Richard Bruton (Dublin North Central, Fine Gael)
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Question 294: To ask the Minister for Social and Family Affairs the reason for the restriction on the borrowing powers of pension funds; if he is considering the setting up of any thresholds in order that self-employed persons providing pension cover on a limited scale may continue to avail of this facility; and if he will make a statement on the matter. [9093/05]

Séamus Brennan (Dublin South, Fianna Fail)
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The Social Welfare and Pensions Act 2005, which was recently passed by both Houses, provides for amendments to the Pensions Act 1990 to implement the EU Directive 2003/41/EC on the activities and supervision of the institutions for occupational retirement provision, known as the IORPs directive. The directive bans borrowing, except for liquidity purposes or on a temporary basis, for schemes with 100 members or more. In line with the principle of the directive, section 36 of the Social Welfare and Pensions Bill 2005 as published prohibited direct borrowing for all pension schemes, although it contained a regulatory power to allow borrowing for liquidity purposes. Following the publication of the Bill I received many representations and there was much media comment on this issue.

The broad thrust of the comment to date is that I should allow borrowing for investment purposes for certain small schemes, mainly single member schemes. The rationale being put forward is that the individuals involved know what they are doing and are aware of the potential pitfalls. There have been suggestions that doing otherwise could adversely affect pension coverage. I would like to explore the issues involved more thoroughly before coming to any final decision. I want to ensure that the borrowing issue is examined in the context of the other investment rules applying under the IORPs directive and which may, in any event, impact indirectly on any facility to borrow. Also, while I do not want to interfere in the proper running of pension schemes, I am conscious of the advice I received from the Pensions Board and of the fact that complex prudential concerns and taxation issues arise. Therefore, to allow time for reflection and further discussion, I introduced an amendment on Report Stage of the Bill, the effect of which is that I could, by regulations, allow direct borrowing for investment purposes subject to any appropriate restrictions and conditions.

For clarity, I point out that any change to the existing arrangements regarding direct borrowing by pension schemes would only apply to borrowing effected after a future implementation date. Section 36 of the Act will not be brought into force until the position on the regulations has been finalised. In making any regulations under this provision, I intend to consult with the Department of Finance, the Revenue Commissioners, the Pensions Board and the Irish Financial Services Regulatory Authority and I am in the process of establishing a working group comprising these bodies for that purpose. All of the views and comments received on this issue will feed into this process.