Tuesday, 18 November 2014
Irish Airlines Superannuation Scheme: Statements
We will now move on to item No.2a, statements on the Irish airlines superannuation scheme. I welcome the Minister for Transport, Tourism and Sport, Deputy Paschal Donohoe, to the House and invite him to make his contribution.
Last Friday, the trustee of the Irish airlines (general employees) superannuation scheme, known as the IASS, applied to the Pensions Authority for a section 50 direction and submitted a funding proposal to address the deficit in the IASS.
The trustee requested that I commence with immediate effect sections 32B.(1) and 32B.(5) of the Air Navigation and Transport (Amendment) Act 1998, as inserted by section 34(1) of the State Airports (Shannon Group) Act 2014 to facilitate implementation of the funding proposals should the Pensions Authority approve them. These sections allow the trustees to amend the provisions of the scheme and to provide also for the cessation of the revaluation of preserved benefits under that scheme where the trustee amends it. Having considered the trustee's request and reflected on all of the issues relating to the IASS difficulties, I signed the commencement order last evening. Had I not signed the order, this would have posed an unquantifiable risk to the entire scheme and could have had profoundly serious implications for all members of the scheme.
I would like to set out for the House the background to these difficulties. First, let me make it clear that the administration of the IASS is a matter for the trustees of that scheme. Resolution of its funding difficulties is primarily a matter for the trustees, the companies participating in the scheme, the scheme members and the Pensions Authority. The process currently underway involves all of these stakeholders.
These difficulties have increased with the result that a significant funding deficit has arisen, up from €344 million in 2011 to €769 million in March 2013. I understand that this was due not only to the unsustainable structure of the scheme but also to the global downturn which saw the value of investments fall sharply allied with interest rates falling to unprecedented levels and thereby significantly increasing the scheme's liabilities. With the scale of this deficit, it was outlined in March 2013 that in the event of a wind up of the scheme, because priority is given to pensioners, the active and deferred members would receive only 5% of their benefit expectations based on pension legislation prior to the December 2013 amendment which permitted reductions to be made to pensions in payment. Against the background of threatened industrial action, my Department and the Department of Jobs, Enterprise and Innovation, together with ICTU and IBEC, established an expert panel to investigate how a final resolution could be reached. Their task included finding the fairest way to distribute the burden of resolving the current deficit in the scheme, while addressing a range of other impediments.
The expert panel recommended in its report that the IASS trustee engage with the employers on ways to alleviate as much of the impact of the trustee proposals as possible for the deferred members while also recognising the overall affordability to the employers of the proposals for active and deferred members. The panel outlined a set of principles that it recommended should form the basis of such engagement. As a result of that report, there was an uplift in the moneys to be provided by the employers outside of the IASS, a significant proportion of which is intended for the deferred members to make a contribution towards mitigating the benefit cuts proposed by the IASS trustee. This is an essential consequence of the process proposed by the expert panel. Specifically, almost €20 million in extra funding is being proposed by the employers for deferred members in addition to the €40 million already being made available for this group, bringing the full amount to €60 million. The total contribution proposed by the employers for all members now amounts to more than €260 million.
The trustee advised me on 12 November 2014 that having given consideration to the observations it received pursuant to the consultation process and all relevant factors, it had decided to make an application to the Pensions Borard for a section 50 direction and to submit a funding proposal based on the measures outlined to address the deficit in the IASS. This application is subject to Aer Lingus shareholder approval for the proposals and the commencement by ministerial order of the relevant provisions of the State Airports (Shannon Group) Act 2014. The trustee asked that I proceed with the immediate commencement of the provision in order to facilitate implementation of the funding proposal.
The trustee, who has the lead role in terms of responsibility for the pension scheme, believes that the measures proposed are in the overall best interests of the members of the IASS as a whole, are in compliance with the trustee's fiduciary duties and also in line with the trustee's obligations under the pensions Act and the requirements of the Pensions Authority.
The trustee also confirmed its compliance with section 34B(1) of the State Airports (Shannon Group) Act 2014. The three employers, Aer Lingus, DAA and SAA also wrote in support of the trustee's request that the commencement orders be made with immediate effect in order to facilitate implementation of the funding proposal.
On the basis of this, it is clear that the proposals to resolve the IASS difficulties are complicated, intricate and deeply challenging. It is also clear that the funding proposed by the employers is the maximum that can be achieved in the circumstances. It must be recognised that a figure more than €260 million is a significant contribution from the employers, particularly in the context of the ongoing viability of these companies as major employers. Any efforts to reduce the impact of the proposals on one group would adversely affect the other groups and would destabilise the entire initiative.
I agree with the expert panel's view and I believe that, in the circumstances, the proposed package of measures offers the best possible outcome for all concerned.
Go raibh maith agat. I thank the Minister for coming into the House today, following my request on the Order of Business. I appreciate the Minister is busy, but I am sure he appreciates the gravity of what signing the two commencement orders means to thousands of people, who were members of the scheme.
Unfortunately the time allocation of four minutes will not be sufficient to address the points I wish to raise. I am very disappointed that the Minister signed the commencement orders in advance of the social welfare Bill being completed in the Dáil and before it will come to the Seanad. My colleagues and I in both the Fianna Fáil and other parties had tabled amendments, which I am sure he and the Minister for Social Protection would have seen, which if accepted would actually negate some of the additional powers he gave to trustees in the State Airports (Shannon Group) Act 2014. From my viewpoint it feels that the legs have been taken from under us.
The Minister has referred on a number of occasions to the significant amount of €260 million being put into the scheme by the employer. However, there remains a €500 million shortfall in the €769 million deficit following the €260 million the employers have apparently put into the scheme. This means the employers have been able to wipe off €500 million.
What the Minister and his predecessor did in conjunction with the then Minister for Social Protection, in the Shannon Airport scheme to give the trustee the unilateral power to reduce benefits in the scheme to active, deferred and retired members and this has now allowed the trustees and the companies effectively to write off the under-funded amount of €500 million. The irony is that the long service deferred members in particular will be hit by reductions of almost 50% and some by reduction of more than 50%. The retired members, people who have worked in the company for decades will lose six weeks pay, which is more than 10% of their income and on top of that they will carry the ongoing risk of that scheme. They must also pay an additional levy of 2.53% on their benefit because the current Government took €28 million from that under-funded scheme to pay the pension levy.
They are now paying an additional levy of 2.53% on their benefits because the Government took €28 million from that under-funded scheme to pay the pension levy. Ironically, it took €11 million very recently.
Four minutes is not enough to set out what is being done here. As I said to the Minister when we debated the State Airports (Shannon Group) Bill 2014 in this House, this is the first time in the history of the State that a Minister and a Government have legislated to reduce benefits in a specific private pension scheme. That is what they have done. Why have they done it? To add insult to further injury, who is going to vote on this? The shareholders in Aer Lingus will vote on it at an extraordinary general meeting on 10 December next and the members of the scheme will not have a say.
The Minister mentioned that industrial action has been threatened. There was a big divvy-up between the unions and the Government on this. They knew that the retired members did not have the threat of industrial action at their fingertips and that those who had left the company were no longer employed. That is why they have taken the brunt of the cuts. I accept that active members have taken a hit and are going into an inferior scheme. It is unfortunate that we are talking about this because it is being done now. Shareholders will be able to vote but members will not.
I would like to refer to something I have noticed in a number of the Minister's speeches. I do not mean to be personal when I mention that whoever is writing these speeches for the Minister keeps suggesting that the expert panel was engaging with the various groups. The panel did not engage with the different groups. It engaged with the employers and the unions, but it did not engage with the retired members through the Retired Aviation Staff Association and it did not engage in any meaningful way with the deferred members. It is a lie to suggest that the panel engaged with those who have been left carrying the can for years of under-funding and mistakes by successive employers and Governments. This scheme was used as a vehicle to get people out of the company.
As I have been given just four minutes, I do not even have enough time to go into the difference between the unco-ordinated members and the co-ordinated members. People who have paid more money into this scheme are losing as much as those who have paid less. Along with my colleague in the Dáil, Deputy O'Dea, I intend to table amendments to the Social Welfare Bill to deal with this matter, which has been coming down the track for two and half years.
By doing what he did yesterday, the Minister, Deputy Donohoe, has given every single employer in this country a roadmap to wind down defined benefit schemes. This started when the Tánaiste, Deputy Burton, changed the priority order in the Social Welfare and Pensions (No. 2) Act 2013. We knew the Government was not going to put €760 million into the scheme. Of course that was not going to happen. People want a fair breakdown and level of cuts across the different categories. They do not think a solvent employer should be allowed to wind down an insolvent scheme. The Tánaiste brought in a single insolvency arrangement. That is what was done. Two years ago, profitable companies sitting on millions of euro in cash were given a roadmap showing them how to wipe off €500 million. This company's share price will go through the roof on 10 December when its shareholders vote to cut old people's pensions and to take the legs from under the deferred and existing members.
I thank the Minister, Deputy Donohoe, for being here today. It is nothing personal. I am disgusted about what happened yesterday. Right through this, no one has listened. Is the Minister aware that the Tánaiste sat down with members of this scheme last week and said that a way forward might be found? I believe she sent a Labour Party backbencher to the Minister yesterday to ask him not to sign the commencement orders. Did the Cabinet even have a detailed discussion on the signing of those orders? Does the Minister realise what is being done by virtue of his actions?
Before I call Senator D'Arcy, I want to make it clear that the order of the House confines this debate to group spokespersons. Even though some other Senators are offering, there will be no leeway for the Chair to let any other speakers in unless a quick amendment is made to the Order of Business.
I will not pretend that I am as au faitwith this issue as other speakers. It came to me very late. It strikes me that the Minister, Deputy Donohoe, has faced something of a Hobson's choice in this regard. Like Senator Darragh O'Brien, I have known the Minister for a long time. If there had been another opportunity to go in a different direction, I do not doubt that the Minister would have been quite satisfied to have taken it.
We need to deal with the cold hard facts. This pension scheme has a deficit of almost €800 million. In the past, the administration by the pensions industry of some pension funds in this State was a scandal. The case of the Waterford Crystal workers eventually ended up in the European Court of Justice. The court's decision, which I consider to have been fair, meant the State paid. That was the outcome. The State cannot keep paying for everything. There are always competing rights. In this case, there is competition between the rights of people who have retired and those of people who are working. There were competing rights in the Waterford Crystal case. I knew quite a few people involved. In that circumstance, there was competition between the rights of people who had retired, who were fully paid, and those of people who were working, who practically got nothing. That was not fair and that was not correct.
I do not know anything about the expert group. I do not know whether the members of the group are experts. I assume the people who have been employed to conduct this work have been doing it in a fair, open and impartial manner. On that basis, I note that the existing members of the workforce have voted in favour of the position the expert group came up with. I fully expect Aer Lingus to vote in favour of it at the extraordinary general meeting. It would be colossal for a deficit of €500 million to be wiped. I hope and expect that everything associated with this occurrence has been done to the satisfaction of the Pensions Authority and the Minister.
It is sometimes helpful to come to a conversation like this cold. I look forward to hearing what the Minister has to say at the end of the debate. Sometimes we cannot see the wood for the trees. One can be sucked into a portion of a conversation that one is not capable of leaving behind. The numbers in question are so large that it puts the whole Irish Water debate into the ha'penny place. It is a multiple of the amount of money involved in Irish Water, albeit on a once-off occasion. I look forward to the Minister's contribution at the end. I know this is a difficult circumstance for some people. Like many Senators - I assume this also applies to Deputies - I have been receiving multiple e-mails from people who are affected by this. Nobody wants to be affected by it. I look forward to hearing what the Minister has to say.
Given that not too many spokespeople are offering after Senator Barrett, I was going to request that another couple of Senators could be allowed to speak, with the indulgence of the Minister. Perhaps the Acting Leader will amend the-----
Very good. I thank the Chair. Page 1 of the Minister's speech mentioned the recommendation that €140 million be provided by Aer Lingus and €58 million be provided by the Dublin Airport Authority. The total contribution has been increased to €260 million. As others have said, this means that €500 million is outstanding. I am sure everyone in this House shares my despair about what has been done to us by the insurance companies, the banks and now the pension funds. I fear that the ESB is lining up something similar.
At one stage, there nearly seemed to be competition about which of the trustees had the biggest amount of red ink on their books. Legislation is required to deal with such conduct on the part of trustees so that we do not get into this situation again. Too many financial organisations think they can call around to the office of the Minister, Deputy Noonan, to collect large amounts of money.
The excuses previously given were that our pension funds have too many expenses, they were too liberal with the added years and early retirements and they failed to anticipate longevity. In two minutes we could dispute all of those. A pension fund appears to be, as in this case, almost hijacked when some of the organisation or its members need to reduce its labour force at a period when pension funds look to have more black ink than red. This was being treated as a gift of the day by the trustees. The conduct of trustees has to be examined arising from what has happened today. It is part of a picture of a financial sector which was not adhering to what we would regard as proper standards in banking, insurance and pension funds. This is where it ends up when trying to resolve it. I sympathise very much with what Senator O'Brien said because it is hugely influential in his constituency. However, how did this happen? It is well worth having an investigation to ensure it never happens again.
I thank Senator Barrett for giving me some of his time. Like Senator O'Brien, I was horrified when I got an e-mail late last night from one of the pension groups concerned saying that the Minister had signed the commencement order. We had heard last week that this issue was being examined again, that the deferred pensioners had met with the Tánaiste and positive noises had been made and that they had been told the Government was finally listening to their case and accepted the fact that to cut anyone's pension entitlement by 60% just as they are about to retire is an outrage. We had flagged that Senator O'Brien, myself and our Dáil colleagues would be tabling an amendment to the Social Welfare bill. We had hoped that the Government would finally listen and realise how unfair this is and change course on it.
I was so angry when I got that e-mail last night. These people had been e-mailing members of this House and the other House for weeks. They had been getting the same bland information that I and my colleagues in the House have been getting for months about the general situation in the pension fund. No one came back to people and explained why it is right to cut the pensions of retired members by an unfair amount or how it could possibly be right to cut the pensions of people who had 34, 35, or 38 years service by 60%. I still have not seen a reply from the Minister's office or from anyone else that answers that question directly. People deserve that minimum amount of respect. They do not deserve to be getting general replies about the problem with the fund.
All of us accept that there are problems with the fund and there needs to be a fair and sensible solution to that. However, what is being proposed is incredibly unfair. There is no justification for it. As stated earlier, first, it is unprecedented for the Government to rush through legislation to interfere in a private pension fund to this extent and, second, to cut payments and private pension entitlements by such a severe extent. I am disappointed it has got to this and that the Minister signed the commencement order to give the trustees those powers. We will keep pushing this issue prior to the passing of the Social Welfare Bill and hoping that people see sense. Whatever about the Minister's party, I particularly do not understand how Labour Party members could possibly stand over cutting the pensions of workers who worked all their lives in tough jobs. These are people who were bought out of the scheme, as previously stated, on early retirement. How anybody in a party that calls itself the Labour Party could stand over doing that to people is beyond me and I hope they see sense before it is too late.
I regret the fact that this has happened. Unfortunately, my regret will not help anyone whose pension is cut in this circumstance. I appreciate the difficulties that have arisen in the scheme. This has gone on for a long time. Like my colleague, I am not an expert in pensions and I not going to pretend that I am. I would share Senator Barrett's concern that perhaps there ought to be an investigation. I do not mean a long-winded investigation that goes on forever. However, as Senator Power has said, how can it be that people who worked all their lives now find themselves in a position where their pensions are cut? They paid for their pensions and now they find themselves in this inexplicable position.
As the Minister said in his speech, and has already been stated, by and large responsibility for this scheme lies with the trustees. Nonetheless, the Government has intervened and this is the outcome. I can only express my regret that this is the outcome and say to the Minister that I do not know if there is any alternative. I do not know if anything else can be done. I know the unions have voted and that is the outcome. I do not have enough knowledge of pensions to challenge it on that level. I have never set myself up as having that expertise. I generally do not tend to speak on matters on which I do not have any knowledge. However, I do regret what has happened here.
The first thing we tell young people when they get a job is to get a pension. We tell them the pension will guarantee their comfort in their old age. As we get older, we become vulnerable. I am particularly aware of it as I get older myself. It is totally unacceptable to hit the most vulnerable people in our society. These people have already been hit. Any of them that invested in blue chip shares or property have already been hit. Now we come along and hit them again. It is grossly unacceptable. I wonder what the trustees were doing. I agree with my colleagues, Senators Barrett and Power, that somebody somewhere has to look at what went on in the trustee meetings. What were they doing? How did they allow this to get to this stage? It is grossly negligent of the trustees. They should not be allowed to walk away from this with clean hands. I do not have a lot more to say on this except to say that I feel for the people who have worked all their lives and now have very little to look forward to.
I thank all the members for their contributions this evening on this very serious matter. A number of people have put to me whether I appreciate the gravity of this situation. I have met individuals who will be affected by this. I have heard from them on the challenges they face and the pressure they are under. I appreciate the personal consequences that pensioners and workers are facing as a result of the application that will go to the Pensions Board. I also understand the gravity of a pension scheme that now has a deficit of between €750 million and €800 million. This is a pension scheme that had a deficit of approximately €369 million between three and four years ago. I estimate it now has a deficit of around €769 million. That is the gravity of the situation that is facing the pension fund in its entirety and individual members and their families who either were working or are working and who were looking to secure their living and their income from this. I have an absolute understanding of the gravity of both issues. What I find disappointing about some of the points put to me in the contributions that have been made by Senators O'Brien and Power is what I find missing. What is missing is any acknowledgement of the scale of this issue.
There is a point that follows on from all of this in terms of the process. Let us emphasise what has happened here. Based on all of the work that has gone on, which has involved every labour body in this country and an expert panel and a huge amount of work from the employers and all concerned, the trustees have written to me saying they believe this to be the best outcome to be secured.
The trustees have written to me looking for this. I am conscious of the consequences people are facing here. There are two questions I would ask. How can anyone in this House be certain that a different outcome exists that is better than what is on the table at the moment? One that has less risk for people?
We now face a situation where we have a deficit of between €750 million and €800 million. That is the scale of the issue we face. The trustees wrote to me to say that, on the basis of all the work that has been done and all of the engagement that has taken place, they believe this to be the best outcome achievable in these circumstances.
As people are aware, some workers have voted on it. This application will go to the Pensions Authority, an independent body, which will make a decision in this regard. I have met people who are affected by this and who have paid into this scheme. Given the scale of the deficit and all of the work underway to deal with this, how can anybody be certain that more funding would be secured to deal with this and if this process was not to work, what, if anything, would take its place?
These are questions with which I have to grapple. This is the work the trustees have done and this is the process which has been undertaken. There is a deficit of €750 million which has a material affect on people. The employers, the unions, an expert panel and nearly every labour relations body in the country has worked to deliver-----
-----during this process as a result of the expert panel. I have to ask one question in regard to this. What would the alternative process be given where we stand now? From where could extra funding be found to make this better for people who are affected by this?