that the Minister is essentially legislating so that the scheme can be wound up without the consent of any of its members and without meeting any minimum funding standard. The situation has not been resolved, although we asked the Government to withdraw the previous section from the Bill and allow the expert panel to continue its work on seeking a fair resolution. I do not think that is unreasonable.

The expert panel was established to try to find a solution to all these issues. It looked at the company's ability to pay, considered what is reasonable and weighed that against the rights of employees and deferred pensioners who paid into a scheme on the assurance that it would be a defined benefit one. The expert group was supposed to come up with a fair arrangement but, instead, the Minister is pre-empting all of that. He is legislating so that the scheme can be wound down without any of those protections. That is why we think it is wrong and want, at least, in insert this one protection based on the OECD's recommendations. That would ensure that trustees would have to clear at least one hurdle before being able to close the scheme.

As regards the overall issue, however, we do not feel that any provisions concerning the IAS should be in this Bill. We would have preferred the Minister to withdraw the other section and allow the expert panel to do its work.

Photo of Paddy BurkePaddy Burke (Cathaoirleach of Seanad; Fine Gael)
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I call an tAire.

Photo of Leo VaradkarLeo Varadkar (Minister, Department of Transport, Tourism and Sport; Dublin West, Fine Gael)
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I have nothing further to add.

Amendment put:

The Committee divided: Tá, 16; Níl, 21.

Tellers: Tá, Senators Ned O'Sullivan and Diarmuid Wilson; Níl, Senators Paul Coghlan and Aideen Hayden.

Amendment declared lost.