We are pleased to have the opportunity to speak to the committee. The Pensions Board is a statutory body set up by the Pensions Act 1990, following some pension problems in Ireland in the 1980s. It is a non-commercial, semi-State body and its parent Department is the Department of Social and Family Affairs. The board is a representative body with a chairperson and 16 other members and intends to represent the pensions interest in Ireland. While all its members are appointed by the Minister for Social and Family Affairs, under the provisions of the legislation the board must comprise representatives of trade unions, employers, consumer interests, pensioner interests, the Government, the pensions industry, member trustees and professional groups involved in pension arrangements.
The board has two statutory roles, a regulatory role and a policy role. It recognises its regulatory role as its primary one but it also sees its policy role as important. In addition, at the request of the Minister for Social and Family Affairs, the board has recently carried out some functions on promoting pensions development and awareness.
The board's regulatory role relates to supervising occupational pension schemes and personal retirement savings accounts, PRSAs. We supervise the trustees of occupational pension schemes and also the PRSA providers on approved products and activities. We do not supervise the actual providers of occupational pension schemes such as insurance companies and banks as these are supervised by the financial regulator. The board's policy role relates to pensions matters generally. It can advise the Minister for Social and Family Affairs at his request or at the board's own initiative.
The board's support activity on pensions development has recently been extended by a request from the Government to organise the national pensions awareness campaign which is now in its fourth year.
As the Comptroller and Auditor said, the board is not Exchequer financed. It is financed by the pension schemes it supervises and PRSA providers, apart from the start-up money given to us for the personal retirement savings accounts and also a sum of money given to us for the national pension awareness campaign, which amounted to €500,000 in the first three years and €1 million in the current year.
Our annual report 2004 is based on the agreed strategy of the board. The board is appointed for five years. Each board has had an agreed strategy for its five year term. The annual report gives details of the activities under the headings of that strategy. The key features in 2004 were that we continued a pro-active compliance monitoring policy. Originally the board was mainly reactive but in recent years it has done some pro-active auditing of 270 schemes and met 19 practitioner entities. Most of the pensions business is done through a comparatively small number of pensioner practitioners. We keep a register of all pension schemes and all PRSA providers. That register is important in the sense that it is the record of the schemes in Ireland, the number of people involved in the schemes and some information relating to them.
At the end of 2004 there was an active membership of 726,405 in occupational pension schemes on the board's register. A number of people have personal pension contracts which we do not supervise. Approximately 70,000 people have personal retirement savings accounts which the board supervises.
The first EU pensions directive was adopted in 2003 and was to be implemented by September 2005. The pensions board played a primary role in advising on the implementation of that directive. It relates to a supervisory activity and sets a minimum framework for pensions supervision across Europe.
Another key issue for the board in 2004 was the defined benefit pension schemes, that is, those with a promise of fixed benefit, rather than those which depend on contributions and investment returns where the member bears the risk rather than the employer. The defined benefit schemes, the old traditional schemes, were having serious funding problems as a result of the poor equity markets of early 2000. Many of the schemes had deficiencies and there were concerns that employers might have to close them down because of the deficiencies. The board had monitored defined benefit schemes to make sure they had enough assets to meet their liabilities through a statutory funding standard.
In late 2003 some changes were made in legislation which allowed the board to grant extensions to defined benefit schemes to get back to full funding, and those extensions could be given for up to ten years or longer in exceptional circumstances. Putting that in place, implementing it and dealing with pension schemes as deficits was a key activity in 2004.
We also carried out 56 investigations on occupational pension schemes, most of which would have come from inquiries or complaints that came to the board but some of which would have arisen from our own monitoring activities. We also had 41 whistleblows — there is a whistleblowing requirement under our statue — during 2004. Thirty of those would have related to non-remittance of pension contributions where employers had not paid through the contributions they had collected or were meant to pay through.
Personal retirement savings accounts were introduced in 2003. They had been first introduced in Ireland as an initiative to try to increase pension coverage and adequacy in Ireland and 2004 was the first year of formally supervising these. At the end of 2004 there were 46,257 PRSA contracts, with a total value of €178.5 million. That was our first year of supervising and it all went according to plan. The various data that was supposed to be submitted to us was submitted.
One of the issues which arose on foot of the introduction of the personal retirement savings accounts was that all employers in Ireland who did not have an occupational pension scheme were meant to give their employees access to a personal retirement savings account. An employer did not have to pay in but he had to arrange access through a PRSA provider. Our records showed that quite a number of employers had not done this; they had not complied with their statutory requirement. We issued a questionnaire to 64,000 employers whom we believed had not complied during 2004, because our records did not show compliance, and we followed up on those. We also received 61 whistleblows on personal retirement savings accounts, most of which related to people saying they had not been given the access the law allowed them to the PRSAs in their employment, some of which would have related to non-payment of contributions also.
We also have a function of making pensions information available and 42 formal presentations were given to interested parties by board personnel during that year and we have a role in regard to supporting the trustees of occupational pension schemes, who are the people with primary responsibility for occupational pension schemes. We produced a second edition of our trustee handbook and code of practice during 2004. This gives both the legislative requirements but also good practice for pension scheme trustees.
The big issues for pensions in 2004 were the funding strainswhich were encountered by the defined benefit pension schemes, the concern in Ireland that we would lose these schemes and that they would close down because they had funding deficiencies. The other issue which was beginning to be talked about widely was private pension coverage in Ireland and the adequacy of it. Our aim has always been to get a balance between our supervision role and fostering good private pension provision in Ireland, that we do not do anything on the supervisory side which thwarts good private pension provision or causes employers not to wish to provide it.
In the 2004 report we mentioned the main activities we would be undertaking in 2005. The policy side in 2005 was dominated by a request from the Minister for Social and Family Affairs to produce a national pensions review in Ireland of how pensions coverage adequacy was progressing, whether it would meet its targets and, if not, what could be done about it. That covered social welfare pensions as well as private pensions and the result of our work is the national pensions review, copies of which were sent to members of the committee at their request. It was requested in mid-2005 and was completed in the autumn of 2005.
Regarding our accounts, our financial statements are prepared under the accruals method of accounting and under the historical cost convention in the form approved by the Minister for Social and Family Affairs with the concurrence of the Minister for Finance. Our financial statements are also prepared in accordance with accounting standards generally accepted in Ireland.
The Pensions Board is financed by levies on occupational pension schemes and personal retirement savings accounts providers. The occupational pension scheme activity is fully self-financing by means of the levy we collect. The levy is reviewed annually and we make a recommendation to the Minister for Social and Family Affairs on the amount. The aim the board has adopted is to adjust the levy once only during each five year board term which gives rise to surpluses in the first two years of the board's term, a type of even line-ball in the third year and deficits in the fourth and fifth years. We are now in the second year of this cycle and matters are progressing according to the plan. The current levy was set in January 2003.
The first PRSA products were sold in April 2003 and a levy mechanism was put in place with a view to the PRSA providers who would be mainly insurance companies and banks meeting the full start-up and ongoing costs of The Pensions Board activity, but pending the build-up of sales of PRSAs and the reaching of a volume that would provide that money, the Exchequer provided the board with a temporary recoverable subvention for the shortfall in the cost of PRSA regulation. The subvention amounted to €1.43 million and the direct levies collected from PRSA providers amounted to €140,494 in 2004. On the results for that year, the board recorded a surplus of income over expenditure of €1.4 million for the year ending 31 December 2005. The total income for the year was €6.46 million, with expenditure standing at €5.06 million.