COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 25 Jun 2009

Pensions Board Annual Report and Accounts 2008.

Mr. John Buckley (An tArd Reachtaire Cúntas agus Ciste) called and examined.

Mr. Brendan Kennedy (Chief Executive, Pensions Board) called and examined.

Vice Chairman (Deputy Darragh O’Brien)

I draw attention to the fact that while members of the committee have absolute privilege, the same privilege does not apply to witnesses appearing before the committee, and the committee cannot guarantee any level of privilege to witnesses appearing before it. Further, I remind members of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the Houses, or an official either by name or in such a way as to make him or her identifiable. Members are also reminded of the provisions within Standing Order 158 that the committee shall also refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government, or the merits of the objectives of such policies.

I welcome Mr. Brendan Kennedy of the Pensions Board and ask him to introduce his officials.

Mr. Brendan Kennedy

I am joined by my colleagues, Ms Mary Hutch, head of regulation, and Mr. David Malone, head of information.

Vice Chairman

I also welcome Dr. Orlaigh Quinn, principal officer, Department of Social and Family Affairs, and Mr. Pat Leahy, Department of Finance. I call on Mr. John Buckley, the Comptroller and Auditor General, to introduce the Pensions Board annual report and accounts for 2008.

Mr. John Buckley

The role of the Pensions Board is to supervise pension schemes and encourage citizens to make provision for their retirement. It operates in the following environmental context. First, almost half of all people have no pension provision other than the State pension scheme. Second, it is estimated that up to 90% of occupational pension schemes do not meet the required funding standard. That means that if they were wound up to date their liabilities would exceed their assets.

Turning to its financial affairs, the Pensions Board levies fees on occupational pension schemes and on the providers of personal retirement savings accounts, PRSAs. As much as €4.7 million of its income in 2008 came from occupational pension scheme fees and €810,000 from PRSAs. This income is applied for the purpose of pension supervision. Separately, the State pays a grant of €1 million to enable the board to run a pensions awareness campaign.

The principal features of the board's financial performance in 2008 were as follows. It held considerable cash balances at year end approaching almost one year's supervision costs. Its cash resources stood at €6 million at 31 December 2008. We recommended altered treasury management arrangements following the audit. A sum of €1.2 million was added to a reserve in the year for compliance enforcement bringing the total reserve set aside for that purpose to €1.5 million by year end. The balance is held in free reserves. In early 2008 the Department wrote off subvention payments of €8.1 million that it had made available to the board during the period 2002-07. The payments had been advanced on a bridging finance basis and were used to supplement the supervision cost in the area of PRSAs.

The background here is that supervision of the administration of PRSAs, which were introduced in 2002, was given to the Pensions Board. It was recognised that until the level of PRSA activity increased and the associated fees were sufficient to fund the supervision activities, bridging finance would have to be provided by the State. However, the take-up of PRSAs was lower than projected and as a result the income generated by way of fees was insufficient to meet the cost of supervision. This led to the writing off by the State of the advances of €8.1 million.

The reason we raised this issue with the Department during last year's audit was because at the same time the Department wrote off €8.1 million, the Pensions Board had considerable reserves and continues to have them. Some of those reserves had built up due to the identification by the board of schemes in arrears and the collection of associated income. There was also a general increase in the number of pension schemes and the membership of existing schemes. Overall there would be merit in setting Pension Board fees at more regular intervals, perhaps on a rolling annual basis. The last review of fee levels before our report in 2007 took place in 2002.

Vice Chairman

I thank Mr. Buckley. I now ask Mr. Kennedy to make his opening statement.

Mr. Brendan Kennedy

I am happy to have been invited to this hearing to assist the committee in its examination of our accounts for 2007. I would like, in a short opening statement, to cover the following: the status, composition and functions of the board; the financing of the board to the extent that we have not already discussed it; the accounts and activities in 2007 and 2008 given that our 2008 report was published just a number of days ago; an overview of how we regulate pensions and some recent developments in that approach; and finally I will raise a number of issues facing pensions at present.

The Pensions Board was established by the Pensions Act 1990. It is a representative board and comprises a chairperson and 16 ordinary members appointed by the Minister for Social and Family Affairs. The board includes representatives of trade unions, employer organisations, consumer interests, pension interests, the Government represented by the Department of Social and Family Affairs and the Department of Finance, the pensions industry, member trustees and professional groups involved in the pensions sector.

Our functions include the regulation of occupational pension schemes and personal retirement savings accounts, PRSAs, that together cover more than 1 million members and contributors at the end of 2008. We provide information to the Minister for Social and Family Affairs on pension issues. We also provide public information and promote public awareness of pensions.

We are one of a number of agencies concerned with pensions. These include the following: the Department of Social and Family Affairs, our parent Department, which is responsible for the State retirement pension and, in conjunction with the Department of Finance, for pension policy matters generally; the Revenue Commissioners, who are responsible for administering the taxation aspects of pensions; the Pensions Ombudsman, who investigates and decides on complaints and disputes in relation to maladministration for specific scheme members; and the Financial Regulator which regulates the financial institutions that provide financial products that pension schemes and individuals invest in.

As has already been said, we are financed by a levy on occupational schemes and PRSA providers. The current level is €9.50 per active scheme member, reducing to €4.50 for larger schemes and public sector schemes. This levy has not changed since January 2003 and is set by the Minister for Social and Family Affairs. In 2008 PRSA activity, as already discussed, moved to a self-financing basis. In 2007 our total income amounted to just under €7.4 million and fell to just over €7 million in 2008. Our expenditure in 2007 was €6.6 million and 2% higher at just over €6.75 million in 2008. Therefore, we had a surplus of €745,000 in 2007 and €294,000 in 2008.

We have provided the committee secretariat with our annual reports for 2007 and 2008 which provide a comprehensive picture of our activities. I will now summarise some key features. At the end of 2008 there were 1,271 defined benefit schemes with a total membership of almost 580,000 active members and over 90,000 defined contribution schemes with a membership of 272,000. This gives a total of over 850,000 active members of occupational pension schemes. It represents about 41% of those in employment at the end 2008. At the end of 2008 there were over 155,000 PRSA contracts in force with a total asset value of €1.2 billion.

In our policy advisory role, we contribute to European occupational pension issues through our participation in the Committee of European Insurance and Occupational Pensions Supervisors, CIEOPS. In 2007, we assisted with the preparation of the Green Paper on pensions which was launched in October of that year and we continue to provide the Department of Social and Family Affairs and other Departments with technical advice on pensions matters.

We regard our information and education activity as central parts of our work. The board dealt with over 9,500 direct telephone or written enquiries on pension matters, and our website attracted almost half a million visits in 2008, an increase of 11% on 2007. In performing its regulatory role, the board operates on a hierarchy of supervisory priorities. Misappropriation of scheme or PRSA assets is our highest risk priority and this is so that we can use our resources as effectively as possible.

A very significant development in regulation in 2008 was the new requirement for schemes to appoint a registered administrator to carry out specified functions. By the end of 2008, 192 registered administrators had registered with the board. This new provision enables us to focus directly on administrators and, through them, on the schemes they administer. This is more efficient than dealing directly with the 90,000 plus individually registered schemes.

We directly engage with trustees and their administrative providers in order to assess levels of compliance based on the board's hierarchy of risk priorities. This engagement includes convening meetings with trustees and their advisers to discuss a range of compliance issues. We also carry out off-site audits and on-site inspections of regulated entities, selected on both a targeted and random basis.

We opened 181 new investigations in 2008. Over 150 of these were as a result of whistleblow reports which related to alleged failure by employers to forward pension contributions deducted from workers' pay packets. This has been a particular problem in the construction sector and in one case we obtained a High Court order directing an employer to pay contributions arrears of €186,825. We are increasingly using our powers to levy on-the-spot fines in respect of a range of administrative offences. This is more cost-effective than the more expensive and time-consuming alternative of instituting prosecutions.

The members of this committee will be aware that occupational pensions and PRSAs have experienced significant difficulties of late. In 2008, and into the early months of this year, investment market losses led to sharp falls in the value of defined contribution schemes, where retirement income is related to contributions and their investment returns, and in the funding levels of defined benefit schemes, where retirement income is a function of salary. In both cases, a significant factor has been the tendency for pension schemes in this country to invest a relatively high proportion of their assets in equities, namely, stocks and shares, compared with other European countries. While this approach worked well for a long time as equity markets performed strongly, it inevitably contributed to losses once the equity markets turned. The basic problem is that this approach did not take adequate account of investment risks and downsides.

A second factor that has affected the position of defined benefit schemes is that the contribution rates by employers and employees have not been consistent with the level of benefits promised. The focus in Ireland – understandable in many respects – has been on minimising contribution rates rather than setting contributions on a basis consistent with the long-term cost of retirement benefits. These long-term costs have increased significantly mainly because of the significant and welcome improvements in life expectancy. For example, CSO data show that a man aged 60 can now expect to live to over 80 compared to 76 for a man at the same age 25 years ago. Increases for women have been in line with those for men.

These factors as well as some others have led to a position where very few defined benefit schemes now meet the funding standard and a small number do not have enough assets to meet the liabilities of current pensioners. In other words, if the scheme wound up tomorrow there would not be enough money to continue paying for the rest of their lives those who have already retired. In response to these difficulties, the board has endeavoured to adopt a flexible approach to the necessary scheme restructuring through, for example, allowing schemes more time to put funding proposals in place to restore solvency and by agreeing to proposals with a longer timeframe over which the funding standard must be met.

Recent changes to the Pensions Act now allow scheme trustees to reduce scheme benefits in circumstances where a scheme is facing wind-up. The board has a role in approving the necessary scheme amendments and we recently published a set of guidelines to assist trustees and their advisers in this process. The guidelines emphasise the importance of trustees undertaking a comprehensive review of their schemes which will ensure that, if approved, their proposals will ensure the long-term sustainability of the scheme. To back this up we also ran a series of public seminars throughout the country.

While the problems of defined benefit schemes get a lot of attention, we are also concerned about the poor performance of defined contribution schemes. A forthcoming and welcome change in this area is the introduction of a requirement that members of defined contribution schemes be provided with estimates of what pension they may receive when they retire. It is also important that members of these schemes are provided with adequate and understandable explanations of investment choices and risks and that scheme members take an active role in their pensions.

In conclusion, we are trying to use our resources in a way that maximises their regulatory impact. We continue to promote the importance of saving for retirement. We are also exercising whatever discretion is open to us in tackling the particular difficulties facing defined benefit schemes.

My colleagues and I will be happy to address any questions committee members may wish to raise.

Vice Chairman

Thank you, Mr. Kennedy. May we publish the statement?

Mr. Brendan Kennedy

Yes.

Vice Chairman

Deputy Pádraic McCormack is the lead questioner today.

Deputy Pádraic McCormack

I have some related questions. As the main function of the Pensions Board is to monitor and supervise the operations of the Pension Fund Act 1990, what guidelines have been issued in this regard? Given that 46% of adults in employment are not covered by occupational pension schemes, is this situation now very serious? What strategies are in place to deal with it? Has the situation disimproved in the present economic climate? What is the position regarding employers who do not provide a pension scheme for their staff? Are they obliged to ensure their employees have access to PRSA schemes? What does the board do in such a situation? What was the total number of defaulters? Were there prosecutions or imprisonments in 2008? What follow-up was there in cases where people were not compliant?

Mr. Brendan Kennedy

I shall ask my colleague, Mr. David Malone, to give a brief outline of the extensive guidelines we make available. I shall address the question of the 46% who are not covered by occupational schemes and how serious the situations is. The Government has set a target for 50% of pre-retirement income to be available from all sources. Given the numbers without any pension entitlement other than the State retirement pension, this target is not being met and the situation is serious.

It is worth saying that our own research shows that seven out of eight people do not believe the State retirement pension would be adequate to meet their income needs in retirement. Therefore, both from a policy point of view and from the view of individual people, this is seen as a serious situation. Regarding strategies to meet it, in Ireland occupational pensions in excess of the State retirement pension are wholly voluntary except in so far as an employer may insist that his or her employees become members of an occupational scheme. The strategies to increase pension coverage rely on encouraging both employers and employees to make pensions available or to engage in pension savings. This involves raising awareness of the importance of pensions and their availability, and how to set about it. This is our focus in the national pensions awareness campaign run by the board. We use all methods to raise awareness, including advertising, engaging with stakeholders such as employer groups, union groups and professional associations, and any other route we believe will raise pension awareness.

Concerning employers who do not provide pensions for their employees, the Deputy is right. There is a legal obligation that where employers do not make an occupational scheme available they must make available a personal retirement savings account to their employees and must provide salary deduction facilities. There is no obligation to contribute, but they must make it available. The board has worked extensively in investigating the level of compliance and prosecuting cases in which it is lacking. Our objective is not to prosecute but to ensure the facilities are made available.

Deputy Pádraic McCormack

Have there been any prosecutions?

Mr. Brendan Kennedy

There have been a number of prosecutions, including four last year. Sometimes the prosecutions are not for failing to make the facilities available but for failing to provide the board with information. We have a statutory right to insist on an employer explaining a given situation to us.

Deputy Pádraic McCormack

What was the end result of the four prosecutions?

Mr. Brendan Kennedy

They were successful.

Deputy Pádraic McCormack

What was the fine or penalty?

Ms Mary Hutch

All of the prosecutions we have taken against employers have been successful. They resulted in criminal convictions handed down by the District Court and a range of fines which could range from €400 per employer to the maximum fine available to the District Court, that is, €2,000.

Deputy Pádraic McCormack

Was there any term of imprisonment imposed?

Ms Mary Hutch

No custodial sentences have been imposed.

Vice Chairman

Was it due to non-registration of pension arrangements or simply not providing the facility?

Ms Mary Hutch

I recall Mr. Kennedy pointed out the reason the sanctions had been imposed. In the first instance, the board would write to an employer. We have carried out extensive work during the years. We carried out a major survey of all employers on the Revenue database of employers in Ireland. The board surveyed more than 186,000 employers with regard to their obligations under the Act, either to provide access to an occupational pension scheme or a PRSA, personal retirement savings account. We systematically followed up employers who had failed to respond to our endeavours. In the past four years we have secured prosecutions against a range of employers for failure to respond to the board's requests for information on access provisions, rather than for failure to provide for pension provision per se. Inevitably, as we prosecute employers for failure to respond to our requests for information, the employers in question either put in place an occupational pension scheme or provide access to a standard PRSA.

Mr. Brendan Kennedy

I will add two other comments. The Department of Social and Family Affairs provided us with a facility whereby social welfare inspectors, as part of their work in checking employers' compliance, also examined PRSA scheme compliance. This has been of significant assistance to the board and makes our job a good deal more effective. I call on my colleague, Mr. Malone, to discuss the guidelines we make available to the public on compliance with the Pensions Act.

Mr. David Malone

We carry out work on an ongoing basis on our website and interact with various groups, especially trade unions, employers and trade groups representing various sectors such as agriculture, hospitality and retail. We have employer guidelines detailing the requirements to be met. In a major initiative we tried to get the message out, especially to those who did not have pensions, that they should engage with their employer. We have carried out research in this regard. Employees tell us their employer has not communicated to them information on access to a PRSA. When we asked if such employees had approached their employers, the answer was no. The figure is up in the 90s; approximately 90% say they do not engage. It is an ongoing challenge to get people, especially young people, to engage with the process and their employer. Employers subsequently told us they had talked to their employees, that they had make PRSAs available, but that employees were not interested. It is an ongoing challenge to communicate to employers and employees on access to a pension scheme.

Deputy Pádraic McCormack

Is it a fact that 90% of pension schemes are failing to meet the funding standard?

Mr. Brendan Kennedy

That is a fact. However, it is an estimate because each year defined benefit schemes must calculate whether they are meeting the funding standard. Briefly, meeting the funding standard means that if a scheme were wound up tomorrow, it would have enough money to meet its obligations under the Pensions Act. Let us consider the performance of a typical defined benefit scheme between late 2007 and March this year. Different schemes had different losses, but most of them would have had investment losses of somewhere between 30% and 40%.

Deputy Pádraic McCormack

Was that because of the bad or risky investments to which Mr. Kennedy referred in his presentation?

Mr. Brendan Kennedy

It is our view that the investment strategy of too many pension schemes was too risky. Let us compare Irish pension schemes with UK, Dutch or German pension schemes. Irish pension schemes tend to have a considerably higher proportion of stocks and shares in property. Obviously, these were the areas which suffered most since late 2007. As a result, many schemes do not have enough to meet the funding standard.

Deputy Pádraic McCormack

In his presentation and in the 2008 annual report the chief executive stated a number of schemes did not have enough assets to meet the liabilities of current pensioners. He further stated the experience in 2008 was worse than it could or should have been and that investment returns did not take enough account of investment risks and the downsides. That was the opinion of the chief executive expressed in the report and in his presentation. What guidelines has the Pensions Board issued to overcome this?

Mr. Brendan Kennedy

We have raised this issue several times in recent years. It is important to begin by stating the responsibility for making investment decisions rests with scheme trustees. The Pensions Board does not have the power to guide particular schemes or suggest they should invest in a given way. We cannot say to a particular scheme that although it has 80% of its funds invested in stocks and shares, we believe the proportion should be 50%. Our job is to encourage trustees and their advisers to consider the issue of investment risk. The correct and appropriate investment varies from scheme to scheme and there is no one answer. We have tried to encourage scheme trustees and their advisers to assess their scheme and not simply consider the anticipated investment returns but also the risks they undertake, for example, by investing more in stocks and shares than bonds. We have raised this issue a number of times in several annual reports. We raise it when we get a chance to speak either to the media or at conferences. We also address it in trustee handbooks which are available to all trustees. The handbook also refers to the responsibility of trustees to make appropriate investments.

Deputy Pádraic McCormack

In the annual report Mr. Kennedy was very critical of pension funds and their investments. He stated that in 2008 there had been a significant increase in the number of cases investigated by the board for potential offences under the Pensions Act. It is fine to be critical in the annual report, but are the hands of the board tied such that it cannot do anything? What are its powers to deal with the problems encountered?

Mr. Brendan Kennedy

We do not have the powers to impose investment limits. It is important to be aware that the 2003 EU directive covering this area does not allow member states to impose specific limits on pension fund investments. Our role is to raise the awareness of trustees and bring to their attention their obligations under trust law and not only their obligations under the Pensions Act, to make appropriate investments.

Deputy Pádraic McCormack

The Pensions Board does not have the power to do so; its powers are limited to raising awareness. What is the function of the board, other than to raise awareness?

Mr. Brendan Kennedy

On the particular issue——

Deputy Pádraic McCormack

We have a quorum of 17 people representative of all sections of the community. What is the board's function?

Mr. Brendan Kennedy

I refer to our functions specifically with regard to investments. There are investment regulations which apply to all trustees. Our function is to enforce those investment regulations. They deal only in principles. For instance, there is an obligation in the investment regulations that trustees should take account of the nature of the liabilities of the scheme in deciding on investments. It is very difficult to prove a specific offence under those regulations. Changing investment behaviour will be considerably more effective through raising awareness because we do not feel that specific prosecutions in this area would succeed.

Raising awareness will always be a slow process because there has been in Irish pensions and the Irish investment community generally an assumption and a common belief that high levels of investments in stocks, shares and property were the correct way to go. To a large extent the Pensions Board view was a minority view.

An important part of the work we do, and have done especially over recent years, is holding specific discussions with trustees of specific schemes. We have invited in the largest schemes to meet us, and Ms Hutch and her staff meet trustees on a one-to-one basis and discuss a range of issues, including the investments of the particular scheme. The largest 20 defined benefit schemes include a majority of the members.

Deputy Pádraic McCormack

We know that there is always a risk. Clearly Irish pension funds got the balance wrong. I am trying to establish who corrects that. If they get it wrong, do they close the books and say as much? The pensions funds showed an index recorded decline of 66%, while the average managed pension fund fell by 34% in 2008. How does that compare with other member states?

Mr. Brendan Kennedy

A number of months ago the OECD published figures on how pension funds in various jurisdictions had suffered as a result of the recent market crisis. The Irish pension funds were considerably worse than anybody else. From memory, I think Irish pension funds had lost 8% more than the next worst country.

Vice Chairman

That was against the average return in EU states. If we are 8% off the worst, where are we off the average?

Mr. Brendan Kennedy

I can provide these figures but I do not have them to hand. We were not 8% worse than the average, but the next worst.

Vice Chairman

I understand that. I would like to know what the benchmark is.

Mr. Brendan Kennedy

My personal estimate is approximately 15% to 20%.

Vice Chairman

Is that an annualised loss?

Mr. Brendan Kennedy

No, that is over the 18 months.

Vice Chairman

Okay.

Mr. Brendan Kennedy

There is an important point which I need to add to what I said earlier. Just because trustees may have made significant investment losses, it does not mean they have committed an offence. In most cases, it is very unlikely they have committed an offence. They made poor investment decisions, in our view, and I do not——

Deputy Pádraic McCormack

Are there any sanctions for people who made poor investments?

Mr. Brendan Kennedy

No. Unless they can be proved to have committed an offence under the Pensions Act, there are no sanctions. If members, under trust law, believe the trustees have failed in their responsibilities, they can approach the Pensions Ombudsman, which is free of charge to a member. They could also take a court case under general trust law. The sanction is not a sanction per se. The problem investment losses create is that more money has to be found to provide the benefit promises that have been made.

Deputy Pádraic McCormack

My final question concerns a further matter of explanation. The Comptroller and Auditor General's report states that the Department wrote off €8.1 million, if that is the correct figure. How did that come about?

Mr. Brendan Kennedy

The decision to write it off was not a Pensions Board decision so I will not comment on it. To reiterate what was said earlier, personal retirement savings accounts were introduced as a result of the Pensions (Amendment) Act 2002. They were a completely new pension vehicle and the Pensions Board, under that Act, was given responsibility for supervising them.

A lot of work had to be done at the beginning, regulations effected and the relevant people hired. A subvention was provided by the Department to cover that period when no fees were coming into the Pensions Board, despite the fact it had to do all the work on supervising. The fee for PRSAs is 0.25% of the total PRSA funds under management. In early years the income from that fee was very low.

Deputy Pádraic McCormack

I accept that it was not the board's decision to write off the €8.1 million. Whose decision was it?

Mr. Brendan Kennedy

I understand it was a decision of the Department of Social and Family Affairs.

Deputy Pádraic McCormack

I will have to address my question to it.

Mr. Brendan Kennedy

I am not sure of that.

Dr. Orlaigh Quinn

Yes, that was the decision. It was decided, with the agreement of the Department of Finance, that the sum would be written off because in the initial stages, as Mr. Kennedy said, the subvention was provided to get the PRSA.

Deputy Pádraic McCormack

How did it arise that €8.1 million had to be written off?

Dr. Orlaigh Quinn

The Department provided funding every year to the Pensions Board to allow it to regulate PRSAs and the fee income which was expected from PRSAs did not arise in the early years because the sales of PRSAs were not at the level that was expected.

Deputy Pádraic McCormack

Who made the miscalculation that the expected sum did not arise?

Dr. Orlaigh Quinn

I cannot really answer that. One has to accept that when it was established initially it was expected that the sales would arise, but they did not in the early years and the fee for that was very small.

Deputy Pádraic McCormack

Is that likely to happen again?

Dr. Orlaigh Quinn

No, the Department no longer provides any subvention to the Pensions Board for the sale of PRSAs. It is now fully responsible for all the costs of regulation.

Deputy Pádraic McCormack

Our job is to ensure the taxpayer's money is not wasted. I feel I am not getting to the bottom of how we arrived at a situation where €8.1 million was written off. What period did that cover?

Dr. Orlaigh Quinn

It would have covered the time PRSAs were introduced, from 2001 to 2007.

Vice Chairman

Are PRSAs now fully self-funding? Do the fees the Pensions Board now receives pay for the work it has to do?

Mr. Brendan Kennedy

Yes.

Vice Chairman

Deputy McCormack covered a lot of ground on the risk profile of the schemes, but it was mentioned that in an 18-month period they are 15% off the average. What about the returns in the previous five years versus the EU average? If many of our pension schemes were over-weighted in equities and property, is it correct to assume that the annual returns were above the EU average in the five years before the end of 2007? Do we have those figures?

Mr. Brendan Kennedy

I do not have those figures with me but I would be happy to provide them, if they are available.

Vice Chairman

Okay.

Mr. Brendan Kennedy

It is correct to say that the average return would have been higher. However, the Irish defined benefit schemes earned very high investment returns throughout the 1990s, typically 14% or 15% per annum. What happened in almost all cases was that contributions were reduced and, in many cases, benefits were increased so that——

Vice Chairman

There were holidays, suspension of premiums and all that.

Mr. Brendan Kennedy

There were suspensions of contributions and, in many cases, improvements in benefits. In one case of which I am aware, benefits were improved in March 2000 just as the markets turned. The effect of that was that the profits from the good years were not available when the downturn happened.

Vice Chairman

It would be useful if the five-year annualised returns in comparison with the EU average were sent to the committee.

Two further aspects arise. We will probably have to seek the views of the Irish Association of Pension Funds although our remit does not cover the association. Mr. Kennedy mentioned that the Pensions Board has raised the issue in several annual reports, not just since the downturn. Would it be correct to say that it has raised it in its annual reports over the past four or five years?

Mr. Brendan Kennedy

We raised it in the 2006 annual report but I do not think we raised it before then.

Vice Chairman

What was the response of the Irish Association of Pension Funds?

Mr. Brendan Kennedy

There are two relevant bodies, one, the Irish Association of Pension Funds, IAPF, which is an umbrella organisation for pension funds and many of their advisers. I do not speak for it but my impression is that its view was neutral. It was not trying to push one over the other. For instance, in October 2006 I spoke about this at an IAPF conference.

Vice Chairman

I know that Mr. Kennedy cannot speak for the IAPF so I do not want to pursue that line.

We raised the matter of geared equity funds and geared property funds with the previous financial regulator before the stock markets crashed. What guidelines has the Pensions Board issued on them in respect of any occupational pension schemes particularly for normal employees? I believe that type of product is wholly inappropriate for investment of large portions of pension funds and particularly for retirement funds in occupational pension schemes. Has the Pensions Board issued any guidelines on their use, or on currency funds which have been prevalent for the past few years?

Mr. Brendan Kennedy

The Pensions Board has not issued any specific guidelines on geared funds. I personally share the Vice Chairman's view of them. Our experience has been, and continues to be, that medium and large pension funds do not engage in geared investment. Pension schemes with more than 100 members are not allowed to borrow money. In our experience very few smaller schemes engage directly or indirectly in geared investment. The prevalence of geared property or equity funds tends to be in single personal defined contribution investment.

Ms Hutch has drawn to my attention that we describe those funds and their risks in our on-line FAQs. In most schemes with which we deal they are not an issue. They are an issue for personal investment rather than for pension funds.

Vice Chairman

Many of those would be occupational schemes, whether one person schemes——

Mr. Brendan Kennedy

Some would be single person occupational pension schemes but many would also be personal pensions, retirement annuity contracts, RACs.

Vice Chairman

I might come back to that point later.

Deputy Niall Collins

The Pensions Board is aware that there is rolling debate about how the State collects tax to fund public services. Directors of companies and self-employed people have the option of making additional voluntary contributions with a tax credit. Has the Pensions Board made a submission to the Commission on Taxation on this option and if so what did it recommend?

Mr. Brendan Kennedy

We made a technical submission to the Commission on Taxation to explain how the system worked. Tax relief is a matter of Government policy and we do not have a role in that. The Pensions Board published its view in its national pensions review in 2005. It was the board's view that tax reliefs for those on no or low rates of tax should be increased and that could be funded by reducing the tax reliefs available to high earners. We did not make specific recommendations to the Commission on Taxation about the current structure. We have on several occasions provided technical advice to the commission in response to specific questions about how the system works.

Deputy Niall Collins

Is Mr. Kennedy talking about the collection of tax or the application of the tax code?

Mr. Brendan Kennedy

We would have explained how the system worked, who qualified for a tax relief and how different pension schemes qualified. For example, the rules governing personal retirement savings accounts, PRSAs, are different from those governing defined contribution schemes and those governing defined benefit schemes and we would help the commission through that maze, if I may so call it.

Deputy Niall Collins

Will Mr. Kennedy enlighten us on his work in the area of on-the-spot fines? Employers are obliged to offer their employees a pension opportunity. How does the Pensions Board monitor the application of that obligation? Does it have field workers or officers going around the country to call unannounced to employers? Is it as effective as it should be?

Mr. Brendan Kennedy

We check on employers fulfilling their obligations partly through direct engagement for example we wrote to many thousand employers some years ago. We have also had significant help from social welfare inspectors who check on PRSA compliance as part of their visits. This has been effective.

Like any regulator we have to decide where best to use our resources. We believe that we have achieved significant awareness of, and compliance with, PRSA obligations but there are times when our resources need to be used more directly for example our current investigation of employers who have not passed on the contributions.

Ms Hutch will explain how the on-the-spot fines work.

Ms Mary Hutch

The fines regime applied to a range of administrative breaches of the Pensions Act because prior to their introduction any breach was a breach of statutory duty which resulted in criminal sanctions. Therefore, the board could find itself having to mount a full-scale prosecution for a breach of the disclosure of information provisions of the Act, for example. We sought the power to introduce civil penalties under the legislation for what we would deem to be lesser breaches of the Act but reserving our right to prosecute more serious offences relating to breaches of the legislation.

The fines regime is a civil penalty process and applies to a range of offences where, for example, employers fail to respond to requests for information about access to pension provision or where trustees of schemes fail to provide members of schemes with appropriate information about their schemes. There is a broad range of information that trustees are obliged to disclose to scheme members. That information enables the member to monitor the financial standing of the scheme. It is important that people are provided with the information to which they are entitled.

How do we oversee the application of these sanctions? One important obligation is that trustees must submit actuarial funding certificates to the board on a three-year cycle. That enables the board to assess the funding position of the scheme. Failure by the trustees to submit an AFC to the board is a serious matter but rather than going the prosecutorial route, we can impose fines on the trustees of the scheme of €2,000 per trustee. That is a much more effective process by which we can use our powers around administrative breaches of the Act, but we can always resort to court proceedings if we must. A 21-day fines notice is issued to the trustees or the employer concerned and they then have 21 days in which to pay the fine to the board but, more importantly, within that period they must remedy the breach which is the subject of the fines notice.

Deputy Niall Collins

A compliance enforcement reserve of €1.5 million has been created from an initial amount of €300,000. Why is that?

Mr. Brendan Kennedy

The compliance and enforcement reserve is designed to ensure that in the event of pursuing a legal case there will be sufficient resources to do so. As part of the preparation of the annual reporting accounts, the board members are obliged to review current levels of reserves and to adjust them if appropriate. We now have responsibility for supervising registered administrators, which include some large commercial organisations. Registered administrators register with us that they can perform specific functions. Our supervisory role is to ensure they can and do perform them adequately. If we decide they are not carrying out their functions adequately we can ultimately de-register them. For some of them, that would effectively put them out of business. There are major issues at stake. In the event that we de-registered a scheme there could be significant legal push back. The board members decided, therefore, to set the reserve at such a level that in the event of a court case disputing the de-registration of a registered administrator, we would have sufficient assets to allow us to pursue that case.

Deputy Niall Collins

There were legal fees for 2008 or €404,000. Is that outsourced or is it done in-house?

Mr. Brendan Kennedy

We do both. We have an in-house legal adviser working with us full-time. We also outsource where we need specific external legal assistance.

In 2008, there were pre-prosecution investigations in three cases amounting to €23,000. There were two particular prosecutions where we ended up in the High Court and our total prosecution expenses were €172,000. The other item covers the seeking of various legal advice at a cost of €175,000, including specific advice on some contracts, delegations, procurement law, barristers and a variety of other issues.

We try to do as much of our legal work as possible in-house because it is more efficient and we have successfully built up a body of knowledge and experience. There are, however, specific areas from time to time where we need external legal advice, especially in 2008. There was a significant increase in the number of cases where employers were alleged not to have passed on money, a type of case we had not come across before. In preparing those prosecutions we had to undertake a significant amount of new work.

Vice Chairman

Taking the case that was mentioned in the opening statement involving the €186,000 that was not remitted and that was widely covered in the media, were costs not awarded against that person when the board went to the High Court?

Mr. Brendan Kennedy

They were.

Vice Chairman

So there was no cost to the Pensions Board? Did it cost €170,000 to get €186,000 back for the members of that pension scheme?

Ms Mary Hutch

The costs involved do not just relate to the High Court action but also to the subsequent criminal prosecution we introduced in the District Court. We got an order for costs in the High Court but, unfortunately, the defendant subsequently skipped the jurisdiction and we have an outstanding bench warrant for his arrest. We are monitoring his whereabouts.

Deputy Róisín Shortall

Who are we referring to?

Ms Mary Hutch

A construction employer to whom we referred in our opening statement. That involved both High Court and District Court criminal proceedings. Mounting a case of this nature involves a detailed investigative process, and the collecting of the necessary evidence to bring these cases to court involves a huge amount of work. We pursued this employer because we thought it appropriate to send a message to the sector that this behaviour would not be tolerated. In the first instance we went through the High Court process which we were advised was the correct route — the civil process. Our primary objective in all these cases is to try to repatriate the money to the scheme because that is in the best interests of the members of the scheme. The way to do that is through the High Court. We must go through the civil process of seeking a High Court order to restore the resources. We succeeded in that regard.

Vice Chairman

Is there a cost now because that money has not been recouped?

Ms Mary Hutch

Yes. The entire cost, however, does not relate to the High Court proceedings. It also involves the subsequent bringing of the criminal prosecution through the District Court at which point the defendant fled the jurisdiction.

Mr. Brendan Kennedy

The €172,000 I mentioned is not entirely that one case.

Vice Chairman

Does the board know how much relates to Limestone Construction?

Ms Mary Hutch

Of the €172,000, I think it was in the region of €147,000 with the balance related to District Court proceedings against employers who failed to make pension contributions.

Deputy Niall Collins

The oversight of registered administrators was mentioned. Note 19 in the financial statement on board members and disclosures is of interest. It appears two board members are employees of a registered administrator and the Pensions Board uses the services of their employer.

Mr. Brendan Kennedy

Is the Deputy referring to the 2008 accounts?

Deputy Niall Collins

Yes.

Mr. Brendan Kennedy

There are three members of the board who are employees of or partners in firms with which the board did business during 2008. The total amount involved was approximately €64,000.

On the nature of the board's composition, because it is a representative board and incorporates representatives of the pensions industry as well as pension schemes particularly, there are many times when a potential conflict of interest arises in terms of the board's activities with particular members. It is important to say that we go through proper procurement procedures and the board members concerned have no involvement in the awarding of that and may not have been aware of it. The awarding of contracts is not dealt with by the board members themselves but by the staff.

Deputy Niall Collins

I appreciate that. A conflict of interest is one thing but a perception of it is a separate but related issue. However, it is important that Mr. Kennedy clarified that.

Deputy Deirdre Clune

In his opening statement Mr. Kennedy referred to the position of defined benefit schemes and that the contribution rates from employers-employees has not been consistent with the level of benefits promised. He went on to say, rightly, that the focus has been on minimising contributions rather than setting contributions on a basis consistent with long-term benefits. Is Mr. Kennedy saying he believes the contributions do not match the requirements, particularly in light of people living longer and so on?

Mr. Brendan Kennedy

The Deputy has summarised well the exact message we are giving. In difficult times in particular there is a natural human tendency for trustees and sponsoring employers to work out the minimum contribution they must make to get them through the next funding standard or to restore the funding standard process. It is important to say that the funding standard is a benchmark. It is a test that is imposed by legislation or regulation that the scheme must subject itself to once a year but in the long term it is not the funding standard that defines the cost of the schemes, but the benefits being provided. We have concerns that schemes may not have done a fundamental reassessment, particularly in light of increased life expectancy, of what they can expect their scheme to cost in the long term and, in some cases, whether they are prepared or able to pay that amount of money. It is not the kind of process one goes through every year but it is a process one must do periodically to ensure that the promises being made can be met.

Deputy Deirdre Clune

Mr. Kennedy says he has concerns. Would he air them with the trustees?

Mr. Brendan Kennedy

We seek to air them with everybody. When we have one-to-one conversations with trustees that is an issue we raise. We recently ran a series of seminars at which more than 500 people attended. Those would have been trustees, employers, advisers and whomever. An issue we raised was that in making pension promises, trustees must clearly understand the long-term cost of those promises so that they can assess how to meet those promises where they could be met.

For example, in terms of a scheme that aimed to provide members with a pension of two thirds of their salary when they retired, with some level of increase in that pension after retirement, ignoring investment losses, the long-term cost of providing those benefits is of the order of 20% to 25% of payroll. That is a very large figure. We want to ensure that those involved in the pension scheme, who ultimately are the trustees and the sponsors of the product, understand the commitment they have made because it is in nobody's interest that benefits be promised to people and those benefits not provided at some point in the future.

Deputy Deirdre Clune

Is there evidence that will happen to people entering retirement, particularly in light of the turmoil in recent years?

Mr. Brendan Kennedy

The turmoil makes what may be a difficult situation worse. Because individual schemes in many cases have not gone through this reappraisal, we do not have specific evidence of this or that scheme being underfunded but from our day-to-day involvement with the pensions industry and our interaction with pension professionals particularly, we believe that in many cases schemes may involve long-term costs of which the trustees may not be aware. The effect of the recession means that employers and members are less able to afford things than was the case previously. Questions arise in some cases about the reason the schemes are affordable. Unfortunately, there may be cases, and I hope there are very few, where even existing benefits cannot be afforded and will have to be cut back. That is happening now. We emphasise to trustees that their scheme has suffered investment losses in the past 18 months. There has been an element of wait and see about it to find where things settle but now all trustees must engage with their pension scheme and their providers, assess their current position and plan in conjunction with the employer.

Deputy Deirdre Clune

Who is saying they must do that? Is the board saying it?

Mr. Brendan Kennedy

We are saying they must, yes.

Deputy Deirdre Clune

To go back to the question Deputy McCormack raised, does Mr. Kennedy believe the board should be able to play a stronger role or should there be more——

Mr. Brendan Kennedy

We are happy with our powers in this instance. Every year trustees must provide an actuarial statement which is a measure of whether they meet the funding standard. If they do not meet the funding standard they must provide the board, within a year, with a funding plan to restore the shortfall. That plan may involve payments over ten or more years. The mechanics of it is that one checks whether one meets the funding standard and if one does not meet the funding standard, one must provide the board with a plan of what one intends to do about it.

In many cases, and I hope in most cases, that plan will involve additional contributions but in investigating that we are encouraging employers and trustees to do as thorough a review as possible and in some cases, unfortunately, they will examine what they need to restore the plan to full funding and come to the conclusion that it cannot be afforded. In that case they may have to look at reducing benefits but the mechanism is that they have a legal obligation which we enforce, as Ms Hutch said, through fines or whatever. They have an obligation to report to the board and, if they have a shortfall, to tell the board what they intend to do about it. We are very close to that process and we pursue cases where they do not fulfil those obligations.

Deputy Deirdre Clune

Is Mr. Kennedy happy that the board has enough powers? Does he believe there should be a regulation or——

Mr. Brendan Kennedy

We are happy we have enough powers but it is important to be aware and to draw a clear distinction in that respect. Where pension promises have been made it is the board's responsibility to ensure that something is done about those promises. One cannot make a promise and hope something will happen. However, in terms of the promises made and the decisions made on how to meet those promises, the board does not have the power to order somebody to pay money. We have the power to force them either to pay money or to reduce benefits but how to meet those benefits is not our decision because it is a voluntary pension system.

Deputy Deirdre Clune

In the current climate is there any evidence of employers not being in a position to meet their pension contribution obligations? We hear a lot about that anecdotally and it is becoming an issue in that firms in difficulties look at that as a way of not making the contributions now and postponing that to a later time to survive. Does the board have much evidence of that?

Mr. Brendan Kennedy

We have a great deal of anecdotal evidence. Many schemes are faced with situations where the current contribution level must be increased but we are getting anecdotal evidence that in the case of some employers, the question is not of increasing the contribution but of whether the current contribution level can be afforded. That evidence is strong, but it is still only anecdotal because the timescales for trustees of schemes in contacting us and dealing with the shortfalls are such that the majority of schemes are not required to report to us yet.  Therefore, they have not come to us to advise us.  We bring in the trustees of schemes, where necessary, to discuss issues with them.  We have an open door policy with employers, trade unions, trustees and advisers; anybody who wants to do so can come to us to discuss the issues involved.  For instance, Ms Hutch has a meeting this afternoon with the trustees of a large scheme.  We are effectively saying to trustees that now is the time for them to engage with their advisers and employers to ascertain what can be afforded and to move forward from there.

Vice Chairman

In regard to estimated maturity values and projections for new business, are firms still using the figures of 6% and 8% or 4% and 6% as growth rate projections? In the case of the estimated maturity value of a pension scheme, what growth rates does the board use and does it consider they are appropriate?  Firms were quoting a 10% or 12% annualised growth rate eight or ten years ago. People were being advised figures for their retirement funds that equated to telephone numbers.

Mr. Brendan Kennedy

The projected maturity values are produced, in the main, by insurance companies.  These are matters for the Financial Regulator rather than us.  Nonetheless, if I may, I will comment on them.

Vice Chairman

Annual reports, even on insured schemes, must be issued to every member; benefit statements with projections must also be issued to every member.  That falls within the board's remit.

Mr. Brendan Kennedy

Yes.

Vice Chairman

What growth and projection rates are currently being shown on benefit statements?

Mr. Brendan Kennedy

I will have to come back to the Vice Chairman with the exact rate, but I believe it is 6%. As to whether that is an appropriate rate, there are a number of points to be made. When we were advising the Department on the regulations, we considered whether it would be useful to produce a range of figures, that rather than pick one figure to pick two or three. There is no easy answer to this question. We decided it would be better to pick one figure rather than to pick a number of figures because there would be more chance a person would read the information given. I believe in the A4 rule, namely, that if details extend beyond an A4 page, people will lose interest in reading it. Any projection one produces will be wrong. One does not know whether it will be wrong in that actual growth rate will be higher or lower than the rate predicted. The primary objective is to give people a ballpark understanding of what the expected return on their investment will be. I believe 6% is not an unreasonable long-term growth rate. However, in that context reasonable is a broad church; a reasonable growth rate probably encompasses a figure of 4% to 7%. There is no single right answer.

Vice Chairman

Many people approaching retirement age have been given projections based on a 10% or 12% annualised growth rate. Taking account of what has happened in the markets during the past 18 months, the value of their pension funds will be way below what they would have expected to receive. Projected values rather than current values were used in the calculations. I intervened during Deputy Clune's questioning; the Deputy may now continue.

Deputy Deirdre Clune

I have a further question on a matter about which I have a concern. Having regard to all the information and projections Mr. Kennedy has available, is the current or next generation facing a pensions time bomb? All projections fall short of actual growth rates in terms of being higher or lower. We hear talk about the level of contributions and the markets being in turmoil.

Mr. Brendan Kennedy

We have significant pension problems. We have a societal problem in that almost 50% of the workforce do not have anything other than the State retirement pension to which to look forward. From our research, there is a disconnect between what people believe they will need in retirement and what they will actually have. That is a looming problem. On the system as a whole, even for those who have pension plans, the contribution levels for a typical defined contribution scheme will not provide the retirement income many seem to assume they will receive. One of the issues to which we constantly return, as did Mr. Malone and his staff when trying to increase the level of pension awareness, is getting people to connect with and recognise what their personal circumstances will be. This is the first step in making such decisions. There is no question but that we have a problem which can be defined as the difference between what people expect they will receive in a pension and what it seems they will get.

Vice Chairman

A related factor is that people start to make pension contributions late in their working life. One of the biggest barriers the board encounters is trying to encourage people to make pension contributions at an early age. Whatever amount a person pays towards his or her pension will reduce the pain of what he or she will have to pay on deciding at the age of 35 or 40 years to make pension contributions. What is the penetration rate of people taking out pensions among those in the 18 to 25 or 18 to 35 age bracket? Is any progress being made in that respect on foot of all the public awareness campaigns the board has run?

Mr. Brendan Kennedy

I will ask Mr. Malone to reply to that question.

Mr. David Malone

We are making progress. A key figure is to be found in the CSO quarterly national household surveys. In our target group of 30 to 65 year olds, 61% are paying pension contributions.  The number has been growing slowly. Significant growth has occurred among women. One of the other target groups would have been those engaged in the hospitality and agriculture sectors in which we have done considerable work, but the growth in the figures has been very slow.  We have not said it is great that coverage is up in recent years by 2% or some such percentage.  It is a movable feast. Awareness levels are quite high and have remained consistently so. The biggest challenge is getting younger people to engage.  We have been given something of a hard time for some of the things we have done, but such campaigns have brought the issue into the scope of their radar. There was a significant information gap and people were not even engaging with the process.  We have used a multifaceted approach across the board from engaging with young people through school and the mediums they use. Our aim is to get them to talk about the issue. Six or eight years ago the prominent place in which people found information on pensions was in the financial columns of the broadsheets, whereas now such information is available on-line.  Popular magazines have their own talk about money sections.  It is all part of the process.

Deputy Róisín Shortall

I thank the Mr. Kennedy for his presentation. I would like to receive clarification on some points regarding pension cover. In Mr. Kennedy's presentation he said there were 850,000 members of occupational pension schemes and that this represented 41% of those in employment.  Does the figure of 850,000 include public sector employees?

Mr. Brendan Kennedy

It does.

Deputy Róisín Shortall

That is the total number who have pension cover other than the State pension.  Is that correct?

Mr. Brendan Kennedy

That is the total number of active members, which means current employees of occupational pension schemes.  In addition, there are those with PRSAs or who are contributing to a personal pension scheme. That figure relates specifically to occupational pension schemes and is taken from the Pensions Board's register which includes the information such schemes are obliged to provide every year.

Deputy Róisín Shortall

Mr. Kennedy says it does not include personal pension schemes. To which category is he referring?

Mr. Brendan Kennedy

Personal pension schemes are a type of insurance product. They are also called retirement annuity contracts, RACs. I am afraid there is a great deal of jargon. These are products sold by insurance companies approved by the Revenue Commissioners. They attract tax relief, as do other pension contributions, and are sold to individuals. Occupational pension schemes are essentially organised and sponsored by an employer, whereas personal pension schemes cover pension savings people make. They might be self-employed or might be in employment where the employer is not providing a pension scheme.

Deputy Róisín Shortall

It could also be the case that some of the 850,000 also have a PRSA or RAC.

Mr. Brendan Kennedy

They could. PRSAs can be used for additional voluntary contributions or to top up.

Vice Chairman

Although they could not have a personal pension——

Mr. Brendan Kennedy

They could not have a personal pension scheme, unless they had a second source of income.

Vice Chairman

Right, but they could have a PRSA.

Mr. Brendan Kennedy

Yes, they could have a PRSA or AVCs.

Deputy Róisín Shortall

What is the rate of cover?

Mr. Brendan Kennedy

Our guide to the rate of cover is the CSO quarterly household survey. The latest figure for the first quarter in 2008 show that the total coverage for occupational schemes — this is based on asking people if they have a pension — is 54% for everybody. For the 30 to 65 year age group, our target group, the coverage rate is 61%.

Deputy Róisín Shortall

What is the board's target rate of cover?

Mr. Brendan Kennedy

The target rate of cover is 70%.

Deputy Róisín Shortall

When was that set? When did the board aim to have a rate of 70%?

Mr. Brendan Kennedy

That was the national pensions policy initiative in 1998. When the objective was set in 1998, there was no specific timeframe. It was revisited in our national pensions review in 2005. Although a specific timeframe was not included, it was the view then that a ten year timeframe was envisaged.

Deputy Róisín Shortall

What are the trends?

Mr. Brendan Kennedy

The trends are in the CSO figures. The first quarterly national household survey was carried out in 2002; therefore, the trend for the 30 to 65 year age group has been slightly upwards from 59%. It moves a little because of errors. The figures are 58%, 62% and 61%. The trend is slightly up. There is one point worth making about this. When the national pension policy initiative was produced in 1998, the workforce was significantly lower than it is now. Although the percentages have not increased substantially, the numbers with pensions have. In the national pensions review published in 2005 the Pensions Board stated its view that the current system was unlikely to achieve the target coverage.

Deputy Róisín Shortall

It is unlikely. On the basis of these figures, pension policy has not been very successful in achieving pension coverage. That is very much related to the pension policy being pursued. It is a policy that depends predominantly on tax relief.

Vice Chairman

The Deputy cannot ask Mr. Kennedy to comment on policy.

Deputy Róisín Shortall

No, but I am making the point.

Vice Chairman

That is fine. I am just making the position clear to the Deputy.

Deputy Róisín Shortall

A pension policy that depends on tax relief which predominantly benefits the rich will not be an attractive proposition to those on low and middle incomes. Does Mr. Kennedy accept there is a need to review pension policy? If the aim is to increase pension coverage, the policy being pursued, with its over-reliance on tax relief, must be reviewed.

Vice Chairman

I understand what the Deputy is saying, but Mr. Kennedy must be careful not to comment on policy. The tax relief system is in place as a result of Government policy. It is not fair to ask Mr. Kennedy to comment on the policy and what he would change or not change.

Deputy Róisín Shortall

Presumably, the Pensions Board has a role in offering a view on the effectiveness or otherwise of existing pensions policy. From that perspective, I would be interested to know the view of the Pensions Board.

Mr. Brendan Kennedy

The view of the Pensions Board was most comprehensively set out in the national pensions review in 2005. Its view at that point — it has not changed since — was that the current pensions structure would not achieve the target levels of coverage. The Government published a Green Paper on pensions in 2007 and we, like everybody else, look forward to the Government's response to it. The Pensions Board's view is that it supports the Green Paper process and the review the Government is undertaking.

Deputy Róisín Shortall

I am talking about the policy, apart from the process. What recommendations did the Pensions Board make? If the target of 70% is to be achieved, what must change in pensions policy?

Vice Chairman

Did the board make a submission in respect of the Green Paper on pensions?

Mr. Brendan Kennedy

The board did not make a submission. The Green Paper process took account of Pensions Board publications. We provided technical support for the Department in preparing the Green Paper, but the board did not make a submission.

Deputy Róisín Shortall

Did the board set down proposals on pensions policy at any stage?

Mr. Brendan Kennedy

No, we did not.

Deputy Róisín Shortall

Did it propose changes that had to take place if the 70% target was to be achieved?

Mr. Brendan Kennedy

We did not make proposals.

Deputy Róisín Shortall

Mr. Kennedy said a few moments ago that the board had stated the 70% target would not be achieved on the basis of current policy.

Mr. Brendan Kennedy

Yes.

Deputy Róisín Shortall

Did it go on to state what changes needed to take place?

Mr. Brendan Kennedy

The view of the board on the effectiveness or the achievability of the target was set out in the national pensions review of 2005. That review — quite a lengthy document — examined a number of options for achieving it. They ranged from changes to the balance of the tax relief system, if I can call it that, through to quasi-mandatory pensions or changes to the State pensions system. The national pensions review covered a range of options.

Deputy Róisín Shortall

Did the board make recommendations?

Mr. Brendan Kennedy

No specific recommendation was made. Different members of the board had different preferences. The view set out in the review, however, was that all of the board, with the exception of the representative of the Minister for Finance, supported a rebalancing of the tax reliefs available to encourage the lower paid, although many members of the board did not believe this per se would achieve the targets.

Deputy Róisín Shortall

Did the board at any point consider an approach which would put the main emphasis on the provision of a universal State pension?

Mr. Brendan Kennedy

One of the options the national pensions review examined was increasing the State retirement pension to a level of 48% and 50% of average industrial earnings compared to the current level of 34%.

Deputy Róisín Shortall

Was the board neutral on this? Did it just examine the matter or did it state it should be considered?

Mr. Brendan Kennedy

It is difficult to say "neutral" because there are 17 members of the board and they have different views.

Vice Chairman

The role of the Pensions Board, according to its mission statement, is to advise the Minister on all matters relating to functions assigned to the board under the Pensions Act and to pensions generally, and to undertake such tasks as the Minister may from time to time request. I know what the Deputy's objective is and it is important that we receive this information, but I do not know if it is fair to ask what recommendations would have been made in private meetings with the Minister in the formulation of policy.

Deputy Róisín Shortall

I am trying to establish which body, or who, is informing pension policy.

Vice Chairman

That is the reason I read that into the record.

Deputy Róisín Shortall

Given the expertise in the Pensions Board, it is my view that the board's advice would be valuable. I am just wondering if that advice was set down.

Can we move on to the question of costs, which is this committee's primary concern? There does seem to be a kind of secrecy that surrounds the cost of different aspects of pension provision in this country. This committee has been trying to establish what those costs are, as I have personally tried to do. Perhaps the board's representatives could help us with that today. Does the board have up-to-date figures on the cost of the first pillar concerning the State pension and the cost of the second pillar concerning public service pensions?

Mr. Brendan Kennedy

The information we have on those issues would be provided to us by various Departments. The State pension data comes from the Department of Social and Family Affairs, while public service pensions data comes from the Department of Finance. I do not have the most up-to-date figures with me.

Vice Chairman

Does Dr. Quinn have them?

Dr. Orlaigh Quinn

Approximately €4 billion is spent on State pensions.

Vice Chairman

Is that contributory and non-contributory?

Dr. Orlaigh Quinn

Yes. It is approximately €4 billion if one takes into account the State pension — contributory and non-contributory — the retirement transition payment and the household benefits for older people as well.

Deputy Róisín Shortall

Is that in the current year?

Dr. Orlaigh Quinn

Yes.

Deputy Róisín Shortall

What about public service pensions?

Mr. Patrick Leahy

I do not have the current figures but I can get them. I think it is about €2.5 billion.

Deputy Róisín Shortall

Does the Pensions Board have up-to-date figures on the cost of different pension provisions?

Mr. Brendan Kennedy

No, we do not. If for our policy advice role or any other role we need that information, we go to the Departments to get it. We have not done work recently on the area of public service pensions specifically. We do not do specific work on public service pensions.

Deputy Róisín Shortall

These are basic figures and I would have thought they would be available to the Pensions Board. Do we know how much public service pensions are costing us?

Vice Chairman

That is the Department of Finance's remit. The Pensions Board does not have that remit.

Deputy Róisín Shortall

Okay, but why do we not have a figure for that today?

Mr. Patrick Leahy

I can undertake to produce a figure, I just do not have it on me at this particular time.

Vice Chairman

Does Mr. Leahy have the figure for last year?

Mr. Patrick Leahy

We think it is roughly in the order of €2.5 billion to €3 billion.

Deputy Róisín Shortall

Is that for last year?

Mr. Patrick Leahy

For last year, yes.

Deputy Róisín Shortall

With regard to tax relief on pensions, the latest figure we could get was for 2006, which suggested it was €2.9 billion. That was a Green Paper figure. What is the current figure for the cost of tax relief?

Mr. Brendan Kennedy

I am afraid I do not know the answer to that. The information we have on the cost of tax relief would be what is provided to us by the Revenue Commissioners or the Department of Finance. We do not have any information that they do not have.

Deputy Róisín Shortall

What is the most up-to-date figure the Pensions Board has?

Mr. Brendan Kennedy

The most up-to-date figure we have is for 2006, as the Deputy said.

Vice Chairman

Is €2.9 billion the figure?

Mr. Brendan Kennedy

Yes.

Deputy Róisín Shortall

It is just three years ago.

Mr. Brendan Kennedy

We do not have an independent source of the cost of tax relief that the Department of Finance or the Revenue Commissioners do not have, so we depend on them.

Deputy Róisín Shortall

Does the Department of Finance have a figure for that?

Mr. Patrick Leahy

I understand that the 2007 figure, that Revenue has provided, is in the order of €4.1 billion. That is what I am told.

Deputy Róisín Shortall

Is that the 2007 figure?

Mr. Patrick Leahy

Yes, 2007.

Deputy Róisín Shortall

Is that €4.1 billion?

Mr. Patrick Leahy

Yes.

Deputy Róisín Shortall

The Green Paper said the cost of tax relief in 2006 was €2.9 billion, or 1.9% of GNP. However, people working in the pensions area — specifically Moloney and Whelan's paper that was presented in January — suggested the figure could be as high as 4% of GNP. Does Mr. Leahy have a view on that?

Mr. Patrick Leahy

Not specifically. Four per cent of GNP would be a much higher figure than what we are suggesting here, €4.1 billion.

Vice Chairman

One would be talking about €5.5 billion, which is not too much out.

Mr. Patrick Leahy

Yes. I suppose it is an extra €1 billion.

Vice Chairman

Earlier it ranged between €500 million and €1 billion.

Mr. Patrick Leahy

The only figure I can reliably quote is the €4.1 billion that we understand is the 2007 position. That may well have increased since then.

Deputy Róisín Shortall

Is that 2007 figure of €4.1 billion accurate?

Mr. Patrick Leahy

As far as I am aware, that is the most accurate figure we have, yes.

Deputy Róisín Shortall

Does Mr. Leahy have a breakdown of that figure?

Mr. Patrick Leahy

I do not have a breakdown of that actual figure to hand. I understand that the committee has been looking for a note from the Department on two issues relating to private pensions. First, on the general cost of tax reliefs and, second, concerning tax reliefs for our self-administered pension schemes. The Department is proposing to come back formally with that information.

Vice Chairman

Not just self-administered, but directors' schemes, both insured and self-administered.

Mr. Patrick Leahy

Yes.

Vice Chairman

This committee has been looking for this information for months. A number of members, including Deputy Shortall, have raised this matter. As regards the breakdown of the €4.1 billion, can Mr. Leahy say in which sectors it is paid? Occupational?

Mr. Patrick Leahy

I am sorry but I do not have a breakdown of that. I will undertake to talk to the section of the Department involved and will come back with that note as soon as possible. As I said, I do not have the figures here.

Deputy Róisín Shortall

It is hard to understand how the Department of Finance can have a view on the effectiveness or otherwise of pension policy if it does not have costings. What puzzles me is how the Commission on Taxation can possibly be close to making recommendations on changes to tax relief if nobody in the system seems to be in a position to provide costings in respect of different schemes, specifically the self-administered schemes and the director schemes. How can any assessment be made on the effectiveness or equity of existing schemes if one does not have costings?

Mr. Patrick Leahy

My understanding is that there is some data available on the tax relief on pension contributions made to retirement annuity contracts and personal retirement savings accounts.

Deputy Róisín Shortall

Can we have them?

Mr. Patrick Leahy

Data on occupational pension schemes is not required to be supplied to the Revenue Commissioners in respect of each individual scheme member, so there is no requirement in the legislation as it is.

Deputy Róisín Shortall

As regards self-administered schemes, there is a requirement for regular actuarial reports to be provided to the Revenue Commissioners, so that data is there.

Mr. Patrick Leahy

Yes.

Deputy Róisín Shortall

Why is the Department not collecting it?

Mr. Patrick Leahy

I assume that data is being collected, but whether or not it is being provided I am not 100% sure.

Vice Chairman

A number of weeks ago Deputy Shortall and myself asked the Secretary General but we could not get a figure, so where and when did we get the €4.1 billion figure?

Mr. Patrick Leahy

I spoke to the section that deals with this specifically yesterday, and they gave me a figure of €4.1 billion based on whatever analysis they had done with the Revenue Commissioners. As I said, I can only undertake to get back to them. The note was promised and it is regrettable if it has not been provided to date. I understand, however, that it is being prepared.

Vice Chairman

Perhaps this committee could get something in writing, whatever Mr. Leahy has.

Mr. Patrick Leahy

Yes.

Vice Chairman

If he wants to qualify it, fine, but we have been looking for these details for months and have not been able to get them.

Mr. Patrick Leahy

Okay.

Deputy Róisín Shortall

It is not just a question of the Committee of Public Accounts looking for this information. If the Commission on Taxation is going to make recommendations in the coming weeks, what is the basis of its recommendations if these figures are not available? Equally, we have been told that the Department of Social and Family Affairs is going to bring forward a framework on pensions within the next few weeks. Does that Department have the information?

Dr. Orlaigh Quinn

On tax reliefs?

Deputy Róisín Shortall

Yes, the cost of tax reliefs.

Dr. Orlaigh Quinn

No. Obviously, we would rely on the Department of Finance for information on tax reliefs.

Deputy Róisín Shortall

How on earth can the Department of Social and Family Affairs bring forward a framework on pensions if it does not know what existing pension provision is costing?

Dr. Orlaigh Quinn

Obviously, we would know the share of where the tax revenues are. We know the rates and have had the 2006 figures and the different ways in which tax breaks are allocated.

Deputy Róisín Shortall

Can Dr. Quinn give us a 2006 figure for self-administered schemes?

Dr. Orlaigh Quinn

We did not have a figure for self-administered schemes.

Deputy Róisín Shortall

Does Dr. Quinn have a figure for directors' schemes?

Dr. Orlaigh Quinn

No.

Deputy Róisín Shortall

How can the Department make recommendations on pension provision and have a framework — essentially a White Paper — on pensions if it cannot give us costings?

Vice Chairman

I agree with the Deputy.

Deputy Róisín Shortall

It makes a nonsense of the whole decision-making process.

Vice Chairman

We have raised this before. I agree with the Deputy that it is not only a matter for the Committee of Public Accounts. We have raised this on the basis of how one could put together a pension strategy without knowing whether some segments of the pension sector are getting disproportionate amounts of tax relief versus others.

We do not mean to throw it directly into Dr. Quinn's court today but she probably senses the frustration among members. It is not only a function for the Committee of Public Accounts. It is an important function in terms of the production of the White Paper. I do not see how a White Paper can be published unless one knows to where the relief is being apportioned and how one can propose any changes to it.

Deputy Róisín Shortall

Neither of those documents which are imminent — the pensions framework or the report of the Commission on Taxation — will have any kind of credibility unless the figures are available to support them. I do not know how one can say either of those documents are close to being completed if those figures are not available. We have been told they are both due in the summer.

Vice Chairman

We should get some clarification in writing for next week on what information is there. We have had this discussion on a number of occasions but we will try to get something for next week on that.

Deputy Róisín Shortall

I would also like to get some figures on the cost and breakdown of PRSAs and RACs. I got some figures by way of parliamentary questions but the latest figures seem to be for 2005 and they show that both of those products cost approximately €370 million. When looks at the detailed breakdown of who is availing of them, those earning over €250,000 get the lion's share — approximately €20,000 in relief on an annual basis.

Does the Pensions Board have a view on the fact the provision of tax relief on those particular products is very much skewed in favour of the rich? Has it made any recommendations to the Minister on the fact we are pursuing a kind of rich man's pensions policy and that needs to be changed?

Mr. Brendan Kennedy

The only recommendation or comment we have made on this issue to the Minister has not been specifically on PRSAs but on the board's view on possibly providing additional reliefs to those on lower tax bands or paying no tax. It would not be appropriate for me to make a comment on the policy.

Vice Chairman

I would say not to comment on policy in that regard. That was made clear earlier. We have had discussions with Ministers. Has that question been answered for Deputy Shortall?

Deputy Róisín Shortall

Yes. However, it is a concern of this committee about whether we are getting value for money.

Vice Chairman

There is no question about that. I agree with the Deputy.

Deputy Róisín Shortall

That is the key thing. Our pension policy seems to be based on a tax relief which is completely skewed in favour of the rich. Clearly, we are not getting value for money. There does not seem to be any justification for those levels of cash transfers from the taxpayer to the wealthy. Huge transfers are taking place.

Vice Chairman

Until we see those figures, we cannot be certain about that either.

Deputy Róisín Shortall

We know that in regard to PRSAs and RACs——

Vice Chairman

The RAC is not a personal pension. The self-employed can pay different amounts into it.

Deputy Róisín Shortall

Yes, but people earning in excess of €250,000 are benefiting from this at the expense of the ordinary taxpayer which is part of the reason ordinary taxpayers, people on low and middle incomes, cannot afford to make pension provisions. There is a need to rethink the approach. It is not only about commenting on policy. I accept the Pensions Board cannot comment on policy. However, one needs to have a view on the adequacy of pension provision and pension policy and whether that will achieve the targets set and whether we are wasting our time in regard to meeting those targets.

We are told that more than 90% of private pension schemes are under funded. What role does the Pensions Board have in setting the rules for those schemes? Saying to trustees we will extend the time in which they can ensure adequate funding for those schemes will not help in those circumstances. Given life expectancy now, the level of contribution employers would need to make to provide adequate coverage would, in many cases, be prohibitive for those employers and that kind of approach to pensions will not be successful. Is that not the basic problem?

Mr. Brendan Kennedy

I refer to the role the board has in setting the standards. When a scheme is deciding or testing whether it meets the funding standard, it does so on the basis of rules set out by the Society of Actuaries in Ireland. Those rules cannot be changed without the consent of the Minister for Social and Family Affairs, so the board does not have a role in setting the funding standard. Obviously, our advice is available to the Department on any issues there.

Undoubtedly, there are many employers who cannot afford the level of benefits promised under the pension schemes. I would not have any data on what the numbers might be because many employers are still in the process of assessing it and, in many cases, they do not necessarily know. It is not until they do a review of the scheme that they can get an understanding of what the commitment involved in the scheme is and if they can afford it.

In many cases, we have seen that allowing additional time to pay off the shortfall in a defined benefit scheme has worked. There has been a willingness by employers and, in many cases, additional contributions have been paid by employees because they have an interest in seeing the scheme maintained. Unfortunately, as the Deputy said, increasing life expectancy means there may well be schemes in which that process will not work.

Deputy Róisín Shortall

Most of those schemes were set up at a time when life expectancy was 65 years.

Mr. Brendan Kennedy

It is definitely true, in very rough terms, that many of the schemes were set up in the late 1970s and early 1980s. Life expectancy has increased by at least one third since that time. That essentially means the cost of the scheme is one third more than it was.

Deputy Róisín Shortall

In terms of updating the rules in line with life expectancy, is that the Pensions Board's job or whose is it?

Mr. Brendan Kennedy

The recommendations on that issue are made by the Society of Actuaries in Ireland and they must be approved by the Minister for Social and Family Affairs. I am aware that the Department is currently considering a recommended update on that.

Deputy Róisín Shortall

I refer to the over-reliance on equities and the fact that so many pension funds have gone down the tubes in recent years because of what has happened to stock markets. Mr. Kennedy said a relatively high proportion of Irish pension funds are in equities compared with other European countries. Is that call made by the trustees of the schemes?

Vice Chairman

We covered this in quite some detail earlier.

Deputy Róisín Shortall

That one point.

Vice Chairman

It is approximately 15% below the European average.

Deputy Róisín Shortall

Is it entirely up to the trustees to decide how to invest?

Mr. Brendan Kennedy

Yes.

Deputy Róisín Shortall

Does the Pensions Board set parameters in terms of the amount that can be invested in equities?

Mr. Brendan Kennedy

We do not set parameters. Under Irish and EU law, we do not have the right to set those parameters. Investment is a matter for the trustees.

Deputy Róisín Shortall

What happens in other European countries? Are people more prudent than in Ireland?

Mr. Brendan Kennedy

The parameters are not set in other countries either. In some jurisdictions, if one goes back ten years, there were rules which stated one could not invest more than a certain percentage. However, under the 2003 directive, no EU state is allowed to set those parameters.

In my view, it is a cultural issue. In terms of Irish trustees, there has been a common belief and assumption that high levels of equity investment are appropriate. Fairly recently I was at a meeting with my German counterparts and their level of equity investment is very low. We operate, between the countries, fundamentally the same rules. It is a question of the approach that is adopted to saving within the different countries.

Deputy Thomas P. Broughan

I am sorry I missed a good part of the debate because of some of the excitement we had in the Dáil Chamber. I want to make one or two points relating to some questions.

In defined benefit schemes, what would be the average funding ratio? To support Deputy Shortall's point, in the Pensions Board's requirements in exercising its mission statement, is there a funding ratio that Mr. Kennedy would aim for? Should it be 100%? Should it be 100% plus? In what kind of territory are we and what is the board's policy in that regard?

Mr. Brendan Kennedy

Before I give an average funding ratio I will give a few health warnings. The variety of schemes we have seen is very broad. Typically, the situation regarding defined benefit schemes at present is that for every €1 million of liabilities they have approximately €700,000 of assets, that is, they are approximately 70% funded. There are schemes that are fully funded and there are schemes where the figure is below 50%. To the extent that an average is useful, many of them are around the 70% mark.

In terms of our preferred strategy or aim, our aim would be for 100% for all schemes. The funding standard is a minimum but because we are in a voluntary system the challenge is, if a scheme falls below that minimum, what do you do? The policy choices really are to allow the scheme time to get back up, or to force closure of the scheme or a reduction in benefits. Within the context of a voluntary system, we do not have the powers to force anybody to pay in to pay the shortfall — it is not part of the Irish approach to pensions.

Deputy Thomas P. Broughan

This is one of the difficulties. Again, I commend Mr. Kennedy for the work of the board over the years. One difficulty is we start going into policy almost immediately when one speaks of that.

One of the most interesting documents that the committee secretariat and the Comptroller and Auditor General gave us was the OECD report, Pensions at a Glance, for Ireland and for other countries. It is quite striking. When one looks through that report one could say that the mission statement of the Pensions Board and pension policy are a failure. The criticism made sometimes is that there is an apartheid system of pensions in this country. The net result of the lack of information on private pension provision and the management so far of defined benefit and defined contribution schemes, according to Pensions at a Glance, is that 30% of Ireland's senior citizens live in poverty. If one looks at this international review from the OECD, is it not the case that effectively our pension policy is failing.

Vice Chairman

Deputy Broughan can say that. Mr. Kennedy cannot, nor can his officials.

Deputy Thomas P. Broughan

Is that OECD report, which I repeat was helpfully given to us by the committee secretariat, fairly accurate?

Mr. Brendan Kennedy

I have no reason to disagree with it.

Deputy Thomas P. Broughan

A few weeks ago we had the NTMA and the great Dr. Somers in here talking about pension insolvency — the PIPS situation.

Vice Chairman

Dr. Quinn, did you want to come in on a point there? I apologise to Deputy Broughan.

Dr. Orlaigh Quinn

To clarify, the OECD report relates to 2005. The report states that increases in pension rates since then will have changed the situation quite substantially. In fact, since then the State pension has gone up by 28% and the non-contributory pension by 32%.

Deputy Thomas P. Broughan

It put us up there with Mexico and South Korea or somewhere.

Vice Chairman

I thank Dr. Quinn for that important clarification.

Dr. Orlaigh Quinn

It also means that our relative income poverty has come down to 16% as well, according to the EU figures from across the EU states.

Deputy Thomas P. Broughan

What about the PIPS? Between the Pensions Board and the NTMA, what is the interaction between the board with problematic schemes and how PIPS comes into action?

Mr. Brendan Kennedy

I understand the regulations implementing the PIPS scheme are being drafted by the Department of Finance at present. The board's role would be limited, as I understand it, to certifying that schemes will qualify for PIPS. We do not have a role in either the administration of the scheme other than in essentially a mechanical gate-keeper role of certifying that particular schemes qualify or do not. We do not have a policy or a decision role in it.

Deputy Thomas P. Broughan

A point probably came up at the beginning of the discussion. On the board's report, it seems to rely a great deal on whistleblowers. Do the board's ongoing audits and investigations give fairly clean bills of health or is it that there are not enough whistleblowers telling us what is wrong, for example, in the construction industry?

Mr. Brendan Kennedy

Certainly, in the construction industry the whistleblowers have been the source of the work we have been doing. The construction workers' pension scheme has been active in informing us of its concerns and of specific cases.

In terms of our general approach and the part that whistleblowing plays in terms of our supervision, whistleblowing plays an important part. There are, as the committee will have seen from our figures, over 90,000 pension schemes, which is an enormous supervisory challenge. That is why I want to re-emphasise the important part that our regulation of administrators plays. Obviously, 192 administrators is a much easier group to oversee than 90,000 pension schemes. For example, if one particular administrator who may have 15% of all pension schemes is doing its job right, we can be reasonably sure that it is done. Ms Hutch may wish to add something.

Ms Mary Hutch

Whistleblowers come under a provision in the legislation where if employees or scheme members notice or allege that there is misappropriation of scheme resources, they can whistleblow to the board. As the Deputy may have noted from our annual report, much of this activity, unfortunately, is happening in the construction sector where much of our regulatory work is focused but it is important to point out that the board has proactively precipitated the whistle being blown in terms of its constant and ongoing liaison with the trustees and the administrator or the construction workers' scheme. It was at the board's behest that the administrators of that scheme, when regularly contacting members of that scheme, would say to those members that their employer has not been remitting contributions to this scheme and ask them to look at their payslip to see whether it indicates a contribution has been deducted which, in turn, the administrator has not been remitting to the scheme. At our behest, those employees are passing their payslips over to the scheme which, in turn, passes them on to us as a whistleblow. However, much of that has been precipitated by pro-activity on the board's part.

Vice Chairman

I ask the Comptroller and Auditor General to make his closing remarks.

Mr. John Buckley

There are no financial accountability issues other than those to which I referred in my opening remarks. On the effectiveness or value-for-money issues that surfaced during the debate, we will take them into account in scoping in the future.

On the cost of public service pensions which was mentioned, I should like to signal that we are doing a report and we will have it in the autumn. It will cover the actuarial cost of pensions that have accrued to date, the cashflows into the next 50 years using certain assumptions and the cost of the provision of pension for the average public servant. It will cover the entire public service area. That should add to the fund of knowledge. It is in final clearance at present with the Department of Finance.

Vice Chairman

I thank Mr. Kennedy, Ms Hutch, Mr. Malone, Dr. Quinn and Mr. Leahy for attending today. We very much appreciate it. Is it agreed that the committee dispose of the Pensions Board 2008 accounts?

Deputy Róisín Shortall

Sorry, I came here today trying to find out how much pensions are costing us and nobody was able to provide that information.

Vice Chairman

We have had that problem before.

Deputy Róisín Shortall

I am not happy to sign off on the accounts.

Vice Chairman

Many members, including the Deputy and I, have raised the matter of pension tax relief on a number of occasions. In the context of its accounts for 2008, the Pensions Board does not have any oversight in respect of the relief. We have been very clear in our requests to the representatives from the Departments of Finance and Social Welfare at this meeting and they have agreed that we should be provided with information next week. I do not believe the accounts of the Pensions Board have anything to do with that matter.

Deputy Róisín Shortall

I am not placing any blame on the Pensions Board.

Vice Chairman

I understand that.

Deputy Róisín Shortall

With respect, however, I do not know how it can function with regard to providing advice on pensions if it is not aware of the actual cost of our existing pension provision.

Vice Chairman

Everyone is aware of what the rates of relief are in respect of different products. The committee's difficulty is that it does not know the overall amount. If we take the figure of €4.1 billion with which we have been provided, we do not know how this is apportioned across the various products.

Deputy Róisín Shortall

We do not know how accurate is the figure of €4.1 billion.

Vice Chairman

However, that would not stop the Pensions Board from providing, for example, a self-employed painter or a company director who wishes to take out a personal pension.

Deputy Róisín Shortall

The Pensions Board is supposed to give advice to the Government, is it not?

Vice Chairman

We have skirted a number of policy issues in respect of aspects of which the Pensions Board advises the Minister. We raised this matter with the Secretaries General of the Department of Finance and the Revenue Commissioners and we are raising it again today with the Pensions Board. However, I do not believe there is any need not to pass the 2008 accounts in respect of the function of the Pensions Board.

Deputy Róisín Shortall

It is difficult to understand how the Pensions Board can function in respect of its remit and of giving advice to the Government if it does not have access to critical figures relating to the cost of pensions. I am not stating that it is the Pension Board's fault that this is the case. I would have thought it would have requested the figures and insisted on their being supplied, particularly if it is to carry out its functions to an adequate degree. In addition, major issues arise with regard to the Departments of Finance and Social and Family Affairs.

Vice Chairman

I accept that. To be fair to everyone present, the committee has again stated its position clearly on this matter. Mr. Kennedy, perhaps going further than he should, earlier offered a view on pension tax relief and stated that there is a tendency to lean towards a mid-point tax relief rate that would increase from the standard rate. I do not believe it is fair to ask our guests what advice they are providing in respect of the formation of a new pensions policy.

Deputy Róisín Shortall

How can they advise if they do not know the cost of the existing provision?

Vice Chairman

As Mr. Leahy stated, the cost for 2007 was €4.1 billion.

Deputy Róisín Shortall

We do not know to what that figure relates.

Vice Chairman

I also want to obtain figures. However, I am trying to be of assistance and fair to the Pensions Board. There is no reason not to note its accounts in the context of the work it has done in 2008.

Deputy Thomas P. Broughan

These are critical matters. We are awaiting the report of the Commission on Taxation and there will be another budget in the autumn. Deputy Shortall is correct in that, to some extent, we are operating in the dark. Under the culture that existed prior to the establishment of the Pensions Board, we knew nothing about matters relating to this area. I accept that there are all kinds of private pension provision. It might be of assistance if the officials from the Pensions Board came before the committee again in September or October. That is the key point. At such a meeting we could tease out some of the issues that have arisen. In the interim, the Department of Finance could perhaps make a further attempt to compile information relating to the figures we are seeking in respect of tax relief. I am of the view that this is the way to proceed.

Vice Chairman

I agree with the Deputy. We should proceed in the way he has indicated. However, he and I have commended the Pensions Board in the context of taking employers who do not pay pension contributions to court. I have no doubt that this had a massive effect in the context of convincing people that the Pensions Board is using the powers available to it where possible.

As a result of these proceedings, Mr. Leahy and Dr. Quinn will be aware of the strength of feeling among members in respect of this matter and will communicate that to their Departments. The members of the committee cannot understand how a new pensions policy can be formulated without detailed information on how the relief is being paid. It was stated earlier that some breakdowns are available but these were contained in the Green Paper published in 2006. Those breakdowns relate to PRSAs and various other types of pension arrangements, but an overall figure has not been provided. It would be of assistance if our guests could give a commitment to provide the clerk to the committee with some information which members might consider in private session at next Thursday's meeting. The committee will then decide how to pursue the matter further. If we can agree now to pass the Pensions Board's accounts, the ball will be in our guests' court.

Mr. Pat Leahy

I will undertake to communicate to the committee whether it was available to us at that stage. I cannot do any more than that.

Vice Chairman

I appreciate that. However, someone should be in a position to indicate how the figure of €4.1 billion breaks down.

Mr. Pat Leahy

I will discuss the matter with the individuals involved.

Deputy Thomas P. Broughan

In countries such as Sweden and Germany, all the facts are made available to public policy makers. However, we have not been provided with them.

Vice Chairman

If we are clear on that, is it agreed that the committee dispose of the Pensions Board's accounts for 2008? Agreed. The agenda for our meeting on Thursday, 2 July, is the Comptroller and Auditor General's Special Report No. 63 — Tribunals of Inquiry.

The witnesses withdrew.

The committee adjourned at 1.30 p.m. until 10 a.m. on Thursday, 2 July 2009.