Dáil Éireann debate -
Thursday, 6 May 2010

Vol. 708 No. 2

Adjournment Debate

Personal Indebtedness

Deputy Joe Behan

At the outset, I thank the Ceann Comhairle for allowing me the opportunity to raise on the Adjournment the important matter of personal indebtedness and its consequences for our country. I was prompted to raise this issue of personal indebtedness and its consequences following many heart-wrenching representations from my constituents on the matter and I congratulate the Oireachtas Library and Research Service for its excellent publication on the subject.

This publication made for startling reading. The figures for Ireland's personal indebtedness are staggering. The debt to disposable income ratio of our citizens rose by 270% over the period between 1995 and 2008. This is the largest increase in a group consisting of Ireland, the United Kingdom, France, Spain and Canada and provides at least one international benchmark with which to compare Ireland's indebtedness with that of other countries with a similar standard of living.

The practice of reckless lending by Ireland's financial institutions was not only focused on property developers. Those who traditionally would have found it difficult to access mainstream credit in the past were advanced easy credit without regard to their long-term financial prospects or their understanding of responsible borrowing and the impact of external factors on the ability to repay personal debt. The Minister for Finance and the Government must deal with the consequences of this personal indebtedness for those affected. There are countless families and individuals throughout the country who now suffer from severe levels of stress and anxiety because of their inability to meet their financial obligations. The research shows that not only are there health effects for the individuals concerned but another consequence of a lack of disposable income is that health concerns are not dealt with adequately because the individuals cannot afford to seek the necessary treatment. There is clear evidence supporting the link between indebtedness and health problems and growing evidence of the direct and indirect costs associated with these problems on the public purse in respect of hospitalisation, treatment, loss of production and rehabilitation.

Another aspect of the report which must be dealt with concerns the problem that many of those who have fallen into debt have done so because they do not have adequate financial capability to manage their finances. This matter must be addressed in schools as part of the curriculum. Students should be prepared to deal with practical matters such as money management, disposable income, cost of credit and the implication of interest rates in order that they will not find themselves with this problem in the future. This Spotlight edition from the Oireachtas Library and Research Service notes the startling point that the National Adult Literacy Agency believes people may find it easier to understand moneylenders’ repayment schedules than those of financial institutions.

I commend the excellent work being done by the Money Advice and Budgeting Service, MABS, and ask the Government to continue to support and promote this agency and its work. Following the collapse of the housing market and the current economic situation, people in our society have fallen into personal indebtedness for the first time in their lives. They may not all be aware of the support that MABS can offer and I believe Members must support and promote this vital service continually as it definitely can make a difference to those struggling under the burden of debt.

In my constituency, I have seen a large increase in the numbers of people seeking support. There is much anecdotal evidence about the rise in moneylending throughout the country and all Members are familiar with the scourge of moneylending in marginalised communities. Moneylenders prey on the vulnerable and must not be allowed to get a further foothold in disadvantaged communities.

In this regard I commend the excellent work being done throughout the country by the dedicated volunteers of the St. Vincent de Paul Society in combating the scourge of moneylending and more generally in dealing with the plight of personal poverty and indebtedness suffered by many people in disadvantaged communities. Furthermore, I wish to put on the record at this time my personal sadness at the death at the age of 91 years of Mr. Jim Pyne, a life-long member of the St.Vincent de Paul Society in Bray, County Wicklow. This was a man who railed consistently against moneylending and moneylenders and who served the people of his community with energy, dedication and selfless generosity.

I call on the Government to promote innovative ways to deal with the issue of personal insolvency. In other jurisdictions there are a number of schemes individuals can access such as individual voluntary arrangements and debt relief orders. We need urgent reform of our personal bankruptcy and insolvency laws which reflect the modern dimensions of these matters.

The Government needs to show the people of Ireland that it understands that factors outside their personal control have greatly impacted on people's personal indebtedness. It would be a fitting response to the current economic crisis if the Government initiated some person-centred schemes to help the families and individuals around the country who find themselves in financial crisis brought on by negative equity, reckless lending and unemployment. This would demonstrate that the Government cares about the plain people of Ireland and their financial difficulties just as much as they care and provide for the needs of the rich and powerful.

Minister of State at the Department of Finance (Deputy Martin Mansergh)

I thank Deputy Behan for raising this issue. The Government is fully aware of the level of personal indebtedness in Ireland and the difficulties faced by individuals and households in dealing with this. The Renewed Programme for Government sets out our commitments for introducing measures needed to protect families having difficulties with their mortgage repayments and personal indebtedness under the heading "Protecting the Family Home and Helping Those in Debt".

The scale of the problem of indebtedness is evidenced by the details of private sector credit published by the Central Bank in its quarterly bulletin. While the stock of private sector credit has been falling since June 2009, the Central Bank has noted that much of the decline in private sector credit can be attributed to valuation effects such as the write down of loans, increased bad debt provisions and exchange rate movements in the euro.

House mortgage finance has been declining in recent years. The latest monthly statistics show a net fall of €717 million in the outstanding stock of residential mortgages during March. At the end of March 2010 the outstanding stock of residential mortgages stood at €146.5 billion compared to a peak of €148.5 billion in March 2009. Earlier this year the Minister for Finance expanded the membership of the interdepartmental mortgage arrears group. The terms of reference of the group, approved by the Minister, reflect the commitments made by the Government in the Renewed Programme for Government and in subsequent Government decisions relating to the issues of mortgage arrears and personal debt.

The group is meeting on a regular basis. I understand that the emphasis is initially on exploring the feasibility of a range of possible options for improving the level of mortgage support to homeowners in difficulty. The group will then address the personal debt issue. Proposals will be based on factual information gathered by the group and will take into account the findings of existing reports and mortgage support schemes in operation in other jurisdictions. The Minister will be kept informed regularly of work progress and it is expected that a final report on this phase will be ready by mid-summer. In addition, in the recent budget the Government refocused mortgage interest relief on those who bought their homes at the peak of the market, many of whom now find themselves in negative equity. Where a homeowner's entitlement to mortgage interest relief would expire in 2010 or thereafter, he or she will now continue to receive it up to the end of 2017.

The House will be aware of the other supports available to mortgage holders including the Financial Regulator's code of conduct on mortgage arrears, the mortgage interest subsidy scheme and the services provided by the Money Advice and Budgeting Service, which Deputy Behan rightly praised.

This service falls under the remit of the Minister for Social Protection. It is a national, free, confidential and independent service provided to people in debt or in danger of getting into debt. MABS works with people in order to assist them with their financial planning and budgeting for the future. In 2010 almost €18 million has been provided to assist MABS deal with its workload.

It is also important to highlight that the Law Reform Commission's consultation paper on personal debt management and debt enforcement contains an extensive list of provisional recommendations for reform of the law on personal debt. I understand that the commission is aiming to have its final report available by the end of August 2010. The mortgage group mentioned will take account of these recommendations as it proceeds to address the personal debt aspects of its terms of reference.

Pension Provisions

Deputy Seán Barrett

A former Minister for Finance, Charlie McCreevy, during his reign made some changes to the manner in which the self-employed and company directors could contribute towards a pension fund, which were welcome. The changes made allowed a self-employed person on reaching retirement age to take 25% of the fund built up in cash and the balance to be used to purchase an annuity or to be invested in an approved retirement fund from which the person could draw down an income for the remainder of his or her life. The important difference this made from the State's point of view is that under the approved retirement fund scenario the State is guaranteed that all income — even after death an account is taken of those who would inherit the balance of fund — will be taxed by way of PAYE. I will compare that scenario to that of a person who takes out an annuity, for example, a person with a fund of, say, €500,000 at retirement and who takes 25% of it and uses the balance to purchase an annuity or a retirement fund. With an annuity, one would normally get a guarantee for five years, but if one died in the sixth year, one's fund would cease and the money in the fund would belong to the insurance company. With an approved retirement fund, however, if one died in the sixth year, the remainder of the fund would be passed on as part of one's estate but any income or moneys taken from that fund would be taxed by way of PAYE. Therefore, the State is benefiting by people choosing a retirement fund as distinct from an annuity.

Everything was fine until recently. A circular was issued, which stated ARFs are not pension schemes and are instead retirement funds and withdrawals from ARFs are liable for PRSI at Class S. This is an extraordinary change. For example, if a person has an annuity of, say, 20,000 a year, which is his or her income, and another person has the same income from a retirement fund, the person with the retirement fund has to pay PRSI at Class S while the person with the annuity does not pay any PRSI, which is the way it should be. Such people should not have to pay PRSI because they have retired and they are not entitled to any benefits under it. The relevant information states that Class S is paid by self-employed people such as farmers, certain company directors, people who run their own businesses and people with income from investments, rents and maintenance and it lists the benefits to which a person is entitled.

Why was this sudden change made? It is grossly unfair to people who have chosen the route of investing in an ARF, from which they derive the same income they could get from an annuity, that they are to be charged PRSI at the full rate under Class S. Such a deduction is a substantial amount of money to be taken from a retired person who is depending on this payment for his or her income.

I thank the Ceann Comhairle for allowing me to raise this matter. I sincerely hope that the Minister of State has some news for me. I raised it on Committee Stage of the Finance Bill when I was informed it would be investigated. However, I have not heard anything, hence the reason for raising it. It is important to stress that it is in the State's interest that the retirement funds remain in place because we are guaranteed that all of the money that goes into this will come back in PAYE and tax as against the annuity, from which one might only get a few year's tax. I ask that the Minister would take note and arrange to revert to the procedures in place before this circular was issued. There is no justification for a position whereby somebody who is retired and receiving an income from a retirement fund should be asked to pay PRSI class S, which does not entitle them to benefits which could accrue through the payment of class S because they are not in a position to avail of them.

Deputy Martin Mansergh

I thank Deputy Barrett for raising this issue. Approved retirement funds, ARFs, are funds managed by a qualifying fund manager into which an individual can invest the proceeds of their pension fund when they retire. Income and gains of an ARF are exempt from tax and social insurance within the fund. Any amounts withdrawn from an ARF are referred to as a distribution, which is treated as income from an employment. It is subject to income tax and the fund manager must operate PAYE and PRSI as appropriate.

Approved retirement funds are not pension schemes and are instead treated as assets. The account owner has control over when and how much they can withdraw at any time, unlike, for example, an occupational pension where a person receives a defined amount of money on a weekly or monthly basis. On this basis, withdrawals from approved retirement funds are liable for PRSI at class S.

Pension annuities provide a secure means of converting savings into pension income and avoid the danger that pensioners could exhaust their pension savings in their lifetime. In general, PRSI is not due on any payment received by way of a pension income. Retirement annuity contracts are long-term savings accounts designed to assist individuals to save for their retirement. Employees who are not members of a pension scheme, or individuals who are self-employed, may claim tax relief against earned income. Annuities payable under a retirement annuity contract are, therefore, regarded as excepted emoluments for PRSI purposes.

There has been no recent change to the legislation in this area. Rather, the Department of Social Protection recently clarified to relevant qualifying fund managers that distributions from approved retirement funds fall within the charge to PRSI. As Deputies will be aware, current pensions policy is being developed under the national pensions framework. The aim of the framework is to deliver security, equity, choice and clarity for the individual, the employer and the State. It also aims to increase pension coverage, particularly among low to middle income groups, and to ensure that State support for pensions is equitable and sustainable. The framework identifies the need for incentives to be targeted to strike a balance between encouraging pension coverage and considerations of equity and cost effectiveness. In this context, a review of the interaction between social insurance and pension structures is being undertaken.

Dublin Inner City Partnership

Deputy Lucinda Creighton

I am pleased to have an opportunity to raise this very serious and important matter in regard to the expenditure of public moneys. The Minister of State will be aware that the Dublin Inner City Partnership was established in 1991, one of 12 development companies under the programme for economic and social progress at the time. The aim of this partnership was to fund community groups and to fund projects in disadvantaged areas, including those most affected by abject poverty in the State.

Significant funding of millions of euro was made available and administered by the Dublin Inner City Partnership over an extended period. Pobal administered the funds to the Dublin Inner City Partnership through a local development social inclusion programme under the ambit of the Department of Community, Rural and Gaeltacht Affairs, through the millennium partnership fund under the Department of Education and Science, and through the immigration and integration fund under the auspices of the Department of Justice, Equality and Law Reform. Effectively, a middleman was created between the Government funding the schemes and the communities to which these funds were to be channelled for their benefit.

What is a matter of grave concern to me and to my constituents, many of whom have been involved in the community and voluntary sector over an extended period, is that initially no reports were conducted into how these moneys were being administered until an audit was conducted in March 2008. It seemed clear from the subsequent events that questions were raised by this audit and, therefore, another audit was conducted in December 2009. What is bizarre about these audits is that they have not been published and have not been made available either to public representatives or to the communities which were to receive the funds. The audits have been made completely secret by Pobal, which is extraordinary and, in my view, unacceptable.

This degree of secrecy does not instil confidence. What I have read in the media and what has been claimed by various national newspapers is that the second report discovered that senior management in the Dublin Inner City Partnership were paying themselves significant amounts above and beyond what was approved by Pobal. One manager in the partnership is alleged to have received over €10,000 more than was approved by Pobal, the financial administrator over €5,000 more and the regeneration officer over €5,000 more. Subsequent to these details becoming public, one Dublin city councillor resigned from the board but, unfortunately, two other councillors did not. What is interesting is that one political party, Sinn Féin, has come out and condemned the decision by Pobal to completely withdraw funding from the Dublin Inner City Partnership from the end of this month. That condemnation is somewhat extraordinary as I believe the withdrawal of funding was the correct course of action.

I would like to highlight a number of issues. The first is the lack of accountability. These are public moneys — taxpayers' money — which have been spent and administered in a very questionable fashion with no accountability. I call on the Government to ensure that the audits of the Dublin Inner City Partnership which were conducted by Pobal will be made available, which is only right in the interests of transparency. It strikes me as more than bizarre given that, following the type of squandering of public moneys we have seen in other organisations such as FÁS and other Government quangos, there has been some degree of accountability in recent times. Due to a media and political furore, some opening up and transparency has ultimately been seen in these bodies but there has been none in regard to Pobal and the Dublin Inner City Partnership.

It is essential that a number of developments happen for the future. First, we must ensure the funds continue to be made available to these groups and that this is not used as an excuse to stop funding very valuable and important community groups. Second, we must ensure any new body which replaces the Dublin Inner City Partnership is an exercise in genuine local democracy and genuine community involvement rather than having the same old individuals popping into positions of authority in regard to the administration of these funds. I genuinely do not believe this will be acceptable to the communities involved.

Deputy Martin Mansergh

I thank Deputy Creighton for raising this issue.

In 2009, Dublin Inner City Partnership, DICP as it is referred to, was allocated some €1.1 million under the Department of Community, Rural and Gaeltacht Affairs Local Development Social Inclusion Programme, LDSIP, to implement measures tackling social and economic exclusion in Dublin's inner city. That funding was provided through Pobal, which managed the programme on behalf of the Department. It might be noted that DICP had been in receipt of LDSIP funding over many years and was also in receipt of FÁS funding to provide the local employment service in the area.

In January 2010, the LDSIP and community development programme, CDP, were superseded by the new local and community development programme, LCDP. Under the new programme an allocation of €1,074,855 was made to DICP by Pobal, which also manages the new programme on behalf of the Department. On the 18 January, €107,485 was issued to DICP as a first payment from this allocation. DICP would also have FÁS funding for 2010. As part of its programme management role, Pobal has a remit to manage Government funds in a transparent and prudent manner, to provide guidance and support on organisational management and governance and to conduct independent audits of beneficiaries based on risk analysis.

After funding allocations for 2010 had been settled, Pobal was completing a follow-up audit on foot of a previous audit completed in March 2008 which audit had given rise to major concerns about weaknesses in financial controls and procedures, non-compliance with programme accountability requirements and payments of salaries in excess of approved scales. Following that audit, the company had been given an opportunity by Pobal to address those issues and had committed in writing to so doing by 31 March 2009. However, the follow-up audit to which I have referred revealed that DICP had not addressed the issues despite the commitments made.

On 1 April 2010, the board of Pobal decided to cease its contract with DICP in light of the concerns about weaknesses in financial controls and procedures, non-compliance with programme accountability requirements, payments of salaries in excess of approved scales and the failure on the part of the company to address those issues. The Department, given its duty to protect public funds, strongly supported the Pobal decision to cease the contract and believed that Pobal had no alternative but to do so. DICP was given an opportunity to appeal the Pobal decision and has done so. It is expected the appeal process will be completed before end-May 2010.

It is the objective of the Minister, Deputy Carey — the Department and Pobal have taken steps to ensure this — to ensure the decision to cease the DICP contract will have no adverse impacts on services provided in the inner city area. Heretofore, the main role of DICP in the context of the LDSIP and LCDP programmes was as a provider of funds from allocations made by Pobal to community and other groups providing services in the inner city area. Pobal has met with all of the groups concerned and has finalised arrangements to manage directly the funding of their work. There will be no interruption or reductions in funding and the groups have been assured this funding will continue until a long-term resolution is found to the management of the new programme in the area.

Pobal has also been in discussions with FÁS on ensuring the non-disruptive continuation of local employment service, LES, and centres' operations in the area. I apologise to Deputy Creighton for the alphabet soup contained in the reply.