That, pursuant to Standing Order 172, Standing Order 127 is modified to permit an instruction to the Committee on the Social Welfare Bill 2009, that it has power to make provision in the Bill to alter the provisions of the Social Welfare Bill 2009 in relation to—
1. amending the Pensions Act 1990—
(a) by amending section 48 of the Pensions Act to modify how the assets of a scheme in wind-up are prioritised,
(b) by amending section 50 of the Pensions Act to:
— extend the categories of members and benefits to which a restructure of a defined benefit pension scheme benefits can be applied;
— extend the conditions under which a defined benefit pension scheme can be restructured;
— provide that the scheme members must be given an opportunity to make representations to the trustees of the scheme before any amendment to the scheme is made,
(c) by providing the courts with the power to relieve a trustee in whole or in part from liability for breach of trust where the court is satisfied that the trustee acted honestly and reasonably and having regard to all of the circumstances of the case,
(d) by amending section 3 of the Pensions Act to strengthen the regulatory provisions in relation to the obligation on employers to submit pension contributions to the trustees of a pension scheme,
2. providing that—
(a) the Minister for Finance may, after consultation with the Minister for Social and Family Affairs, make a scheme, to be known as the ‘Pensions Insolvency Payment Scheme’, and
(b) an amendment be made to the National Treasury Management Agency Act 1990 to provide that certain functions in respect of the scheme may be delegated to the National Treasury Management Agency,
3. amending the Financial Emergency Measures in the Public Interest Act 2009 to ameliorate the impact of the pension related deduction on lower paid public servants with a partial off-set by an increase on earnings above €60,000, by introducing new rates and bands, and
4. changing the Title of the Bill to take account of these provisions.
This motion is put forward to permit the committee to alter the provisions of the Social Welfare Bill 2009 in regard to amending the Pensions Act 1990, provide that the Minister for Finance may make a scheme known as the pensions insolvency payment scheme, amend the National Treasury Management Agency Act 1990, amend the Financial Emergency Measure in the Public Interest Act 2009 and change the Title of the Bill to take account of these provisions.
Members are aware that defined benefit, DB, pension schemes are experiencing problems. It is important that they be given every possible assistance by the Government. Moreover, such measures must be introduced as quickly as possible to ensure that those companies in gravest difficulty can benefit from the proposed changes. I appreciate that this legislation is being brought forward at short notice and that the measures contained therein are difficult and complex. The reality is that insolvent companies with pension funds are winding up as we speak. The aim of the legislation is to provide some additional protection to the workers concerned. It was hoped that these measures would be ready at the time of publication of the Bill but the changes being proposed took considerable time to prepare. However, notwithstanding the delay, I am satisfied these changes are urgent and necessary and I would appreciate the co-operation of the House.
The proposed amendments to the Bill will build on the short-term measures already introduced to assist pension schemes and will support the trustees of these schemes in meeting current challenges, while also providing greater flexibility to schemes and regulatory support to assist the affordability and viability of defined benefit pension schemes. In short, I propose amending the Pensions Act to change the order in which liabilities are calculated on the wind-up of a defined benefit pension scheme. I am also proposing an amendment to allow greater flexibility for schemes to restructure benefits in the event of underfunding. The legislation also provides for a strengthening of the role of the Pensions Board in its pursuit of employers who fail to remit pension contributions that were deducted from the wages and salaries of its employees. Furthermore, I am announcing the introduction of a pensions insolvency payments scheme whereby if a defined benefit scheme is in deficit and the sponsoring employer becomes insolvent, the trustees of the scheme may apply to the Minister for Finance to purchase pension payments for its retired members at a lower cost than that available on the open market.
The Government has been working since the publication of the Green Paper on pensions to bring forward proposals to assist the pensions industry. With the recent economic downturn and the huge losses in equities markets in the past 18 months, it was important to put together a package of measures to underpin pensions provision in Ireland. The Government's initiative began in December with the announcement of several short-term measures aimed at reducing the pressure on underfunded defined benefit schemes by allowing greater flexibility and time to recover funding positions. These measures included the granting of additional time for the preparation of funding proposals; an undertaking that the Pensions Board would deal as flexibly as possible with applications for approval of funding plans, allow longer periods for recovery plans in appropriate circumstances and allow the term of a replacement recovery plan to be extended beyond the end date of the original plan; the taking into account of voluntary employer guarantees in approving recovery plans; and that the Pensions Board would reject recovery plans that fail to demonstrate an appropriate investment approach.
In acknowledging the likelihood that some defined benefit schemes will wind up due to the current economic situation, the measures I am announcing today are a timely next step in our response to the crisis. Furthermore, I expect to follow this in the near future by announcing details of the Government's national pensions framework, which will include a response on the issue of the sustainability of the pensions industry. While I am not yet in a position to advise the House of what will be included in the framework, I can identify the key issues it should address.
Much of this is familiar to Deputies but it is worth stating again some of the many issues that face us in preparing a sustainable pensions policy. The population aged 65 and over will increase by 59% by 2021 and by a further 142% by 2061. There will be a relatively rapid and severe decline in the pensioner support ratio, that is, the ratio of people of working age to those over pension age, from approximately 6:1 at present to less than 2:1 in 2061. In the years ahead, the State faces an additional bill for pensions which amounts to some €8 billion in today's terms. The pension coverage rate for people at work has been hovering between 50% and 55% despite vastly improved awareness of pension issues and the need for people to provide for their retirement. Even where people are contributing to pension schemes, those contributions may not be adequate to meet their expectations in retirement.
These figures indicate the scale of the challenge ahead but they tell us little about the tangible human impact of pension problems on ordinary people. People should be confident and secure about their retirement expectations. They should not arrive at pension age only to find that their incomes are well below what was promised to them. Our system must provide surety so that we all can look forward to retirement, confident that our pensions are safe.
The Government is very conscious of the difficulties the global financial crisis is causing for Irish pension funds and the challenge this is presenting for the trustees of pension schemes. It is estimated that in excess of 90% of defined benefit schemes are currently in deficit, with estimates suggesting a shortfall of up to €30 billion. The Government is very much aware of the threat the current financial environment is presenting for some defined benefit schemes where the employer becomes insolvent leading to a wind-up of the scheme. The amendments I am introducing today are the next logical step in the Government's approach to pensions provision. These amendments will help to support the job of the trustees in addressing the challenges they face at this time.
Insolvency invariably leads to the wind-up of the pension scheme. This means that some, if not many, pension scheme members who have yet to retire will face a shortfall in their pension. This is of particular concern for those close to retirement who have few options in terms of making alternative provision for their future. For this reason, I am bringing forward an amendment to enable the Minister for Finance to provide for a pensions insolvency payment scheme, PIPS. Currently, if a defined benefit scheme is in deficit and the sponsoring employer becomes insolvent, the trustees must first provide pensions for the retired members of the scheme, usually by purchasing annuities. Whatever is left is apportioned among the active and deferred members of the scheme. The more expensive the annuities, the less money available for those yet to retire. Annuities provided on the open market are priced to include certain costs such as commissions and expenses as well as a profit margin. Crucially, annuity providers must hold reserves to back up their annuity commitments, a cost which can add significantly to the final annuity price.
The PIPS will provide an alternative for trustees of defined benefit schemes in deficit with an insolvent employer. In simple terms, trustees of participating schemes would pay to the Exchequer the amount necessary to cover the cost of providing pensions to retired members. With commissions, expenses, and the cost of capital distilled from the equation, the PIPS should be able to provide these payments at less expense to the trustees. This should then free up additional money to go towards the pensions of those yet to retire.
It is important to be clear on this issue. The PIPS is not a bail out of pension schemes in deficit and has been carefully designed to ensure that it will be cost neutral from an Exchequer point of view. We must be careful that our attempt to assist those in need is not misrepresented. Many people will want to know the bottom line on this and the difference it will make to their pension. The simple answer is that it depends on the scheme in question. Each scheme involved will have to be actuarially assessed and the costs and savings will depend on the age profile of the scheme, the prevailing interest rate and other relevant factors. The intention is that this technical calculation will be carried out by the National Treasury Management Agency so as to make the PIPS cost neutral to the Exchequer. The PIPS will operate on a pilot basis and will be reviewed within three years of its establishment. The amendment I am introducing today will set out the necessary enabling provisions to allow the Minister for Finance to introduce the scheme and to provide for the detailed arrangements to be set out in regulations, in which I will have a consultative role. The PIPS can commence once those regulations are in place.
As I have said, employer insolvency may invariably lead to the wind-up of the pension scheme. In the event of such a wind-up, the Pensions Act stipulates the order in which the resources of the scheme must be disbursed. It gives priority to the liabilities accruing to pensioners before it distributes the remaining assets to those who are still in employment and those former employees who have not yet retired. The calculation of the liabilities includes provision for post-retirement increases in the third of schemes that provide for such increases.
With increases in pension costs, the liability for post-retirement increases can be substantial, and in a situation where a severely underfunded scheme is wound up, the allocation of assets for pensioners in payment can significantly reduce the assets available for other scheme members. In this regard and in order to achieve a greater equity in the distribution of scheme assets on wind-up of the scheme, I am bringing forward an amendment to reorder the wind-up priorities by moving the provision for post-retirement increase to a lower priority. This change will not impact on the current pension payment to pensioners but it will enhance the level of resources available to other scheme members. Once the basic pension entitlements of all scheme members are covered, the distribution of scheme assets for post-retirement increases will then be applied. This is an important change in the priority order and will, without impacting on the pensions of those already retired, improve the situation of other scheme members.
It is desirable to ensure that pension legislation supports the viability of current pension schemes and that nothing in current legislation could be considered restrictive in the ongoing maintenance and sustainability of a pension scheme. In this regard, I am bringing forward an amendment to the scope of the Pensions Act in respect of the existing provision in the Act for the restructuring of a pension scheme. Current legislation provides for the restructuring of a defined benefit pension scheme but only to the extent that it affects the benefits of those currently employed by the employer sponsoring the scheme. This restructuring does not extend to the accrued benefits of scheme members who are no longer employed in the company or to post-retirement increases in benefits. This limitation in restructuring a scheme could give the trustee no option but to wind up the scheme.
The proposed amendment to the Pension Act will broaden the scope of a scheme restructuring to include those currently in employment, those who have ceased employment with the current employer and the provision of post-retirement increases for all scheme members including pensioners. It must be stressed that this change will not impact on the pension currently in payment to pensioners. The purpose of this amendment is to help trustees secure the viability of the pension scheme by extending the elements of the scheme which may be considered in any restructuring of a scheme. This will help the trustees to maintain the ongoing viability of the pension scheme and hopefully avoid the scenario of a scheme wind-up. It is important to point out that the measures I have outlined will retain the current priority given to pensions in payment which means that employees who have retired, and those who have reached normal retirement age, will not see any diminution of their entitlement to a pension.
Deputies will agree that it is crucially important that any moneys deducted from an employee for pension purposes are remitted to the trustees of the pension scheme. Difficulties are currently being experienced by the Pensions Regulator in bringing successful prosecutions against employers who fail to remit employee contributions to the trustees of a pension scheme. This is due mainly to the standard of proof required based on oral evidence, often required to be given by an employee of the employer in question. In practice, it is understandable that such employees may be unwilling to testify against their employer, for fear of the impact on their future careers. In response to this situation, I am bringing forward an amendment to the Pensions Act to strengthen the role of the Pensions Regulator in this regard by establishing a separate offence for such a breach of the Act and by enhancing the admissibility of documentary evidence.
While the main focus of the amendments I am bringing forward are to do with supporting the work of the trustees in situations which threaten the future of a pension scheme, it is important to ensure that the legislation is strong where an employer fails to remit pension contributions to the trustees of a scheme. I must acknowledge that the vast majority of employers comply with this requirement. We must, however, ensure that those who fail to comply are pursued.
Finally, I introduce an amendment to provide a court with the power to relieve a trustee from liability for a breach of trust. This proposal is aimed at protecting trustees who have acted honestly and reasonably in the performance of their duties.
The amendments I am presenting to the House this evening are aimed at supporting workers in defined benefit schemes and assisting trustees in securing the future of pension schemes. I am also aware that there are many other challenges facing pension policy and provision in Ireland. These include issues such as pensions coverage and the adequacy and sustainability of our pensions system generally, all of which were set out and discussed in the Green Paper on pensions.
A good, robust pensions system is costly no matter how it is organised. The challenge faced by the Government is to strike the appropriate balance between those involved, including employers, people in employment and the State. Our objective must be a pension system which will deliver an adequate retirement income for all which is at the same time affordable and sustainable for the State and those who sponsor and provide occupational pensions systems. Discussions with my Government colleagues on the final framework are ongoing, and I expect that the framework will be published in the near future.
For now, I move to alter the provisions of the Social Welfare Bill 2009. I appreciate that this is a difficult and complex issue but the measure is designed to give extra rights to workers in companies which are insolvent or about to become insolvent and whose pension funds are in deficit.