The Commission has signalled a number of issues regarding liabilities to be covered. We are working to resolve these difficulties. If these can be resolved, I hope to bring the necessary statutory instrument before the House before the summer recess when we will have ample time to discuss and, as a Parliament, approve or disapprove, of the nature of the securities covered. To avoid us going down the route of having a debate about subordinated debt, I simply want to make clear at this stage, for the assistance of Members, that this is not one of the securities in the contemplation of the Government in our discussions with the EU Commission. Clearly the securities that were referred to in the budget speech and which are the subject matter of our discussions, are the longer-term debt issuance where other banks in other European countries are now at a competitive advantage in accessing such funding by virtue of the more extended guarantees which such countries have given. The details of these matters are under discussion with the Commission and at this stage what is sought is a statutory authority so that we are in a position to introduce an instrument for the approval of this House.
I will deal with the details of each section of the Bill in turn. Section 2 provides for the continued operation of existing direct debit mandates after the introduction of the Single Euro Payments Area direct debit scheme. This scheme will be introduced in November 2009. This industry-led initiative is a major component of the development of a single EU market in payment services. The SEPA direct debit scheme will enable customers of any EU bank to set up a direct debit on their account regardless of the country in which they live. It has the potential to make travelling and working in other member states much more flexible in terms of, for example, paying utility bills. A significant hurdle in the introduction of the SEPA direct debit scheme is the need to make sure existing direct debit instructions continue to be valid. The Bill contains a provision enabling the Minister for Finance to make regulations to provide for the continued validity of existing direct debit instructions, subject to the need to ensure customers are properly informed of the fact that their direct debits will move to the new direct debit scheme rule book.
Part 3 of the Bill deals with the transfer of assets of certain pensions funds to the National Pensions Reserve Fund. Part 3, comprising sections 13 to 14, contains provisions to facilitate the transfer of pension funds in the universities and certain State bodies, to the National Pensions Reserve Fund, to enable the payment on a pay-as-you-go basis of the benefits currently covered by those funds and to offset the value of the funds transferred against annual contribution obligations under section 18(2) of the National Pensions Reserve Fund Act. The funds in question, which are set out in Schedule 1 of the Bill, are the pensions funds of the five older universities: Trinity College; University College Dublin; University College Cork; National University of Ireland, Galway; and National University of Ireland, Maynooth and the National University of Ireland, together with certain State bodies: Forfás; SFADCo; FÁS; An Bord Bia; the Arts Council; and Fáilte Ireland in respect of the regional tourism authorities and the fund for former CERT employees.
The pension schemes of the five older universities and some of the non-commercial State sponsored bodies, SSBs, are unique in terms of their structure and relationship with the State. The non-commercial SSBs concerned are part of the public service, with the State and the Exchequer ultimately responsible for their funding, and their pension liabilities must be seen in that context. The universities concerned have part-funded pension schemes, with retirement lump sums and basic pensions paid from the funds, while post-retirement increases are paid by the State on a pay as you go basis. This is different from the position in respect of the pensions of the newer universities and entrants to the older universities from 2005 onwards, whose benefits are paid on a pay as you go basis and are met via the core grant provided by the State.
The Universities Act 1997, provided that all the universities should introduce new pension schemes along the lines of the public service model and since February 2005, such arrangements have been in place for all new entrants to these universities. The funded schemes are, therefore, closed to new entrants since that date.
All funded schemes in the public service must now meet minimum funding standards under EU law, specifically the IORPS Directive, unless they are, effectively, guaranteed by the State. This has placed the universities concerned in a situation where they have to be able to show there would be sufficient cover in their schemes to meet the potential liabilities arising, with potential implications for the universities' finances generally, or that the State would clarify its supporting role to give the cover required. Some time ago, a working group under the Higher Education Authority examined the situation and recommended that the best way forward was for the State to initiate discussions with the trustees and administrators of the funded pension schemes concerned, who would then consult with their members with a view to the winding up of these schemes, and the takeover by the State of the assets in the funds. The liabilities of the schemes would then be met on a pay as you go basis in the future with the assets transferred to the National Pensions Reserve Fund. It is not possible to predict if the assets will eventually prove to be sufficient to meet the future liabilities. This will depend on how they perform over time.
The transfer of the assets of pension funds in the universities and certain non-commercial State bodies to the National Pensions Reserve Fund where the assets will be managed as part of the reserve fund has a number of advantages. Rather than having a number of relatively smaller funds attempting to manage their deficits while at the same time meeting current pension benefit outgoings, it is preferable to have the assets managed for the State in the reserve fund where there will also be the benefit of economies of scale. With no drawdowns before 2025, the reserve fund can accept periods of volatility as a trade-off for achieving a long-term return that will make a meaningful contribution to Ireland's future pension costs and the sustainability of the pension system.
Section 3 defines terms in Part 3 of the Bill. The section also clarifies that the assets to be transferred do not include assets covering additional voluntary contributions on a defined contribution basis. Following the transfer, the funds of these AVC schemes will be held in a separate trust for the contributing members.
Section 4 provides an interpretation of the phrase "relevant pension scheme" both before and after the transfer of the assets in a covered pension fund. This is important in the context of continuing the scheme members' benefit structure following the transfer.
Section 5 provides that the relevant Minister may, with the consent of the Minister for Finance, make an order transferring the assets of a covered pension fund to the National Pensions Reserve Fund. The transfer order in respect of a particular fund will determine the date of effect of the transfer of the fund. It will also confirm the instruments and other documents underpinning the "relevant pension scheme" referred to in section 5. A transfer order shall be laid before each House of the Oireachtas with a notice published in Iris Oifigiúil.
Section 6 provides that the effect of a transfer order made under section 5 is to transfer the assets of the fund which is subject to the transfer order to the National Pensions Reserve Fund. It also provides that any trust deed relating to the assets of the fund is terminated and that the trustees and the bodies cease to be liable for anything done relating to the fund on or after the date of effect set out in the transfer order.
Section 7 provides for the continued operation of any pension scheme for which a transfer order has been made, subject to the provisions of the Bill. It also provides that, following the transfer, the board of directors or governing body of the State body or university in question becomes the administrators of the scheme. This section also makes provision for the continuation of scheme membership for those who were members on the date of transfer.
Section 8 provides an exemption from any form of taxation for any assets transferred under a transfer order.
Section 9 provides that a transfer order has effect notwithstanding any provision in the Pensions Act 1990. It also provides that, following the date of a transfer, the Pensions Act will continue to apply to a relevant scheme to the same extent as it did prior to that date, so that the protection of the Act will apply to members following the transfer, for example, the right to appeal in the event of a dispute.
Section 10 provides that assets transferred to the National Pensions Reserve Fund pursuant to a transfer order shall be taken to be in satisfaction or part-satisfaction of the obligation of the Minister for Finance under the National Pensions Reserve Fund Act 1990 to make contributions to that fund.
Section 11 provides that any discretion contained within a covered pension scheme in terms of rights and benefits of members, either individually or collectively, shall, after the making of the transfer order, be exercised by the relevant Minister and the Minister for Finance who in turn may delegate the exercise of the discretion.
Section 12 provides, subject to the provisions of this section, for the continuation of obligations of members and employers to make contributions to the scheme and for the bodies to pay benefits relating to the scheme in relation to any covered scheme after a transfer order has been made.
Section 13 provides that section 25(7) of the Universities Act 1997 and the Fifth Schedule to that Act, which provide for the approval of the terms and conditions of any university superannuation scheme, continue to apply to a covered pension scheme after a transfer order has been made.
Section 14 provides that nothing in Part 3 of the Bill or in any transfer order affects the jurisdiction of the Pensions Ombudsman or procedures relating to internal dispute resolution established under section 132 of the Pensions Act 1990. If a relevant pension scheme confers on a Minister the function of settling disputes, the relevant Minister continues to have that function after the making of a transfer order.
I will be bringing forward a Committee Stage amendment to provide for the inclusion of the pension funds of the Economic and Social Research Institute and the Institute of Public Administration in the scope of the Bill.
Part 4 deals with guarantees by Minister for Finance. Section 15 deals with the construction of certain provisions when the Minister for Finance guarantees non-equity securities and so on. It amends the Prospectus Directive Regulations 2005 and the Investment Funds, Companies and Miscellaneous Provisions Act 2005 to protect the Exchequer by removing any legal liability on the State as guarantor of certain debt securities for the accuracy of information contained in prospectuses that relate to the guarantor and the guarantee.
Part 5 deals with the amendment of other legislation. Section 16 is an amendment required to give full effect to the transposition of the Assessment of Acquisitions in the Financial Sector Directive 2007. I recently signed the European Communities (Assessment of Acquisitions in the Financial Sector) Regulations 2009, SI 206 of 2009, which transpose that directive. It establishes a harmonised legal framework setting out the procedure to be applied by competent authorities when assessing acquisitions on prudential grounds in the EU/EEA.
Part II, Chapter VI of the Central Bank Act 1989 already provided a regime for acquiring transactions relating to holders of banking licences. The amendment in section 75(1) of the Central Bank Act 1989 disapplies the existing regime for acquisitions in the case where the regime created by SI 206 of 2009 now applies, thus ensuring that the directive is transposed correctly and that there is no dual acquisitions regime in the State.
Section 17 amends the Credit Institutions (Financial Support) Act 2008. As Deputies will be aware Ireland was the first EU member state to make a guarantee available to its financial sector at the end of September 2008 last. As a result, in contrast to the position in other member states, the governing legislation and detailed scheme currently in place do not allow for guarantees to be provided for a period which would allow banks to access new longer-term funding which would make a significant contribution to further strengthening of their financial standing and stability overall. The House will understand as the term of the guarantee proceeds the importance of providing scope for extending the term of the guarantee increases so it is appropriate to provide scope for addressing the issue in this Bill. Section 17 therefore amends, via the Schedule to the Bill, the Credit Institutions (Financial Support) Act 2008, to allow for the extension of the period of financial support beyond 29 September 2010 by ministerial order. Access to longer term funding is line with the recent mainstream approach in the EU will contribute significantly to supporting the funding needs of the banks and to securing their continued stability.
It is important to stress that the implementation of this provision include a number of important safeguards. First, in making an order to provide financial support on an extended basis the Minister must be satisfied, following consultation with Governor of the Central Bank and Financial Regulator, that the circumstances set out in section 2 of the Credit Institutions (Financial Support) Act 2008 continue to apply.
In addition, EU state aid approval is required for any financial support provided under the Act. Moreover, the Minister in making a scheme to provide financial support in the form of a guarantee must secure the positive approval of both Houses of the Oireachtas in accordance with section 6(5) of the primary legislation.
Sections 18 and 19 deal with amendments to the insurance Acts. The Insurance (No. 2) Act was introduced in 1983 to enable the then Minister for Trade, Commerce and Tourism to present a petition to the court for an order for the administration of a non-life insurance company and the appointment of an administrator. As this option is not available for life insurance and reinsurance companies, the Financial Regulator asked for this regulatory gap to be addressed, which explains the necessity for this amendment.
Section 20 amends the Netting of Financial Contracts Act 1995 to insert a new definition of "party" in that Act. The purpose of this amendment is to clarify the application of that Act for netting agreements where one party to the agreement has created a security interest in favour of a third party. The Netting of Financial Contracts Act 1995 encompasses only bilateral netting agreements. However, the creation of a security interest by either party to a netting agreement could result in an interpretation that the agreement is between more than two parties. In such circumstances, the protections afforded by the Netting of Financial Contracts Act in the event of insolvency may not apply. This has the potential to cause significant difficulties for parties to netting agreements, including issues affecting the capital adequacy position of the parties, as well as impacting on the cost and viability of such transactions in the Irish market. The amended definition of "party" clarifies that it does not include any person in whose favour a security interest has been created.
Section 21 deals with amendments to the Taxes Consolidation Act 1997. In the context of the transfer of the pension funds' assets there are a number of amendments to the Taxes Consolidation Act in Schedule 2, Part 6. These amendments are technical in nature and clarify that the assets of the National Pensions Reserve Fund, in addition to the National Pensions Reserve Fund Commission, are also exempt from Irish tax.
As I have outlined, the issues addressed in this Bill largely relate to some important, albeit technical, issues. The Bill will also address a number of technical reforms to various Acts falling within my remit. I hope the Bill will be examined by the House in the time available in a positive and constructive way. I commend the Bill to the House.
