Mary Upton
Question:6 Deputy Mary Upton asked the Minister for Social and Family Affairs her plans to establish a State annuity scheme; and if this proposal will be contained in her pension reform proposals. [9286/09]
Other Questions.
Pension Provisions.
An annuity is a contract sold by an insurance company that provides guaranteed payments at specified intervals for the duration of the purchaser's lifetime in exchange for an upfront cash lump sum. Annuity contracts are a well-established feature of the pensions landscape and are likely to remain so. They provide a secure means of converting pension savings into pension income and avoid the danger that pensioners could exhaust their pension savings in their lifetime.
Notwithstanding their advantages, there has been considerable discussion as to whether the market for annuities is operating efficiently and effectively. While the cost of annuities has risen sharply in recent years because of falling interest rates and improving longevity, there is a perception that costs are excessive and that the State could provide such products at a cheaper rate. Other factors, including the operation of the funding standard for defined benefit schemes, which is linked to the cost of annuities, have also led to proposals that the State should play a more active role in this area.
It should be noted that the State is already heavily involved in annuities through its regulatory role and through the tax concessions afforded to individuals in accumulating their retirement savings. The State has also facilitated the development of alternative approaches to annuity provision, such as approved retirement funds for certain pension schemes. In this regard, calls have been made to extend the availability of such alternatives to all defined contribution pensions schemes that are currently required to purchase an annuity.
In keeping with the Government's aim of encouraging people to plan properly for their retirement, it is important that the annuity market serves its customers as effectively and efficiently as possible. As part of its formulation of a comprehensive approach to future pensions policy and the Green Paper on pensions, an independent study of the Irish annuity market was commissioned to evaluate its efficiency and effectiveness. This study examined the arguments for the State to become directly involved in the provision of annuities and the broader implications of any intervention by the State in this area. The results of this study have informed the development of future policy.
Any decision, however, on the introduction of a State annuity scheme such as that suggested by the Deputy will be considered in consultation with all relevant Departments and proposals thereafter will be reflected in the national pensions framework, which the Government is currently finalising.
We are talking about yet another study to examine something that is a very good idea for cutting out the middleman. The middleman in the pensions industry is very expensive so there are many advantages to a State annuity scheme. Overall, the problem is that there is no current policy in this area. There are options in respect of the State annuity scheme. There are very attractive options for nationalising some or all of the pension schemes and for what could be done with the funds and the benefits that would accrue to pensioners. Some 500,000 people have defined benefit schemes and they are concerned about their futures. Their pension schemes are under-funded to the tune of €30 million. Action must be taken and the Minister must indicate her thinking on this. What will she do about this massive shortfall in funding of pensions? What is her thinking with regard to the role of the State in this regard and when can we expect action?
Regarding annuities, this is not just another report. It was carried out on behalf of the Department of the Taoiseach and its findings on the cost of annuities were upheld by other professional bodies. The report by Indecon, entitled Life Strategies, helped to guide our thinking on this matter. It highlights that some savings could be made, particularly on commission. It refers to the cost of capital being 6% and how, if the State took it over, there would be a more conservative mortality estimate. I do not know why it is believed the State would take a more conservative estimate about longevity than anyone else but this would amount to 5%, with profit at 3%. Commission would account for another 3%. Indecon suggested that, if the State were to take over the purchases of the annuities, there could be a saving of 18%. The Irish Association of Pension Funds estimated this figure to be 15%. These issues must be examined.
In effect, the annuity for a €10,000 per year pension costs €222,000 and any saving, whether 10% or 18%, would go back to the pension. These are the issues we are examining. The national pension framework is being considered by the Government and we are examining various issues. The State is not in a position to take on a potential liability of €30 billion for all pension funds. That figure is the liability if all funds were to close tomorrow. There is no indication this will happen. Many people who are worried about their pension funds will have time, over their working lives, to allow the pension fund to pick up again.
The Minister is wrong in her interpretation of the matter. She has failed to take any action on the pensions timebomb. I remind her of the significant judgment of the European Commission in respect of the Robbins case. The ECJ found that member states could be liable for pension shortfalls in the event of manifest and serious disregard of their obligations to ensure minimum levels of protection for employees' pensions. The Minister has admitted a €30 billion shortfall in defined benefit pensions. That is a manifest and serious disregard for her responsibilities, in so far as she has failed to take action and allowed 18 months to lapse since the publication of a Green Paper and she does not seem to accept that she is exposing the State to serious claims from pension funds that are wound up. In Waterford Crystal people have been paying into a pension fund for up to 30 years and there may be no money now to pay their pensions. In that event, a case will be taken against the Minister and the State for failing to ensure adequate protection. When will the Minister take action on the pensions timebomb?
A number of actions have been taken on pension schemes, one of which allows people extra time to show proposals on how the funding standard will be met——
That makes no difference to the funding.
——and allows them two years before they need to purchase their annuity, by which time hopefully the markets will have picked up. A number of issues were outlined in my answer to the first question.
That is nonsense.
The judgment in the Robbins case is being considered by the European Commission to determine what, if any, additional obligations this places on member states. We will co-operate with the EU when it starts this investigation.
When will the Minister set out the policy?
Regarding the national pensions framework, a Green Paper was published, followed by consultation and a conference on international best practice and we are now in the process of finalising the recommendations on this. It is currently being considered by Government.
When will there be a decision and action taken?
This includes a number of short-term measures.
The Green Paper was published in a very different environment. Will the changed environment be taken into account? I echo what Deputy Shortall has said. When will we see action? The Minister's initial reply to Deputy Shortall outlined valid reasons for a State annuity scheme, yet we are no clearer on whether this is under consideration by Government. It is very blasé of the Minister to say there is an opportunity for things to improve over the course of people's working lives. One does not have such an opportunity if one is between 61 and 64 years of age. It is very different for those in their 20s or 30s. This must be taken into consideration.
I appreciate that people, particularly those close to retirement, find it difficult to watch the state of the pension funds. We have allowed additional measures for funds, giving extra time to formulate funding proposals, greater flexibility for recovery plans and a replacement recovery plan to extend the end date of the original plan.
There is nothing about funding.
The pensions board can take into account voluntary employer guarantees. We also allow people two years before purchasing annuities. These immediate actions were taken in respect of the current situation.
The figure of €30 billion is an estimate of what might be the deficit if those funds were to close in the morning. There is no indication this will happen but because these are private investment funds the markets have had an impact on them.
What about Waterford Crystal?
The Green Paper was published in a different environment but it was always the intention that the national pensions framework would be a long-term framework because it will affect the next generation.
That is why we need action now.
Social Welfare Code.
Liz McManus
Question:7 Deputy Liz McManus asked the Minister for Social and Family Affairs when she will change the rules for the back to work enterprise allowance to allow jobseekers to qualify before they become long-term unemployed. [9276/09]
The back to work allowance scheme is designed to assist the long-term unemployed, lone parents, people with disabilities and other social welfare recipients to return to work. The scheme is designed to support people who would not otherwise be able to return to the workforce for financial reasons. There are two strands to the scheme, the back to work allowance for people who take up employment and the back to work enterprise allowance for people who become self-employed.
To qualify for the back to work enterprise allowance, a person must set up a self-employment business that has been approved by a partnership company or one of the Department's facilitators and, in the case of a person on the live register, he or she must be in receipt of a jobseeker's payment for two years prior to commencing self-employment. Participants on the back to work enterprise allowance receive a tapered percentage of their social welfare payment over a four year period. Participants may also retain entitlement to certain other secondary benefits. On 20 February 2009, there were almost 7,730 participants availing of the back to work scheme, of whom 4,430 were participating in the self-employed option.
The operation of the scheme has been reviewed and modified over the years to ensure it continues to remain relevant to those needing its support. The position regarding accessing and retaining employment and self-employment has become more difficult over the past year. As the Deputy is aware, the Government is determined to ensure we do all we can to help people stay in work or get back to work as quickly as possible. The back to work allowance scheme is being monitored on an ongoing basis in this context.
This is very similar to the earlier question from Deputy Enright with regard to the back to education allowance. The back to work enterprise allowance is a very worthwhile scheme which has significant potential. It makes no sense to insist that a person must be on the jobseeker's payment for two years before they can avail of that scheme. The priority in the current climate must be to ensure that the people losing their jobs now do not become the long-term unemployed of the future. If the Government is forcing people in that position to remain on the dole for two years before they can get any assistance in setting up a new business, it will make them the long-term unemployed.
This makes no sense. A welder from Kildare who was made unemployed contacted me recently. He saw an opening in the market to set up a small tyre garage. He is in receipt of jobseeker's allowance and it would be a big risk for him to give up all his payments in order to go into this enterprise but the State should facilitate him in trying to find new employment for himself and possibly others.
What is the justification for saying to that person that he must remain unemployed for two years before he can start his enterprise? It makes no sense at all so will the Minister please consider changing the rules?
I share with the Deputy the idea that the back to work enterprise allowance, in particular, is useful. A distinction should be made between the back to work allowance and the back to work enterprise allowance, although both come in under the same scheme. Approximately €80 million is set aside for the scheme for this year. I mentioned earlier the Cabinet sub-committee on economic co-operation and one of the issues we are looking at in that respect is the enterprise element. There are certainly many people out there with many good ideas.
We should bear in mind that this is a social welfare payment not a grant to set up a business. It facilitates people coming off long-term unemployment in setting up their own business. I am open to a change in the scheme of the enterprise allowance.
That is the one I am asking about.
Yes.
The Minister should not tell me about some other scheme. Will the Minister prioritise the changing of rules of the back to work enterprise allowance?
The Minister has indicated she is considering the matter but will she tell us when she will make a decision? Many people out there know they will face unemployment very shortly and they are already trying to come up with enterprise ideas.
Whatever about public finances and the banks, the one factor required to fix the economy is job creation. There are many people who want to get into what may be best described as garage industries and we need more enterprise parks to facilitate this. All of that rides on the back of this very laudable scheme, which is an excellent idea. When will the Minister make a decision on bringing the required waiting period down to perhaps a maximum of three months? After this people may develop bad habits and get out of the work ethic. They should be allowed to go back to work and to create other jobs on the back of this.
As I stated at the outset, I am certainly open to changing this particular aspect of the back to work scheme. It is being examined in the context of that interdepartmental committee and we hope that in the next few weeks we will be able to come forward with proposals.
What about a provision for a three-month period?
I am glad the Minister is open to potential changes. The logic behind this is that when people come out of work they have experience and fresh ideas that, in a shorter period, could be transferred to a job where they could work for themselves. Will we have a response on this by the time the budget comes forward early next month?
I welcome the Minister's statement that this matter is under serious consideration and that there should be a decision within the next few weeks. I urge the Minister to consider a reasonable time lag, perhaps of three months. If somebody has lost his or her job and comes up with an idea for a small enterprise, three months seems very reasonable in the current climate. I look forward to an early announcement on that.
We are working on the issue. People going into enterprise might have options under other schemes to be able to get grants to set up businesses etc. from other Departments.
The risk of giving up the payment is important.
This is a social welfare payment which allows somebody going to work through setting up a business to be able to hold on to some of the social welfare payment.
That is key.
It was always designed for somebody who was already unemployed, which the Deputies appreciate. I see the value of trying to encourage people who have ideas and may employ not only themselves but others. We want to facilitate them as much as possible.
Employment Support Services.
Terence Flanagan
Question:8 Deputy Terence Flanagan asked the Minister for Social and Family Affairs if she is satisfied that 44% of the people referred to FÁS between the period January and October 2008 remain on the live register; and if she will make a statement on the matter. [9172/09]
Under the national employment action plan, NEAP, all people between the ages of 18 and 65 years who are approaching three months on the live register are identified by the Department of Social and Family Affairs and referred to FÁS for interview with a view to assisting them enter or re-enter the labour market. The NEAP process is a key element in addressing the progression needs of those on the live register. The plan was introduced in 1998 and implemented on a phased basis using various age and duration thresholds.
Each month, a statistical report published by the Department of Enterprise, Trade and Employment is produced outlining the main outcomes for those who have been referred since the beginning of the year. Information on outcomes is based primarily on FÁS caseload records of interactions with those interviewed. This is supplemented by information on reasons for leaving the live register, given by individuals to my own Department, where this information has not been communicated directly to FÁS by the individuals concerned.
The figures referred to are taken from the NEAP monthly progress report for November 2008. The report covers all referrals for the period January to October 2008 and is based on known outcomes as at the end of November 2008. Of those referred in that period, 56% had left the live register by the end of November 2008. Data relating to years 2000 to 2007 is contained in the Department's annual statistical report and the figure of 56% for 2008 compares favourably with the rates of previous years, particularly given the current economic climate.
People remain on the live register while engaged with FÁS under the action plan until they take up offers of employment or training. If they do not attend for interview with FÁS or, having engaged with FÁS, decline offers of employment or training, their cases are referred back to the social welfare local office for review to determine if they continue to satisfy the conditions for receipt of unemployment payments. People who for valid reasons are unable to avail of the opportunities for placement in employment, training or education provided by FÁS continue to receive payment. In such cases, the Department's facilitator service is available to assist them in identifying barriers to participation and exploring alternative progression routes.
I doubt that the 60 people in the facilitator service can deal with the level of unemployment we currently have. People must sign off social welfare when they go on FÁS courses and the 44% of people who do not manage to get employment from the courses must then sign back on.
I have heard from many people working within both FÁS and the Department of Social and Family Affairs that this must be changed. A person gets the same payment while on the FÁS course as on jobseeker's allowance, and there is an extra payment for child care that can still be paid by FÁS. Some of the FÁS courses are three, four or five weeks long and people must go through the entire process of signing off and getting the payment from FÁS. When the person is finished the FÁS course, he or she must go back to the Department's staff — who are inundated as it is — and go through the process of signing back on.
I am not sure how many people within the Department are allocated to that process but it is a sizable number. I know of a pilot project near my locality, although I am not sure it was official, where FÁS was in communication with the Department. Two out of three local social welfare offices agreed that the people involved could stay signing on. This eliminated all the paperwork that was taking up staff time and which makes people consider if it is worth doing a FÁS course because a process will have to be gone through and the person may have to wait for a payment at the end. Some people are not willing to take that chance. Will the Minister examine the issue and see if the practice could be changed?
We are looking at all cases to see how we can streamline processes. I mentioned earlier people going from jobseeker's allowance to jobseeker's benefit looking for information and this would fall into that category, as people may go to FÁS and come back. Another example is where people working in the education sector contact social welfare offices during mid-term break and holiday periods. They would not be in receipt of social welfare benefit when working, whether engaged in filing or other jobs but we need to examine if a way can found to streamline the process in terms of people being paid, given the heavy burden of work on staff in local social welfare offices.
On the question of the referral of people for courses, Deputy Enright mentioned the similar benefit rates people are paid but the different additional benefits they receive. There is a need to streamline the rates payable to people participating in different education courses that come under the remit of different Departments. Two people may be doing the same course, one under the VTOS and the other under the back to education scheme and one or other of those scheme may include a travel allowance, food allowance or child allowances. These are the types of issues we are examining.
I will allow some brief supplementary questions. I call Deputy Shortall.
I am concerned that there is a considerable overlap among the different employment services. Does the Minister accept that there is a strong argument for bringing FÁS employment services under the remit of her Department and having one coherent service to ensure people need not wonder whether they should go to the local LES or FÁS office or deal with the job facilitators in the Department of Social and Family Affairs? There seems to be a scattergun approach to this area, which means many people are falling through the cracks. Has the Minister given any consideration to streamlining this process?
Some would say that the some of the FÁS training courses should come under the remit of the Department of Education and Science.
These turf war arguments go on between Departments, but the important point is that there is good co-operation among them, whether it be through the partnerships or through the LES. The Deputy is correct in saying that a myriad of bodies provide such services. The Department of Community, Rural and Gaeltacht Affairs has a responsibility for a number of them as well. There is good co-operation among the various groups and it is important that continues.
FÁS has upped its game significantly in terms of the number of people who are now being called. We need to recognise that. Thousands of additional places have been created this year to ensure that people are called after the three month period and that as many people as possible are facilitated. Some 60,260 were referred last year and of those 40,000 were interviewed but the other 20,000 disappeared off the live register. The calling of people for interview is a good control element in that it can be established if a person got a job the previous week or whatever.
I want to facilitate the Deputies. I call Deputy Morgan.
I agree with the Minister and with Deputy Enright. Reform is needed in this area. I do not want to miss the opportunity presented to ask the Minister to impress upon her colleague, the Minister for Enterprise, Trade and Employment that FÁS clearly needs freshening up. It does some great work and the bad news coverage of the bad practices in the organisation was unfortunate. Does the Minister agree that FÁS should liaise with some enterprise development groups to facilitate discussion to encourage and help the many people who want to return to work and to create their own jobs to do so?
There are 60 facilitators, one for every 7,500 people unemployed. What do they do that is different from what the FÁS employment service does?
A large number of people will leave school this year and there will not be jobs for them. Does the Minister accept there is a strong case for ensuring that people cannot go from school on to the dole and that they will progress directly from school into a training course? This issue will arise on a large scale this year and in the coming years. That is the critical time to catch people to prevent them falling into unemployment and dependency on perhaps a long-term basis. Has the Minister given any consideration to providing that type of course for school leavers to enable them to improve their chances of getting employment in the future?
Three issues were raised. In reply to Deputy Morgan's question on FÁS training courses, new initiatives were taken to ensure that training is available in the installation of green energy projects, etc. New courses are being offered. The more people who are able to move off the live register and into training the better. Such upskilling of people who have lost their jobs in the construction industry will allow them to avail of new opportunities. That is one example of a new initiative which can work well.
On the question of the difference between the facilitators and the FÁS employment service, the facilitators take a broader approach in that they will also identify whether a literacy course, a course under a back to education scheme or under back to work scheme is the most appropriate. They do not only have an employment perspective, they examine the education and training needs of the person concerned and work individually with the person. That is useful also.
Deputy Shortall asked about 18 year olds coming onto the live register. It is interesting that even in the good times — I know this from visiting social welfare offices throughout the country — some people still walk into the social welfare office on their 18th birthday to sign on. There is this form of generational unemployment and if it continued during the good times, one can only imagine how bad it will get when jobs are more scarce.
Two pilot projects have been introduced in Letterkenny and Coolock, which appear to be working well and which I would be anxious to extend. Such projects would ensure that 18 to 20 year olds who come in to sign on will be immediately put on a training course rather than be in receipt of social welfare benefit. I would like to see more of that. It is a bad idea to hand €204.30 per week to 18 year olds. I would rather see them get the benefit of education and training, and I am happy to——
We need to move beyond pilot schemes at this stage. A national scheme is needed.
This would be a major shift in policy which I would be happy to implement. It has been the policy that whether one is 18 years old with no work record or 50 years old with a 30 years' work record, one can sign on and get €204.30 a week. This would be a significant change. I share the Deputy's views that it would be far better to have the 18 to 20 year olds involved in education and training and given an allowance, which refers to that, rather than giving them something which could lead to them becoming unemployed and dependent at a very early age. The projects appear to be working quite well. We will learn from them and I would be happy to extend them as quickly as possible.
Will the Minister extend it this year?
That is my intention.
Pension Provisions.
Frank Feighan
Question:9 Deputy Frank Feighan asked the Minister for Social and Family Affairs the percentage of pension schemes failing the minimum funding standard; the number of schemes involved; and if she will make a statement on the matter. [9168/09]
Under the Pensions Act, defined benefit pension schemes must meet a minimum funding standard which requires that schemes maintain sufficient assets to enable them discharge accrued liabilities in the event of the scheme winding up. Where schemes do not satisfy the funding standard, the sponsors-trustees must submit a funding proposal to the Pensions Board to restore full funding within three years. The Pensions Board can allow a scheme up to ten years to meet the standard in certain circumstances.
There are currently 1,355 defined benefit schemes subject to the funding standard. It is estimated that in excess of 90% of defined benefits pension schemes are in deficit. However, the full extent of the level of under-funding will not be fully apparent until all schemes carry out their next actuarial assessment and report the results to the Pensions Board.
The Government is very conscious of the pressures on both sponsoring employers and pension scheme trustees, arising from the very significant losses incurred by pension funds during the past year. We are anxious to ensure, in so far as we can, that those involved have sufficient time and space to fully assess the implications of the current difficulties for their schemes and the remedial action they can take.
The Government is continuing to consider the issues in regard to both the maintenance of the funding standard and the wider issue of future security of the supplementary pensions sector. We recently implemented a number of short-term measures to ease the pressures currently being felt by many pension funds. Those measures include the granting of extra time for schemes to formulate funding proposals; granting flexibility to the Pensions Board to allow longer periods — more than 10 years — for recovery plans in appropriate circumstances; enabling the board to allow the term of a replacement recovery plan to extend beyond the end date of the original plan in certain circumstances; and enabling the board to take into account voluntary employer guarantees in approving recovery plans. To ensure that these concessions are not seen as a weakening of supervision arrangements, the Pensions Board will not accept recovery plans which do not demonstrate an appropriate investment approach. I believe that these measures will help all schemes currently in difficulty and will help to ensure the best outcomes for the scheme members.
It is not possible to have any weaker supervision arrangements than we have had in place up to now. There has been a lack of effective regulation in this area. Another aspect that is of equal importance was the lack of awareness among employees of the risks to which they were being exposed in that they are only now discovering, in the light of what has happened in Waterford Crystal, the risk to which they are exposed in terms of their pensions. Is the Government considering providing any type of State guarantee for occupational pensions schemes that are in deficit? The Minister said she is examining this area and that a report will be published. When will it be published? Can she at least advise the House today what exact area she is examining in this context? Is this issue being examined in that context? Is the Government considering providing any type of State guarantee for these schemes? Effectively, a massive failure of regulation has exposed hundreds of thousands of people at this stage. The schemes were too heavily invested in equities. In good times they were able to take money out. Now we see the result with approximately 90% in deficit. When does the Minister expect the results for the 1,355 schemes so that we can get an accurate figure rather than that 90% assumption?
I do not accept that there has been poor regulation of the funds. However, because they are investment funds, the value of the investments has fallen. Where there is scope for further regulation and tightening up — as there is in some cases — we will certainly do that, particularly in the case of employers etc. who are not handing over the pension contributions. We are looking at that. However it is bound by the Pensions Act 1990 and the trust law. As I indicated earlier where changes were needed for the short term, we have certainly made those.
The Deputy asked about a pension protection fund effectively offering a State guarantee. That would basically transfer the risk to the State, which is a major risk. It would involve an agency running the scheme, investing resources and paying.
It exists already.
If we consider what has happened in other countries, the USA established such a fund that is now €11 billion in deficit. The UK has 68 schemes that are part of its protection fund with 20,000 members. Some 7,500 schemes are eligible to enter it with a potential deficit of €200 billion. This is what is happening in other countries that have a state protection fund. The Government is not in a position to offer such protection to such funds. Obviously we will try to ensure we make the process as easy as possible and support it in whatever way we can. At the moment the 1,300 or so defined benefit schemes here have liabilities of approximately €100 billion and the provisional estimate is that they would be €30 billion in deficit.
The Minister does not seem to get the point here. This is not something she can wash her hands of and claim it is nothing to do with the State. The issue for the State is its failure to ensure adequate pension protection. Arising out of the Robbins case the Government is legally required to do that. Its failure to do that is exposing the State to legal action. A pensions expert recently said that members of direct benefit schemes enjoy all the protection of a chocolate fireguard and that the Minister's recent minor actions in this regard were the equivalent of adding a couple of marshmallows to that chocolate fireguard.
For the third time today I ask the Minister when she will take her responsibilities seriously in respect of pension provision. When will she take decisions arising from the protracted Green Paper process? When can we expect her to make a policy announcement?
I have already made two or three different policy announcements on pensions.
The Minister needs to make serious ones.
I have indicated that the long-term policy framework is being considered by Government. When the Government has made a decision, obviously that will be published. I believe the Deputy quoted a journalist — not an expert. As I said earlier, the European Commission is assessing the judgment in the Robbins case to ascertain what additional obligations there may be. As of yet we do not know the outcome of its findings.
They were short-term measures which were important and needed. I do not know whether the Minister grasps the fact that people are terrified about what will happen when they retire. They do not know what will have happened to the schemes that they have paid into for their entire lives. When will the Government reach a decision? We are forced to ask questions on different things. The Minister is ruling some things out, but we do not know what she is ruling in and actually considering. When will we get some kind of coherent response on this matter?
The Deputy is correct in one regard. There are many people who had expectations from their pension schemes, believing they had a guarantee of a particular pension following all their contributions only to find it was not a guarantee and that they were at the mercy of whatever the investment was at the time. There is no doubt that there is an obligation and should be further obligations on pension fund managers etc. to ensure that their clients know the consequences of the payments they are making. As I have indicated the short-term and long-term issues are before Government at the moment.
Written Answers follow Adjournment Debate.