Seanad Éireann díospóireacht -
Wednesday, 10 Dec 2014

Vol. 236 No. 4

Restructuring of Pensions at Aer Lingus: Statements

Minister for Transport, Tourism and Sport (Deputy Paschal Donohoe)

As I stated on 18 November when I last made a statement to the House on this matter, resolution of the IASS funding difficulties is primarily a matter for the trustees, the companies participating in the scheme, the scheme members and the Pensions Authority.

The difficulties in this scheme have increased to the extent that the deficit is now in the range of from €700 million to €750 million. With the scale of this deficit, based on a minimum funding standard update from the IASS actuaries in December 2013, the estimated coverage for deferred as well as active members' benefits would be in the range of from 24% to 31%. This takes account of the pensions legislation introduced in December 2013 that allows reductions to be made to pensions in payment.

The solution proposed involves funding of over €260 million from Aer Lingus and the DAA to help mitigate the impact of the trustee proposal. Aer Lingus is holding an extraordinary general meeting of shareholders today - the meeting commenced at 2 p.m. - to seek shareholder approval to contribute €190.7 million towards the fund. This is a single issue EGM. There is only one resolution to be voted on and shareholders can either vote in favour of it or against it; they cannot vary it. The board of Aer Lingus has issued a recommendation to shareholders to accept the proposal as it considers that it is the only viable solution capable of being accepted and implemented by the affected parties.

On this basis and in view of the very significant risks that will arise for all members, the companies and the wider economy in the event of failure of this solution, the State's shareholding is being voted in favour of the resolution at today's EGM.

The deficit in this scheme is so large that the scheme is unsustainable as it cannot meet the minimum funding standard. The solution proposed is the result of more than four years of complex negotiations involving the parties. Earlier this year, an expert panel was established by my Department, the Department of Jobs, Enterprise and Innovation, ICTU and IBEC tasked with finding the fairest way to distribute the burden of resolving the current deficit in the scheme. As a result of that process, the total contribution of over €260 million includes almost €20 million in extra funding proposed by the employers in addition to the €40 million already being made available for deferred members, bringing the full amount for this group to €60 million.

The deferred members are particularly affected by the proposal to co-ordinate their pension with the State pension as they have left service. However, while there may have been an expectation of unco-ordinated pensions, the reality is that this was neither funded by the members nor the employers. Only those members who have paid for unco-ordination will maintain that under the current proposals. There are no funds available to mitigate the loss of this element of the proposals.

On Friday 14 November 2014, the trustee sought approval from the Pensions Authority for a funding proposal and requested that I commence legislative provisions to facilitate implementation if approved. The trustee believes this is in the overall best interests of the members of the IASS. This was also the view of the expert panel. Following requests on behalf of deferred members that more funding be made available for that group, I raised this issue directly with the employers. However, it was clear that the funding proposed is the maximum that can be achieved.

Having considered this and having reflected on all of the issues, including the significant deficit in the region of from €700 million to €750 million, I signed the commencement order on 17 November 2014. 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 met with the deferred members group on 4 December to set out my position and to explain why I commenced the provisions. I am extremely conscious of the difficulties the funding proposals will cause for many members, but the risks that will arise for all members, the companies and the wider economy in the event of failure of this solution are even greater. I believe that the funding proposal put forward by the trustee offers the best possible outcome for all members given the exceptionally acute difficulties and unsustainable circumstances of this fund.

Senator Darragh O'Brien

I appreciate the Minister coming to the House at short notice. I put forward an amendment to the Order of Business this morning which was accepted and I welcome his attendance.

It is just one day since we received good news in the context of Waterford Crystal because of a European Court judgment. Waterford Crystal is doubly insolvent. It is an insolvent company with an insolvent pension scheme. We crunched the numbers in regard to Waterford Crystal workers versus deferred members of the IASS scheme, which is a profitable company with hundreds of millions of euro on deposit.

They are worse off now, to the tune of 15% to 20%, compared to Waterford Crystal workers. The Minister said that the resolution of the IASS funding difficulties is primarily a matter for the trustees, the companies participating in the scheme, the scheme members and the Pensions Authority. If that is the case, why did the Government bring forward legislation, the State Airports (Shannon Group) Bill, to allow this? It is the first time a Government has legislated for a specific private pension scheme. The Government did that on the back of what the Minister for Social Protection, Deputy Joan Burton, did in the social welfare and pensions legislation in which she changed priority orders and actually brought in single insolvencies. The Minister, Deputy Donohoe, referred to the legislation of December 2013, in which a roadmap is set. It is gravely disappointing.

I welcome the fact that the Minister met the deferred members. He will be aware that there was a protest in the airport today by the Retired Aviation Staff Association, RASA, and deferred members that was attended by my colleague, Senator Averil Power. Are the Minister and his pensions officials in the Department aware that the retired members will carry the full risk of that scheme into the future? Not only will they lose six weeks' pay, they will also carry the burden of a 2.53% continuing levy. That is just the retired members, not to mention the deferred members. One man whom I have met is due to retire next March. He will lose 48% of his pension. If that was happening anywhere else, there would be uproar.

The Minister has not seen people on the streets about this because there are 15,000 people involved. Trust me, however, that what the Government has done with this scheme will happen to most of the other commercial semi-State companies. It has provided a roadmap. Today, the Minister, on behalf of the taxpayer, acceded to these savage cuts in existing pensions, retained benefits and to existing members who have been bullied into an inferior scheme. Aer Lingus and the other companies have effectively written off €500 million as a result of the Government introducing legislation which was voted for by Fine Gael and the Labour Party. The nature of the cuts is disproportionate. I acknowledge that the Minister has spoken to the people concerned, but how would he feel about this? Does anybody think this is fair?

The Minister said the deficit is €700 million to €750 million. He also confirmed that the deficit has doubled in the last two years. Why has it doubled? The companies starved the scheme of money. Unfortunately, I only have four minutes to speak. This is the first time something such as this has happened. We will continue to fight this in the debate on the Social Welfare Bill next week. The Tánaiste should be ashamed of herself. She met these groups and gave them false hope three weeks ago. She sat at the table and said that she would examine a more workable and fairer solution. What has happened here today is the final insult. The State has used the taxpayers' share in Aer Lingus to vote for savage cuts to existing members of this scheme.

There are other ways of dealing with this. The Minister did not have to do this by 1 January next. He went ahead and signed the commencement orders, but we have tabled amendments for next week. What has been done with this scheme will be done with countless schemes throughout the country. The Minister has given free rein and a roadmap to all employers, be they the State, semi-State or private companies, effectively to write off any pension debts that exist. The people who will pay for it are the people who have been encouraged by successive Governments to make provision for their retirements. It is absolutely outrageous and disgraceful.

Senator Pat O'Neill

This is a very complicated and serious issue. I remind Senator O'Brien that the Irish airlines superannuation scheme is a private pension fund which finds itself in significant difficulty. As the Minister said, the scheme has a substantial deficit of between €700 million and €750 million and that had to be addressed.

The view of the expert panel established to help resolve the IASS difficulties is that the funding proposals represented the best possible outcome that can be achieved and that if this final opportunity to resolve the very protracted and diverse dispute was not grasped now, the situation facing the IASS members would deteriorate further. The view that this course of action is in the overall best interests of the members of the IASS has been confirmed to the Minister, Deputy Donohoe, by the trustees. The Minister is conscious of the difficulties that the funding proposals will cause for many members. However, what is the alternative? The unfortunate fact is that if the Minister had not signed the commencement order the risks that would have arisen for all members, the companies and the wider economy in the event of a failure of this solution are even greater.

I refer again to the fact that the deficit is between €700 million and €750 million at present. This simply cannot be ignored. Employers have proposed making a total contribution of over €260 million with the aim of resolving the IASS difficulties. This includes €60 million for deferred members, an increase from €40 million, as a result of the expert panel process.

The Minister has received criticism from certain quarters, including Senator Darragh O'Brien, for signing the commencement order. This is despite the fact that he was specifically requested to do so by the trustees. Furthermore, it also ignores the potential disastrous consequences that would have arisen. Do people really believe it would have been a responsible course of action for the Minister not to sign the order, knowing that such an action would have resulted in a fund that has 15,000 members and a deficit of between €700 million and €750 million finding itself in an unknown situation? The situation would have been worse for all concerned.

It is a private pension fund. Senator O'Brien said that this had not happened elsewhere, but how many people had private pensions that were written off when this country's economy hit rock bottom?

Senator Averil Power

How many were targeted deliberately by the Government?

Senator Pat O'Neill

How many people retired and were advised by their financial advisers to invest in Bank of Ireland and AIB shares? What pension do they have now?

Senator Averil Power

How many had legislation introduced to-----

An Cathaoirleach

Senator O'Neill without interruption.

Senator Pat O'Neill

That is a private pension fund. The Minister is dealing with a situation that has arisen whereby a privately owned pension fund, upon which a large number of people are reliant, has run up an incredibly large deficit.

Senator Darragh O'Brien

The Government allowed AIB to put €1.2 billion into its pension fund.

Senator Pat O'Neill

He finds himself, therefore, trying to salvage funding to deliver the best possible chance for people to have a pension in the future. I commend him for that. If he had wavered and not signed the order, we would now be debating why he had not done so and why a fund on which so many people are reliant was facing an even higher level of risk than it is facing at present.

Senator Feargal Quinn

This did not happen on the Minister's watch. It happened on the watch of many others over the years, but what is happening now is on the Minister's watch. Only a few days ago the situation at Waterford Crystal was solved. It was solved by having the taxpayers put their hands into their pockets for €180 million or so. Clearly, this is an occasion in which we face a challenge. I recall when H. Williams, a large supermarket company, went out of business 30 or 40 years ago. It had been in business for almost 100 years and it told its employees that their pensions, at least, were safe. However, those employees lost their pensions because whoever bought the company was able to spend money on that basis.

The real concern here is whether this is a precedent. I believe it is, and it is one that will come back and bite us very seriously. I do not have an easy answer but if we are going to solve these problems in the future, we must at least recognise that the challenge exists and is getting bigger. The State owns these companies, or has a very large shareholding in them. The onus of responsibility, therefore, to a large extent is on the owner of the company as against a private company. The State did not own Waterford Crystal. In this case the State has a very large shareholding and it has the onus of responsibility to solve this issue in whatever way possible.

Senator Ivana Bacik

I welcome the Minister and thank him for coming to the House at short notice to discuss this important issue. We are debating the IASS pensions in a week when the Waterford Crystal pension scheme issue has finally been resolved after a great deal of work. I have a strong connection with that and I welcome it. I pay tribute to the Unite union, Deputy Ciara Conway and others who worked so hard to resolve that matter with the Tánaiste.

We are all conscious of the difficult, even impossible, situation for the deferred IASS pensioners. We have all received e-mails from them and many of us have engaged in correspondence with them. They are understandably very angry about their situation.

Senator Quinn has acknowledged fairly that this is essentially a legacy problem. It has been years and indeed decades in the making. Listening to the Minister, one wonders how we got to this position and how this was allowed to happen. Clearly, as the Minister said, this EGM is the result of four years of complex negotiations but the problems stem from before four years ago.

Senator Darragh O'Brien

They have got worse in the past two years. The deficit doubled in that period.

Senator Ivana Bacik

It was well before the watch of this Government.

An Cathaoirleach

Senator Bacik, without interruption.

Senator Ivana Bacik

The trustees-----

(Interruptions).

Senator Ivana Bacik

I think Senator O'Neill has pointed out that the difficulty lies in what the alternative is, particularly for the scheme as a whole. As the Minister points out, the funding proposals would cause huge difficulties for the deferred pensioners but the risk for all the members of the companies and the wider economy is greater. It strikes me that we are caught between a rock and a hard place. All of us have immense sympathy for those who are so badly affected by this but we do need to ask the difficult question of how we got to this position, whether we can ensure it will not happen again and whether we are sure this is the best outcome for all concerned.

Senator Averil Power

I also think it is absolutely extraordinary that in the week when a resolution for the Waterford Wedgewood workers has finally been achieved, members of the IASS scheme are in a worse position than the Waterford Wedgewood staff. It is ridiculous that the Waterford Wedgewood staff had to fight for so long to get their entitlements respected but it seems that the only way members of the IASS scheme are going to get justice at this stage is to take exactly the same route. I think this is such a shame. The Government has learned absolutely nothing if this is what they have to do. We have been raising this issue, as Senator Darragh O'Brien said, for the past two years from the Social Welfare and Pensions Act, the State Airports (Shannon Group) Act, statements two weeks ago and statements again today asking the Minister to look at this, do the right thing and come up with a fair resolution. It seems as if all of that has fallen on deaf ears. It is incredibly unfair.

I wonder if the Minister has really looked at the European consequences of this. I know the Waterford Wedgewood case specifically referred to active and deferred members but it may also give some comfort to retired members of the IASS scheme because it talked about consistency, particularly with cross-border schemes, and protections under EU pensions law. I wonder if the Minister has really thought all of that through because it really is extraordinary that when we finally see justice for Waterford Wedgewood workers, the IASS members are in a worse position. It need not have come to this. When the Social Welfare Bill comes before the House, we will again try to put forward amendments. The whole thing is unfair. Senator Bacik said that this had been taking place over many years. The reality is that, as has been pointed out, the deficit has doubled in two years. There is a legacy issue.

(Interruptions).

An Cathaoirleach

Senator Power, without interruption.

Senator Averil Power

It doubled in two years. The Government Members do not want to hear.

(Interruptions).

An Cathaoirleach

Senator Power, without interruption.

Senator Averil Power

The reality is that the deficit has doubled in two years. Of course, there is a longer term background to that and the scheme is in difficulty, as are many other schemes. Anybody in any other company in a similar situation should be very worried about what is happening because the Government has set a template through this legislation to ride roughshod over people's private pension entitlements. It is a really dangerous precedent and may also fall foul of EU law. It is such a shame that it looks like we are going to have fight it the whole way through. I think the IASS workers will have no choice but to fight like the Waterford Wedgewood workers did and we will be back here again as an Oireachtas looking at this issue and another judgment in a few years time. I think this is such a shame and that the Minister could have listened at an earlier point and done the right thing.

Senator Martin Conway

I welcome the Minister to the House. He is a Minister for whom I have huge regard. Of all the Ministers in government, he is certainly doing an exceptionally good job. On this particular issue, I find myself in agreement with my colleagues on the other side of the House. Let us look at the scenario as it is. Many of the people on these deferred pensions agreed to retire early and have their pensions deferred on the simple and clear understanding that they would have a pension of a certain figure. Everyone in life has expectations. Sometimes it works and sometimes it does not work. In this particular case, one is dealing with clear discrimination between people on pensions and people on deferred pensions. I have no problem whatsoever in seeing pensions reduced in size but what is good for one should be good for the other. The people who find themselves in a deferred pension situation are being totally blackguarded. I think the unions only woke up to this at a late stage. Effective negotiation should have happened but did not happen. It should be righted. We have a responsibility to err on the side of natural justice and to be fair to people. This is clearly unfair.

The one thing Government has a responsibility to do is to be equal and give equity and fairness. It is not really the Minister's fault because he inherited it but he should try to come up with a creative way of resolving it. If it means that the DAA and Aer Lingus have to put their hands in their pockets and come up with money because of the absolute mess made of the scheme in the first place by the trustees of the time, so be it. If they have to put their hands in their pockets and put in another €50 million or €100 million in order to give these people fair play, that should be done.

Senator Paschal Mooney

I also share the concerns that have been expressed by Senator Power and Senator Darragh O'Brien who has been leading it on this side. My involvement came about because I was spokesperson on social protection on our side of the House when it was first introduced in the Social Welfare and Pensions Act. I share all of the opinions voiced by Senator Conway. In fact, I could not have put it as well as he did. I also agree that the Minister is inheriting a legacy but the great US President, Harry Truman, had a sign on his desk that said "the buck stops here." We are dealing with the here and now.

I have met many of those who are suffering as a result of the deferred pension situation. I have looked them in the eye and I presume the Minister has done so as well. When one is dealing with people like that on a human level who have this level of expectation over many years, I would have hated to have been put in a situation where I had been making a contribution and had taken early retirement in the expectation that I was going to get what I paid in only to find that not only was it going to be cut but would be cut so drastically in some cases that it would go down to a less than liveable figure. At a time when the Government is trying to encourage more people into private pension schemes although God knows, their policies over the past couple of years in that regard would lead one to question that commitment and when there is a time bomb in respect of pensions going forward, I would have thought that the Government would have seen the signs here and taken advantage of it. Apart from the technicalities involved, the difficulty is that under the most recent EUROSTAT statistics, this Government has now received an extra €2 billion as a result of the revision of the statistics. I know the Minister is very aware of the statistics and he is able to draw on his considerable mental resources to be able to put forward an argument, as we have often see here in this House, which is admirable. He will know better than most that there is a high level of expectation of this Government as a result of the turnaround in the economy, all of which we welcome. That level of expectation has extended to these ordinary people. They are ordinary five eighths who will now find themselves with a significant reduction in their pensions as a result of this. I plead with the Minister to at least try to do something to address this issue despite its complexities which I fully recognise.

Minister for Transport, Tourism and Sport (Deputy Paschal Donohoe)

I will begin by making one point very clear. If I had not signed the enactment order here, had gone against the wishes of the trustees and the recommendation of an expert panel and had taken a fund upon which 15,000 people rely that has a deficit of between €700 million and €750 million into absolutely unknown territory with potentially huge risks to them, Senators Power and Darragh O'Brien would be in here criticising me for doing that. The Opposition Senators have stood up here and referred to legacy issues. Let us look at the legislative issue that is one of the causes of the legal status of deferees. Where did that originate from?

Senator Darragh O'Brien

The Social Welfare and Pensions Act 2009.

Deputy Paschal Donohoe

The Social Welfare and Pensions Act 2009.

Senator Darragh O'Brien

I am well aware of it.

An Cathaoirleach

The Minister should be speaking without interruption.

Deputy Paschal Donohoe

I will go on to answer the questions posed by Senator Darragh O'Brien, but he made a number of political charges. The Act that put in place the legislative status of deferred members was introduced by Senator Darragh O'Brien's party in government. In all the meetings I have had with deferred members, they say to me that Fianna Fáil caused this.

Senator Darragh O'Brien

Why do we not meet them together? Then we will see what they are saying.

Deputy Paschal Donohoe

They look at the 2009 Act and say it was the root cause of this difficulty from a legislative perspective.

Senator Darragh O'Brien

Part of it.

Deputy Paschal Donohoe

I wanted to respond to the political charges Senator O'Brien made to me on those two areas. With regard to what I have done, I was privileged to have been appointed to this role and I was faced with a choice about taking a decision that would have created serious and unknown consequences for the members of the scheme. Let me say what they are. I will repeat that this is based on the minimum funding standard update from the IASS actuaries in December 2013. I have been informed that the estimated coverage for deferred and active members' benefits is in the range of 24% to 31%. That is the scale of the risk that people face.

Senator Feargal Quinn articulated something that has resonated as I have grappled intensely with the issue. He said there are no easy answers to this, which is something I feel so strongly. I also know there are some answers about which I am clear on the consequences. Not supporting this process in the way the Government believes is necessary would create vast risk for the largest pension fund in our country. That is the challenge I, the Government and, collectively, we all face with regard to pension funds in our country.

With regard to specific questions about my relationship with the trustees, legal responsibility for the management of a pension fund sits with the trustees of the fund. The moment we move away from recognising that principle, we will weaken the sanction, scrutiny and responsibility necessary for people who are paid to run any pension fund. With regard to the consequences of the 2013 Act and the change in the priority order, I know how contested it is and was at the time. Are we saying that the alternative before the Act was fairer? In the event of a pension fund wind-up, the people working - the active members of the scheme - would receive much less than those who were retired. The heart of the challenge we face is how, with scarce resources available to the pension funds, competing demands are managed.

The last time I came to the House, everyone asked me about the contribution the companies are making. It is €260 million, with €190 million from Aer Lingus and €70 million from DAA. On foot of the debate here, I contacted the companies and spoke to them about the issue. This is as Members expect me to do, so that when I answer questions from them about why the companies do not put in more funding, I can say I have asked the question and pressed the companies. Each of these independent companies with its own board of directors has put in the maximum it is prepared and able to do. This is an increase compared to the position at the beginning of the process.

Let us begin with the charge that has been made that nothing has happened or that not enough has happened. The process has been going on for years. Nearly every labour body and every union in the land has been involved and, after all that, an expert panel had to be appointed to try to chart this to where we are now, fraught with difficulty as it is. To say that not enough has happened belies the major amount of work done to get to this point. From having met individuals affected by this on many occasions, having read a huge amount of correspondence on this and having met for many hours the committee that represents individuals directly affected by this as deferred members, I know that the human cost of this is real, immense and deeply worrying for people.

I will conclude where I began. The Government believes that this process offers the best hope of securing some level of support for people in the future. I accept the worry and anger that it is not what they would want or what they hoped for but, after four years of effort and intensive engagement by many, is it is my belief that this offers the best opportunity for securing some support for people. The final stages that need to be completed offer the last and best opportunity for us all in this deeply serious matter.