Mick Barry (Cork North Central, Solidarity)
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319. To ask the Minister for Social Protection his views on the long-term decline in occupational defined benefit pension schemes in the private sector; his further views on the idea of a State supervised unified defined benefit, half final salary occupational pension scheme for workers in all sectors; and if he will make a statement on the matter. [23051/17]

Leo Varadkar (Dublin West, Fine Gael)
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Internationally, as well as in Ireland, Defined Benefit (DB) schemes have been facing increased difficulties over the last two decades. This has been due to volatility in the stock markets, increasing liabilities arising from the demographic pressures of increasing life expectancy, low interest rates and regulatory requirements. Essentially the cost of providing benefits has increased at a rate that has not been covered by the level of the employer and employee contributions to pension schemes and the investment returns earned. In addition, accountancy standards, which make pension liabilities very apparent on a company’s balance sheet, contribute to the pressures under which DB schemes are operating.

During the financial crisis the decline of DB schemes accelerated to the extent that the whole sector was at risk. At that stage a series of legislative amendments was brought forward to alleviate the situation.

The ongoing decline of defined benefit schemes over the past two decades has seen the number of schemes subject to the funding standard decline from 2,031 in 2000 to approximately 660 such schemes now. Despite its decline, the DB sector is still a very important sector with assets under management of approximately €62 billion and membership comprised of 100,000 pensioners, 125,000 active members and 435,000 deferred members.

Whilst a very significant number of DB schemes have closed in recent years, in most cases they are replaced by Defined Contribution (DC) schemes, generally by agreement between employer and employee representatives.

I intend to bring further proposals forward to alleviate the problems in defined benefit schemes in the forthcoming Social Welfare and Pensions Bill.

I have made pension reform a priority for my term as Minister for Social Protection. To this end I can confirm my intention to publish and start implementing an Action Plan for the reform of pensions over the coming months.

The rate of supplementary pension coverage in Ireland is estimated at 35% of the working population when the private sector is considered in isolation. If measures are not taken to address this low rate of coverage, many future retirees will experience unwanted reductions in their living standards when they reach retirement.

To deal with this situation, as well as a range of other reform measures, this Action Plan will set out proposals for a transition from the current and purely voluntary supplementary pension system to one which will automatically enrol eligible employees into a quality assured DC retirement savings system. This reform, where the saver will maintain the freedom of choice to opt-out, will encourage long term saving and asset accumulation amongst those who may otherwise suffer a reduction in living standards at retirement and will increase the wellbeing, financial security, and independence of future retirees.

Following the publication of this Action Plan and in order to guide future Government decisions, the detailed evidence building and consultation required to deliver automatic enrolment will be undertaken over an initial project planning phase. This work is needed to inform fundamental choices regarding the preferred operational structure and organisational governance for the new system as well as design elements such as the required contributions, financial incentives and target membership. Correctly positioning/designing each of these will be critical to the success of any system. Decisions on each of these matters will be required to determine costings for the system.

I hope this clarifies the matter for the Deputy.