As Deputy Ellis is not in the House, I will have to call the next speaker unless he appears very quickly. The next speaker is Deputy Wallace, and he is sharing his time with Deputies Clare Daly and Shane Ross.
Social Welfare and Pensions (No. 2) Bill 2013: Second Stage (Resumed)
The changes proposed by this Bill are to be welcomed, although they come a bit late for many workers. The Government has known about the crisis in defined benefit funds for quite some time; therefore, the fact that it is now finally intervening in an increasingly volatile situation comes as a relief, not least to those in troubled defined benefit schemes. Sadly, the protections afforded to workers and pensioners, particularly the 50% guarantee of benefits, will not apply to those whose funds have already become insolvent. It is cruel and unjust to prohibit the retrospective application of this legislation. In effect, this will mean that workers in a double insolvency situation, who possibly paid into a fund for many years but then walked away with nothing, will not receive redress through this Bill while those who find themselves in the same situation after the Bill is enacted will see at least 50% of their benefits protected. How can we say that on the one hand it is acceptable for some people to be destitute - to have no, or very reduced, pension benefits - while on the other hand we protect 50% of the pension benefits of others simply because the law will not be applied retrospectively?
The second problem with this Bill is that the protection afforded to those at the bottom end of the spectrum is too low. The proposed 100% protection of pension benefits of €12,000 or less should be increased to twice this amount. That would make it two thirds of €36,000, which is considered the current average industrial wage. This could be done by increasing the 20% reduction proposed by the Bill on pension benefits of €60,000 and above. There should be a higher rate for those on pensions over €100,000. Even though this is likely not to yield much by way of additional funding, it is desirable in the name of equity and social solidarity. Most of us would agree that if a person had a pension of €60,000 per annum on finishing work, it would be unfair to say that person would not be in a comfortable position.
Pension benefits of over €100,000 should only take priority to 60%, while pensions over €60,000 should take priority to 70%. In this way, fears that those on low pensions might experience deprivation can be allayed. Age Action has also called for protection of low pensions to be increased beyond the €12,000 threshold set by Government. It said:
We do not believe that this level is sufficiently high, especially given that not everyone in a defined benefit pension scheme may be entitled to the State Contributory Pension. Alone, €12,000 per annum would leave people on the brink of poverty.
My third concern with the Bill is that the onus for providing the minimum 50% guarantee on all pension benefits in single insolvency cases is not explicitly and sufficiently placed on the employer. It is clear that in situations where the employer and the fund are insolvent and incapable of providing such coverage, the State will step in with the pension levy. However, in cases in which the employer is still solvent but the fund is insolvent, there is nothing in the Bill to compel the employer to step in to ensure the 50% protection. This must be addressed as a matter of urgency to ensure pension funds are truly protected up to 50%.
In general, the Bill should form part of a far more wide-sweeping reform package of pensions. At present, there are several anomalies in our pension system which particularly disadvantage women. A recent report by researchers in NUI Galway and Queen's University Belfast, entitled Older Women Workers' Access to Pensions: Vulnerabilities, Perspectives and Strategies, highlights the fact that gender inequality in pensions is pervasive in Ireland. The report finds that women experience lower access to pensions because of poor working conditions, low pay and their role in caring. Only 27% of those in receipt of the maximum contributory pension are women. Much of this gender inequality, and the inequality that has marked the Irish pension system for decades owing to generous tax breaks for high earners, could be redressed by introducing a model of universal pensions as outlined by Social Justice Ireland. In its study entitled A Universal Pension for Ireland, it put forward costed proposals for a universal pension system that is based on residency rather than on PRSI. Such a system would address issues with regard to women's access to pensions by addressing women's status as dependants and widows in the allocation of State contributory pensions. It would mean that every person, regardless of civil status, would be entitled to a minimum level of pension benefit in old age. Also, its proposals would see a modest increase in the current rate of the State pension under its plans to introduce a universal pension.
Most of us would agree that the area of pensions will have to become much more stable and predictable. We need less emphasis and dependence on the financial markets. It would be welcome if the Government came up with a scheme under which, in regard to any tax reliefs for these pensions, the money must be invested in Ireland rather than in other corners of the planet being used for purposes we do not know. For all we know, much of it could be used for unethical purposes. During the past 30 years the arms industry was probably one of the best places to invest money. It is a powerful industry that is doing very well, but in that case people would not know where their money was going. If the money was invested in Ireland, and we were sure of that, it would be a double win for everybody.
To pick up on some of the points that have been made, we are all very much aware of the problems that have been experienced by members of defined benefit schemes that have gone into a wind-up situation, essentially leaving people pauperised in their retirement. In taking their case, the Waterford Crystal workers did us all a favour and showed up the Irish State as being behind its peers in Europe in terms of standing by its responsibilities to elderly citizens. This Bill seeks to address some of those issues, but I agree with my colleagues that it does not do that sufficiently because, as it stands, pensioners who are getting pensions from defined benefit schemes have their rights protected. In essence, this Bill allows us, for the first time, to erode the entitlements of existing pensioners. That is not good enough and it is not acceptable. It is particularly unacceptable at the levels the Minister has set. The best defined benefit pension schemes paid 50% or two thirds of the final salary on retirement. The idea that we would set a limit or enable a cut of potentially 10% to those who have a paltry €12,000 in their pension fund is not acceptable. At a minimum it should be at least two thirds of the average industrial wage and set somewhere in the region of a minimum of €24,000. On the other hand, the Minister had an opportunity to use this legislation to hit some of the individuals in our society who have obscene pension pots. That opportunity was not taken because even the idea of taking or allowing the taking of 20% from somebody who has a six-figure pension pot is ridiculous. I will table amendments seeking that the amount be 50% or more. Nobody needs a post-retirement income of anything like that sum. That is remiss of the Minister. Ordinary pensioners should not be made to pay a price for a crisis in pension funds which was not of their making.
Much of this gets to the heart of the way we treat old people in Irish society.
Our record is not good in that regard. Irish pensions cost 6% of GDP. One might think that was loads of money until one looked at a society such as Italy, which spends 15% of GDP on pensions. There is an understanding and realisation that older people are generally respected and treated better in societies such as Italy's. That is one we should aspire to. The problem with our pension scheme, perpetuated in this legislation, is that it relies on an inadequate State pension and on subsidising private pension funds that speculate on the global capitalist market to make money. It is a fallacy, it does not work and it has been a contributor to pension funds getting into difficulty. We must stand this on its head and look at another way around our pension schemes and the way in which the Irish State funds and subsidises pensions to the tune of billions. The beneficiaries of subsidy are the top 20% of earners.
The types of pension scheme we stand by are those of people who are wealthy in employment and become even wealthier after retirement. That is not fair and it understates the value of the contribution by carers, volunteers and those who engage in backbreaking physical work that does not attract so much remuneration. They are also entitled to live in dignity in their retirement.
The striking figure is that only 20% of retired people or elderly people do not have the State pension as the major component of their income. The majority of elderly people in Ireland have relatively modest pension pots. They should be protected across the board. Organisations such as the ESB and the Irish aviation pension fund have schemes with up to 30,000 members. People had a reasonable expectation of a decent retirement and they are entitled to it. The measures proposed by some of the trustees of the schemes, which see deferred pensioners lose 40% to 50% of what they thought they would get on retirement, are unacceptable. One of the key points raised in the Seanad, which the Minister might like to address, is the feeling of disenfranchisement among pensioner groups and deferred pensioners. They do not have a place at the table when problems occur. This applies to pension schemes with problems. They have a clear defined interest in the scheme but they have no place at the table at the Labour Relations Commission. The importance of adding to the framework a right of audience for pensioner groups and deferred pensioner groups is critical. Their slogan is "Nothing about us without us," which is a basic democratic demand. They should be included in any scenario, but they are currently excluded.
In many cases, it was a condition of people's employment to join pension schemes. Companies - including those in which I worked, such as Aer Lingus - have some neck, when sitting on a cash pot of €1 billion, to fail in their responsibilities to loyal members of staff, including pensioners, active members and deferred pensioners. The legislation does not ensure that an organisation such as that is required to stand over the benefits of the pension scheme. It lets them off the hook, although it is implied that they are responsible. There is no legislation that makes them responsible for making up the deficit, and that is not good enough. We are not taking into account the OECD guidelines and we are leaving pensioners to pay the price. The legislation needs to be amended. While it has good objectives, it is taking money out of the pockets of hard-pressed pensioners in order to pay for a crisis that was not of their creation.
I welcome the opportunity to contribute to the debate and I am delighted to see the Minister in the Chamber. A sizeable sum, €19.6 billion, will be spent in the Department of Social Protection next year. It is a lot of money, and 2.259 million people benefited from payments from the Department last year. It is a Department with a huge budget and most people interact with the Department at some stage of their lives, particularly those who are unemployed or in receipt of family or retirement allowances. In this context the Minister had to reduce spending by €226 million, but I am pleased that she managed to protect core social welfare payments again this year, particularly the rates of the child benefit and the State pension. The child benefit payments are an important source of income for families and I would have been concerned at the impact that a cut in this payment would have for middle- and low-income families. The money is extremely valuable.
Given the jobs crisis the Government inherited, a considerable amount of money is now expended on the various jobseeker programmes and related payments. Reducing the number of people on the live register is critical if we are to reduce the Department of Social Protection budget. We are making progress, as was seen in the figures published yesterday showing that the national unemployment rate has fallen for the 17th consecutive month to 12.5%. It is a fantastic achievement considering it was 15.1% two years ago. In my constituency of County Clare, for example, 7% fewer people are on the live register than 12 months ago, amounting to 8,947 people, down from 9,628. While the unemployment rates are still very challenging, and we meet the unemployed in our constituency offices, the trends are positive and indicate that various job activation measures introduced by the Government are working.
Breaking the cycle of long-term unemployment is critical because the longer a person is unemployed the more difficult it becomes for that person to get back into the work system. The JobsPlus programmes, whereby the Government pays €1 in every €4 as an incentive, will play a key role in assisting people who are on the live register to get back into the workforce. I welcome its introduction and the fact that the scheme has been extended to include the JobBridge programme. When people opt for internships, they participate on the basis that not only will they improve their skills base but they will have a realistic opportunity of securing employment. I encourage JobBridge employers to embrace the scheme.
On a number of occasions in the House, I have raised the community employment, CE, and Tús schemes. In order to qualify under the part-time integration option, a person over 25 must be in receipt of a qualifying social welfare payment for 12 months. In a number of cases, people may have taken up part-time work for very short periods and do not qualify for CE schemes because they do not have an unbroken period of 12 months on social welfare. I have received complaints from constituents that when they complete 12 months on the scheme, they cannot be retained and they simply go back and sign on the live register and cannot reapply to the scheme for a further 12 months. Some CE schemes, which are important in rural areas, have vacancies and people want to take up these vacancies but are not being facilitated. I ask the Minister to look at this situation, with a view to introducing a more flexible approach.
The other area that I wish to address is pensions. Pensions are a ticking time bomb. People are living longer, with life expectancy for men currently at 76.7 years while that for women is 81.6 years.
I am thankful that people are living longer, but the increased life expectancy poses a challenge that needs to be addressed, particularly given the fact that approximately 900,000 people in the country have no provision for a pension other than the State pension. In addition, the pensionable age is set to increase to 67 in 2021 and to 68 by 2028.
Most employment contracts in this country oblige people to retire at 65, so the question arises of how people will fund themselves from the time they retire until they receive the State pension. The State transition pension will be abolished from 2014 and I have met several people who are on the verge of retirement and who are very concerned about this. After a working life of 40 years they would have reasonably expected that the gap between their retirement and qualification for the State pension would be funded. Given that they will now be claiming jobseeker's benefit, these people are fearful that they will face penalties if they do not take up training or education during this period. I am pleased that the Minister has now moved to address this issue and that she is to exempt people over 62 from facing penalty rates if they refuse to engage with the Department on offers of training or education. This is very welcome, given the lifelong contribution they have made to this country. I thank the Minister for that.
There is a further matter to be clarified. In the gap year from retirement to the State pension, people will now be claiming jobseeker's benefit. Under the current rules this only applies for nine months, so what will happen after that period? This needs to be clarified, especially as the gap is due to increase by three years in 2021.
I also ask the Minister her views regarding the retirement age, which is almost universal across both the private and public sectors. Are there any plans to extend this retirement age in line with the plans to increase the State pension age?
Not only do we have the challenge of funding retirees during the gap period between retirement and receipt of the State pension, but we also have many defined benefit pension schemes in deficit. I welcome the fact that the Minister is introducing measures to address the ongoing difficulties with defined benefit schemes. Like many Deputies in this House, I have received correspondence from former employees of Aer Lingus, particularly those who are on deferred pensions. Under the current restructuring proposals they claim that they stand to lose 57% of the pension they expected to receive when they reach retirement age. In addition, I understand that the kernel of the problem for deferred members of defined pension benefit schemes goes back to the Social Welfare and Pensions Act 2009, which removed the protection for deferred workers. In the Irish aviation superannuation scheme there are approximately 3,687 people who are on deferred pensions, who between them have long years of service. Perhaps the Minister would clarify whether the changes being introduced in this Bill will provide protection for deferred members of defined benefit schemes.
Many argue that if there is to be real pension reform, our legislation should be moving more in line with that of the UK and the USA, where work pensions are protected through legislation which requires employers to properly fund the schemes. The OECD review of the Irish pension schemes reported that the protection in Irish legislation for defined benefit members was weak, and the report also stated that the legislation "allows any sponsor to walk away from [defined benefit] pension plans, shutting them down, without creating a high priority debt on the employer." It concurs with the views expressed by deferred Aer Lingus employees that the priority currently given to pensioners before other members if a scheme winds up creates considerable inequality among members, and this outcome is particularly harsh for those who are close to retirement. The OECD recommends that healthy plan sponsors should not be allowed to walk away from defined benefit plans unless assets cover 90% of pension liabilities.
Right across various sectors we are seeing schemes that are underfunded, and this has been exacerbated by the economic collapse. It is a big problem because, as I understand it, only approximately 40% of schemes are fully funded, although up to 85,000 people are paying into defined benefit schemes. I would appreciate if the Minister could clarify her proposals to ensure equity for all members who have contributed to a defined benefit scheme.
Addressing unemployment remains the single biggest challenge for the Government and I welcome the priority that the Minister has placed on getting people back to work. These include the JobsPlus scheme, JobBridge, the various community employment and Tús initiatives, the youth guarantee scheme and the roll-out of the one-stop-shop Intreo offices for employment supports. I commend the Minister on her work and the fact that she has been able to save money even in these difficult times.
It goes without saying that the mechanics of pensions are quite complex, with many different figures, formulae, terms and conditions, as well as rules and regulations. A consequence of this is that legislation pertaining to pensions can easily be hijacked and manipulated in the public domain. Legislative changes can be used to stir up worries and concerns, which is exactly what has happened with this Bill. From the outset of the media coverage the State pension was mentioned, which was incorrect, and that has led to much incorrect commentary. It is worth stating quite plainly that this Bill does not impact on the State pension at all and there is no change to the State pension arising from this Bill. The State pension has been protected by this Government in each of its three budgets, and it is exceptionally important to many citizens, which is why it has been protected.
The Social Welfare and Pensions (No. 2) Bill 2013 concerns defined benefit schemes only, meaning that it relates to occupational or private pensions. The Government has protected the State pension but the global economic difficulties of recent years have affected the ability of businesses and employers to support private pension schemes. Many Deputies will know of examples of this from their own constituencies. In my constituency of Galway West I am aware of companies, including multinational companies, which have had to wind up defined benefit pension schemes because of losses incurred in the financial markets. The results are negative for all concerned but particularly devastating for existing employees.
Heretofore the rules have meant that existing pensions in payment are allocated the lion's share of the pension's pot in the event of a winding up. One multinational in Galway exemplifies what has happened until now. The company experienced very turbulent times globally and was eventually bought by a competitor, which in turn was bought by a venture capitalist company. The original defined benefit pension scheme was wound up as it was no longer sustainable. Retired employees received a substantial - but not the full - amount, which they could then put into an approved retirement fund or use to purchase an annuity. However, existing employees lost practically all of the contributions they had made to what they believed would be their pension. This was especially devastating for workers in their late 40s and 50s, and these workers were left with nothing and effectively had to start again. It is highly unlikely they will be able to build up a pension even approaching the value of that which they have lost. Most reasonable people would see how unfair this is, and it is this lack of fairness that is the motivation underpinning the introduction of this Bill. It is neither fair nor right that a person who responsibly puts aside a portion of his or her income each week or month to build up a pension for retirement can be left with nothing through no fault of his or her own. With the European Court of Justice judgment in the Waterford Crystal case, there is a clear obligation on member states of the European Union to make provision for cases in which both the employer and the pension scheme are insolvent.
All of the beneficiaries of a pensions scheme will receive half of their benefits, while retired employees will be protected entirely up to €12,000. This is separate from the €12,000 value of the State pension which the majority of recipients of defined benefit pensions also receive. Crucially, where the defined benefit pension scheme is unable to meet the cost of these new requirements, the State will step in using pension levy funds. It is in effect a safety net that protects responsible citizens who have contributed to their retirement. Furthermore, where an employer remains in business but the pension scheme is wound up because of underfunding, amendments are being enacted so that current and existing employees and recipients of modest pensions are protected and receive a greater share of the benefits.
The changes being enacted are part of a wider issue with regard to pension provision. All of the statistics show that Ireland and the EU will experience significant growth in the number of citizens who are 66 and over. In 40 years or so nearly 10% of the population will be over 80. These citizens are now commencing their working lives and at 20 and even 30 it can be difficult to contemplate retirement, let alone make provision for it.
Funding the State pension will become ever more challenging. In 2011, for example, funding the pension accounted for 57% of the social insurance fund, which provides for the various social welfare schemes.
By 2066, however, it is estimated that pension-related funding will consume 85% of the Social Insurance Fund. That leaves very little to cover other important supports such as labour activation measures and payments to less able people. The figures and statistics demonstrate how vital it is we examine pension provision and put in place the necessary steps to ensure provision is made for older citizens. The Social Welfare and Pensions (No. 2) Bill is a very welcome part of the process. I commend the Minister and her officials for their work on it.
I wish to make a few points about the Social Welfare and Pensions (No. 2) Bill and to express my support for the legislation. I will direct some points to the Minister given that she is present.
There can be no doubt that in recent years, as most of the previous speakers have alluded to, the economic collapse in Europe and further afield has had a tremendous impact on the pension provisions people had planned for their retirement. Whether people were part of schemes established by their employers or self-employed people who made provisions either weekly or monthly themselves, in many instances they now find themselves facing into a future where what they perceived to be their likely pension is under threat to say the very least. Pensions by their very nature are deferred remuneration and have always been treated as such in terms of contributions made by employers over the years. I welcome the provisions in the legislation which deal with the insolvency directive from the EU and follow on from the European Court of Justice judgment in the Waterford Crystal case in recent months. The Minister outlined the case in her speech and went into the detail of the various arrangements that will apply where pension schemes are insolvent, such as where employers are insolvent or in cases where the scheme is insolvent but the employer remains in business.
I was struck by the reference made by the previous speaker to the injustice of people having greatly reduced or no pension provision who made contributions throughout their working life. The reality is that some people, in particular the self-employed, in recent years found in some instances that having made the contribution over their working life they have very little if any pension at the end of it. The legislation does not deal with people in that category but injustice would apply to them as well as to those who were in defined-benefit schemes run by various businesses around the country such as the Waterford Crystal workers.
I echo the view, expressed strongly by Deputy Mitchell, on the impact of the pension levy, which is substantial. Its impact on private pensions is misunderstood. It was clearly said on the introduction of the levy that it would be for a set period and for a particular purpose. The purpose has largely worked but it is important that the levy would be removed because that was the intention when it was introduced. It is a significant burden to say the least, in particular on those who are close to retirement age who will see a significant reduction in their overall pension pot as a result of the levy. The Government must ensure the levy is removed given that it was the stated intention to do so.
I am sure the Minister has received correspondence from the Senior Citizens Parliament, which pointed out the issue of the right of audience which has been raised also by previous speakers. They referred to the right existing until the 1970s. Some of the pension provisions, particularly for the State pension, that existed until the 1970s were to say the least not desirable. Pension boards around the country acted in an arbitrary fashion in terms of who got a pension and who did not. Nobody suggests that should re-emerge but perhaps the Minister might be in a position to reconsider the potential impact of the legislation in reducing pensions on which people were relying, who might be close to pension age, and to introduce some mechanism for those concerns to be directly addressed. Perhaps the Minister would do so in her concluding remarks.
I wish to share time with Deputy Shortall.
Is that agreed? Agreed.
The irony is that in a couple of recent debates I had to beg, borrow and steal to get time to make a contribution but on this occasion events of the day have intruded on my preparation time to make a contribution.
The Minister and I know each other long enough and well enough for me to say with hand on heart that she got off the starting blocks on this issue with her mind and heart in the right place. In pretty much all her work I see the motivation of fairness and dividing out the cake in such a way as to ensure that while not perfectly equal there would be fair shares and in so doing to enlarge the cake. That is her economic motivation which is good.
It is a coincidence that today in the post I got an update on one of my single premium pensions with New Ireland Assurance. Several years ago I invested €45,000 and I am now advised that it is worth €32,000.
That is not so bad.
That is something that makes me feel awkward and puts me on the back foot when I have to discuss it with my wife. New Ireland Assurance is not known for wall-of-death risks. The company has an array of risk-complexioned funds and I am sufficiently adult and professional to know that investments go up and down but that is a pretty rotten performance. That is a hold position, as it were, until I reach 65, which is not too far away. Lots can happen in the meantime.
I only have a small exposure to what people experience who are in funds with companies that are insolvent as I am in one of those too. The fund is technically insolvent. It is in ICC Bank, a semi-State company. The pension fund would be valued on an actuarial basis at 60% or 65% of where it should be. As one approaches 65 years of age one holds one breath and hopes an event will not trigger a winding up of the fund because one could be staring at the hole in the doughnut if one is like me and put in 20 years in the company and would be hopeful of having a respectable pension. That is especially the case given that the company worked well and profitably from 1933 to 2001 when it was taken over by Bank of Scotland (Ireland) which effectively trashed it by abandoning all prudential balance sheet banking principles and destabilised it.
I expect the Minister would agree with me about the wider picture and how the wheels of the machinery of economy and finance work across Ireland, Europe and the world. The majority of pension funds are invested outside this country, but as the moneys get managed and go out there are nice hefty slices of fees and management expenses.
The Minister's former colleague Kathleen Barrington did excellent work at one stage on pensions industry analysis and reviews and discovered the whopping cumulative expenses that come out of a fund during the lifetime of its management. These are the overall framework figures that the public needs to know. The public does not need to read weighty articles in newspapers or other weighty papers to find out. People find out about the horrors of other people's family tragedies from stark headlines and photographs in the newspaper but, while this is going on, they do not see the corrosion and rot associated with their own old-age provisioning, which could explode on them in a final envelope opening on their retirement day, the day the fund is declared insolvent or the day of a double insolvency. This is not good enough. It is part of the old culture in Ireland that needs to be power-blasted like an old building so the people can understand where they are.
"Financial services industry" is one of those framework phrases that would have one believe we are all in favour of financial services. Let us examine what financial services have done in the past 20 years. They have actually robbed people of their money and savings; that is the net result. I gave my own example of the mismanagement of a fund. This happens all around the place and it is just not good enough.
The opaque way of reporting and the long intervals between reporting by the firms and staff entrusted with the management of funds are not good enough. There should be clear and transparent glass. Even in respect of life assurance cover, where there is a very small mixture of savings associated with the policy, one gets a statement at the end of the year that actually defies comprehension. It is just shocking. The statement does not simply list one’s monthly premium and the value of one’s life cover for the next 12 months, with the caveat that it could be a little more or less in certain circumstances. That is easy to do and the institutions know it.
The actuaries, the whizzes, are vaunted as the fantastic raw material to go into modern e-emporiums such as Paddy Power, which we are told will create 500 jobs over two years. What about the 5,000 families that will be battered and become the customers of the Minister's Department? There is not even a tax of 2% on the institutions in question. Paddy Power opened headquarters in Clonskeagh beside UCD. It hoovers in graduates, with red carpets and temptations, to high-paid jobs because they are “quant” geniuses or have a PhD in mathematics. It is believed they are not really bookies or turf accountants, but they are. One should consider the invidious and alluring advertisements on television stipulating that one can get one’s first bet, worth €10 or €100, for free. Is that the sort of society we want? I am not trying to be holier-than-thou but I believe it is rotten, stinky. It is a temptation. An app on a telephone is a hell of a temptation for younger people in college who may be under a little pressure. In a weak moment, they might believe they could make a bet that could solve their problems, thus getting hooked. It was weird that, only a week or two ago, the chief of the organisation to which I have referred was invited to fill the vacancy on the NTMA board. That is strange. We need a wider debate on the interconnectivity of all these wheels. The big danger in the financial services industry, which is manned and managed by the whizzes, is OPM, or other people's money. They have mismanaged it.
I recommended a book by Joseph Stiglitz to all the members of the Cabinet, particularly the Taoiseach. It is readable and backed up by researched evidence and the authority of years of study and wise observation. Professor Stiglitz uses the phrase “of the 1%, for the 1%, by the 1%”, arguing that wealth is becoming increasingly concentrated in fewer hands, not only in the United States but also here. That is a fact. Again, it is not right.
While headline tax rates do not appear to have been touched over the past two and a half years, the real effective rates of taxation have been touched as a result of policy. I will give an example. Having used up some of their income while struggling to pay back mortgages, households may dedicate between 40% and 50% of their remaining income to meeting the expenses associated solely with living and surviving. These include the costs of lighting, heating, health insurance, other forms of insurance, travel and transport. I travelled on the bus recently between Donnybrook Church and Stillorgan Park Hotel, a short journey with seven stops. This cost €2.35 one way, meaning that a daily return ticket would cost €4.70. One should calculate the cost over the course of a year.
The costs of the products and services I have described have increased in the past year by not less than 15%. If 50% of household income is spent on services which have increased in cost by 15%, tax will have increased from 7.5% to 8%. I do not refer to headline income tax but the tax on everybody, including the poor and middle-income earners. That is the truth of the matter. One should add to one's calculations some miscellaneous arrivals, such as the property tax, the non-allowability of health insurance premiums valued over €1,000, and the rise in the latter expense once the increases start.
We have a fabulously regressive taxation system. When I hear that the 1% pay 10% of all income tax, my answer, which I do not want to be facetious, is, "So what?". Income tax is not the big revenue earner for the State any more. VAT, another regressive tax, is. I hope the Minister hears resonances in my humble offering of the need for fairness.
By their own reporting standards, foreign direct investors and multinational corporations reported €70 billion in profits in the last year for which figures are available. We have receipts to show that they paid approximately €4 billion in tax. This is an effective rate of roughly 6.5%. People will argue there is a difference between assessable profits and reported profits. There is, but so what? The companies state their profits and the taxes they pay, thereby indicating the rate that applies. Despite this, the companies in question enjoy the benefits of the structure, framework, customs, culture and stability of the stage on which they make their profits in this country, which is disease-free and does not have dengue fever, as exists in Asia, or smallpox, cholera or other such diseases that the top executives and board members of the FDI companies certainly do not want for themselves or their children. That is a very strong reason the companies are here; it is not just about a headline corporate tax rate of 12.5%. To say so is dishonest and I do not buy it.
Consider what occurs every time a bank admits it has a problem. With regard to the NAMA transfers of loans of €77 billion, as the sum was to be, the figure for losses was supposed to be €23 billion. It was approximately €100 billion, so the original figure was out by a factor of five.
I have a rule of thumb - when a bank admits it has a problem, multiply it by five and one is somewhere in the right area then. Last week Bank of Ireland admitted that its provisioning might be a little bit off and would have to be increased by €1.5 billion. One must multiply that by five, giving a figure of €7.5 billion, which is probably just about right, if it is to do the work it needs to do to clean up the loan books and recover what is justly recoverable. How dare the banking industry, for six years, hose money at the economy in such a way as to cause an asset bubble and then, when the bubble burst, have the temerity, audacity and arrogance to insist on collecting all of the money back from people whose incomes have shrunk or disappeared. Some of those people have emigrated, while old age pensioners are topping up repayments on loans that are still performing. Some of the loans on the balance sheets of the banks are not problematic simply because the pensioned parents of borrowers are topping them up and paying them. That is what people do in Ireland. I know this because they tell me.
These are some thoughts for the day and I hope the Minister will take them on board. I urge her to ask the Taoiseach to read the book I mentioned earlier. He needs to look out a different window on Ireland.
At the outset, I must say that it is very disappointing that this legislation is being rushed in this manner, without allowing adequate time for consultation with those who will be most affected by it or indeed, without allowing time for Members of this House to give the proposed legislation adequate consideration. It is no way to do business. Any respect due to this House is being completely ignored in terms of allowing sufficient time for debate on this.
It is also wholly inappropriate that we should be discussing the measures contained in this legislation in a policy vacuum. It is now several years since the famous Green Paper on pensions was published and there is a pass the parcel exercise going on between the Minister for Social Protection and the Minister for Finance. There is very little coherence in the Government's pension policy. Bits and pieces are being done on the hoof without any clear policy context.
This Bill proposes to allow for the reordering of the priorities in the event of the insolvency or restructuring of a defined benefit pension scheme. It also provides the Government's legislative response to the Waterford Crystal workers' situation by introducing minimum pension guarantees in certain circumstances where a double insolvency exists and I will say more about that later.
In principle, a reordering of the priority arrangements in the event of a pension fund wind up is most welcome. The current regime is entirely stacked against current workers and deferred members. We have all come across those awful cases in our constituencies of workers in their sixties losing out on their pension because the scheme has wound up and all of the proceeds have gone to the existing pensioners. The system, undoubtedly, must be made a whole lot fairer. That said, the Government has got the balance wrong with these proposals, on a number of levels.
First, with regard to the single insolvency situation, the absence of any provisions in the legislation to ensure that at least some of the deficit would remain a debt on the company is a major flaw in this legislation. This really is just another form of corporate welfare and yet another example of socialising private debt. The legislation places no onus on employers in a single insolvency situation to make any further funding available for the pension fund and offers no obstacle to employers who choose simply to walk away from their pension promises. Such a scenario is not, of course, permitted in the United Kingdom and one must ask why it is acceptable in this State. I wonder how taxpayers will feel when they realise that they are paying for this corporate welfare.
Second, the minimum guarantee in the single insolvency scenario is much too low. The legislation only guarantees an income of €12,000 for pensioners. What if this is the only income for a pensioner couple? It is completely inadequate. Indeed, the way the priority order is now drafted could mean extra costs for the State because pensioner couples reliant on the minimum guaranteed pension of €12,000 would probably be entitled to means-tested State benefits. Therefore, not only would a solvent employer have walked away with the State's blessing but taxpayers will have to fund higher social welfare payments as a result.
Third, there is not enough burden-sharing among the higher-paid pensioners. The most a pensioner on over €60,000 stands to lose is 20%. The legislation should, of course, set down a maximum income limit on the guarantee. Under the Government's proposals, trustees can take money from a pensioner whose pension is very slightly in excess of the €12,000 threshold while still paying out a €100,000 pension to another member. That is simply inequitable in anybody's book.
Fourth, I welcome the fact the Government is finally legislating for the double insolvency situation. However, it is true to say that this would not be happening this year were it not for the tenacity and fortitude of former Waterford Crystal workers and the Unite trade union.
The Deputy's time is up.
Today the Unite trade union made it very clear that what is being proposed here is wholly inadequate. It is most regrettable that the Minister did not agree to meet the group of parliamentarians who are working with the Waterford Crystal workers or with their union representatives to discuss this legislation. The Minister seems to be trying to head off any ruling from the High Court in this regard. Her actions are in stark contrast to those of the UK Government----
Sorry, on a point of information, the Deputy----
-----in the Robins case.
Deputy Shortall is----
We are out of time.
If I may be allowed to finish. The Minister's actions are in stark contrast to what the UK Government did in respect of the Robins case.
It is wrong to imply that I, as a Minister, have sought to interfere with the courts in the operation of----
What the Government is proposing here is not----
Deputy Shortall should withdraw that statement.
----by any means a solution to the situation in which Waterford Crystal workers find themselves, or indeed, other workers who are facing a similar situation.
The Deputy should withdraw that statement.
I must make it clear that I have not sought at any point in time to interfere in any way, as implied by the Deputy, with the workings of the Irish courts. Cases are before the Irish courts, where applicants have applied to the courts. Those applicants are absolutely entitled to progress their cases through the courts as they wish. For the Deputy to suggest that I have sought in some way to influence court proceedings concerning applicants' rights is wrong and she should withdraw that allegation.
The point I made was that the actions of the Minister are in stark contrast to what the British Government did in the Robins case.
The Deputy said something about the Irish courts.
The legislation is very welcome and I congratulate the Minister on bringing these proposals forward and giving of her time to debate the Bill. I wish to begin with the OECD report into our pension system which was commissioned by the Government in 2012. One of the conclusions of that report was that there was unequal treatment of public and private sector workers due to the prevalence of defined benefit plans in the public sector and defined contribution plans in the private sector. While that finding was presented to the Government and this Parliament, we did not need that work to be done because many people already knew that was the case. I am not trying to bash public servants but it is important that those in the public sector in receipt of defined benefit pensions, as is the case with the vast majority, should recognise how incredibly fortunate they are to have the State sovereign backing their entitlements because as we know, not everyone is fortunate enough to have the protection of the State sovereign when it comes to their pension entitlements. The vast majority of those in the public sector do not need the provisions in the legislation. That is a good thing for them. It is good for those working in the public sector that the State backs their pensions in the way it does. They do not have to fear insolvency and should recognise the great advantages they enjoy. These advantages must also be borne in mind when we debate issues like pension reform, the length of the working week, reforming work practices or changing salaries.
It is incredibly important that we make comparisons with the private sector and they are not fair comparisons when we take this crucial issue of pension entitlements into account. If we want to achieve fairness in people’s working lives both in the public and private sectors, we need to recognise this in the current pensions system and welcome the important reforms coming from the Minister to achieve this fairness.
A larger problem is how we pay for pensions. While the working age is going up incrementally, our working lives are getting shorter. People are starting to work later in their lives as they receive more education. Essentially, we have a shorter working life that is meant to financially sustain a lengthening non-working life. When one takes into account changing demographics in the next 30 to 40 years, despite the baby boom blips that occur from time to time, one wonders how we can sustain this development. It is like constructing an inverted pyramid - it is simply not going to stand. Total pension payments across the system are over €3 billion gross. We do not know what future liabilities will be in certain areas of the public sector, for example, in health, because they have never been calculated. In 2009 a figure for the State’s future liabilities was calculated at €116 billion. That figure is now out of date because of the economic changes and the reforms the Government has introduced in the pensions industry. The Comptroller and Auditor General is compiling a report on future pension liabilities, which is welcome. When the current economic crisis ends, the pensions crisis will still be facing us.
I find it odd when people give out about tax reliefs for private pension contributions. These reliefs are a short-term expense on the part of the State for a much greater saving in the longer term. It saves the State money by having individuals provide for their pensions privately. Why would we be against this when the result is greater resources for the State pension and general public purse, resources which could then go to those who need them most? We cannot ignore the fact that the highest payment from the public purse is for social protection payments, of which more than one third goes on pensions. That is a significant figure in comparison to other State expenditure figures. We have to ensure it is sustainable. That is the job that has fallen to this Parliament and the Government, planning 20 to 40 years ahead. We should be pushing people into private pension schemes, encouraging them to provide for their own futures. We should not be telling them that they can and should always depend on the State such that if things do not go well or when it comes to that difficult point in their lives and they realise they cannot provide for themselves, the State will automatically help them. Of course, it should help those who need help, but we must get people to see what a good idea it is for them to provide for their own pensions privately through defined contribution schemes. While I supported the pension levy, it is a retrograde step and needs to be ended as soon as possible because it is counterproductive in encouraging people to make provision for their post-work lives.
The legislation is welcome, as we did need to restructure defined benefit pension scheme priority orders to ensure greater fairness when a scheme or the company responsible for it became insolvent. Single insolvency and double insolvency is occurring on a wide scale. Accordingly, we have a responsibility to ensure all of the appropriate measures and supports are in place. A balance needs to be achieved in this regard. On the one side, there is the pensioner, a person who has made contributions throughout his or her life and is now fully dependent on it and who needs to be protected for obvious reasons. On the other side, there is an employee who has made contributions and could even be close to retirement. Insolvency could wipe out his or her pension. This legislation will address this issue. Several Members raised pension practices in the United Kingdom which we are not following. I am looking forward to Committee Stage to see if we should incorporate these practices.
I welcome the legislation and this debate. However, we need a much bigger debate on the pensions crisis facing the country in the public and private sectors. This liability hangs over all of us. It cannot be kicked down the road as previous Governments did.
I welcome the opportunity to debate this issue. As Deputy Eoghan Murphy said, it must be debated much more. This legislation is certainly too little and certainly too late. It is too late for those who were part of a defined benefit scheme that closed in the past two years and impacted on deferred pensioners and those working who will find themselves with no pensions when they retire. For that reason, I am disappointed that there is not some measure in it to try to deal with this issue retrospectively. I accept that it is difficult to craft legislation that deals with issues retrospectively. However, the property rights attached to pensions should be afforded some protection for those concerned.
Historically, people who paid into a pension fund had a legitimate expectation to receive certain payments which have been seriously impacted on by the economic crisis. The legislation does not address this issue. Will the Minister address it through some other means at a later stage? There is a cultural aspect to all of this. The Irish have, by their nature, tended to live for today. The concept of saving for retirement was not as strong as it was in other countries. Successive Governments failed in their duty in that regard and did not encourage the development of appropriate pension plans.
I accept that the buy-to-let market is a particular overhang in the economy and banking sector. Most of those involved in it were either self-employed or might not have worked for a multinational or the State sector but who bought property to secure a dignified retirement pension. They are often demonised in the analysis of the economic crisis which suggests it was all about profiteering, speculation and greed. I am not suggesting that was not a feature of what happened during the boom. However, many people of whom I am aware spent everything they had on educating their children as they could not avail of college grants or other State supports. They saw an opportunity in the relatively cheap availability of money to purchase a buy-to-let property, pay down the mortgage during their working lives, while the rental income would have provided them with support in retirement.
That is shattered for many of those people. Of course I am not suggesting that this Bill should address that, but I would like to put on the record an understanding of the culture or the concept of providing for retirement. That is certainly gone as a practice, even though the property sector is probably a good investment based on the yields from rent at the moment and it is probably a good system of providing for pensions right now. Unfortunately, the financial institutions are once bitten, twice shy. They are not in the business of looking at buy-to-let investments at all at the moment, notwithstanding the value that is there.
My other concern with the Bill is the lack of a retrospective component that would have dealt with those who have suffered the disbandment of the pension fund in the past number of years. A going concern should not be permitted to be wound up unless the defined benefit pension scheme has reached a minimum of 90% funding. The OECD set that out very clearly. By not having that provision included in the legislation, there is almost an encouragement for private pension schemes to go ahead and wind up the scheme rather than trying to manage it where there is still a level of profitability in the company. By not addressing that, the Minister may be encouraging the winding up of some of the defined benefit schemes unnecessarily. That would be a regrettable situation.
I think this is a start, although it does not go far enough. We need to continue in this House, through legislation, education and information, to try to develop a culture in Irish society of providing for one's retirement. We have seen where our own economy is at. We have seen the pressure in the cost of the operation of the Department, in particular the pension component of the Department. That is very significant, notwithstanding the fact that people seem to think we are sending more money to some eastern European countries to fund children's allowance and other schemes, when in fact our pension commitment is one of the largest components of the Department. The IPSOS/MRBI survey published in The Irish Times on Saturday was quite enlightening. I thought it was ironic that it was published in a newspaper. Many sections of the media tend to over-emphasise the relatively small elements of the social welfare budget and the spending of this House as being the root cause of all our problems. There was some surprise in media circles that the public were so misguided, as evidenced by the survey, so I thought there was an irony in that when certain sections of the media spend a lot of time jumping on popular and populist platforms that seek to demonise the work of this House, public servants, politicians and so on.
I hope the Minister can address some of the issues I raised, perhaps in future legislation. She has plenty work to do in continuing a campaign of educating Irish people on this. Perhaps it might be factored into the syllabus in our education system so we can instil in the minds of young people that their first wage packet is not just about providing for today, tomorrow or the end of the next pay cycle, and that a significant component of it should be based on providing for the retirement period of one's life. Recognising the advances in health care, we are living longer than we did in the past. As a result, we have pushed out retirement age. There is a level of elasticity that we cannot go beyond, but if the advances in medicine continue, people will still live longer but may not be able to work longer. For that reason, I can see Deputy Murphy's point that this potential crisis will be with us long after we resolve our current economic situation.
I am delighted to have an opportunity to speak on this Bill. Many problems have emerged over the last few years, some of which we anticipated and some of which we did not anticipate. We have all been talking about a pensions iceberg emerging in 2030 and 2038, and of course that is still the case. However, I am not as pessimistic as many people. I believe that there is still adequate space and scope, but at the same time, the Minister is taking an action that needed to be taken now. I sincerely hope that it does measure up to expectations. Of all the issues that have come up over the years since I became a Member of the House, I have dealt with this issue on numerous occasions. We could paper the walls with the pleas of people who have had sad experiences of being unable to fund a pension scheme of one kind or another, and finding out that they had to liquidate it two thirds into its lifespan, or even in a very short space of time which eventually leaves them in a difficult situation. This is particularly the case for people who thought they were putting something aside for their retirement, and who found out that they had to dip into their pension fund or capitalise the fund or draw it down at an earlier stage, with obvious consequences for themselves.
I have been concerned about the extent to which pension funds have been run in some of those situations. I am not entirely satisfied that the customer gets the best deal at all times. I believe that eventually, the compulsory pension scheme will be the right answer. There will be State intervention, regulation and prescription and as a result, a State guarantee of some sort at the end of the day. That is a good thing.
As we all know from our experiences in the past few years, financial services and pension funds have a certain amount of interdependency, which is fine. The only problem is that there is nothing like the anguish of people who have contributed to a pension fund, only to find at the end of the day that there is nothing in it, or something vastly short of their expectations. It is soul destroying for people. I know there were enhanced tax benefits available to them in recent years, and that probably was the wrong thing to do, because it encouraged people to go for bigger pots - a bigger pay out - and it also encouraged managers to go for more risky investments. We all know where that ended up eventually. That is the way things are. Deputy Dooley mentioned that some of it was greed. Let us be fair about it. We cannot blame people for trying to do the best they can to maximise to the greatest extent possible the benefit that might accrue from their pension contributions. They are obviously going to go for the best result, but going for the highest risk pension and the best result may not be the same thing.
That is why I believe this provision which the Minister has introduced is beneficial. It will give some consolation to people who, provided certain procedures are followed, would receive something at the end of the day.
We must completely move away from the idea that it will be all right eventually and we do not have to make provision for these things. As our society evolves it is more and more important that provision of this nature is made at an earlier stage than previously expected. What is happening in the health insurance market is frightening because younger people, due to economic difficulties, are opting out. That is creating an imbalance in the system and the result is that more people will be without cover and will have to pay for health care out of their own pockets or come under the State system, increasing the liability.
Deputy Dooley mentioned the possibility of changing the culture, and that must be done. The experiences of the past three or four years will go a long way towards changing the culture and how we Irish people look at many issues. It is recognised that what looks like the easy way is not necessarily the best way or the right way. I hope that from the sad lessons we have learned the proposals from the Minister will serve, at least for the foreseeable future, to address the issue in so far as it can be done and at least make some worthwhile provision for people who might otherwise be in a very difficult situation.
I welcome this opportunity to contribute to today's debate on the Social Welfare and Pensions (No. 2) Bill 2013. The Minister's contribution today focuses entirely on the defined benefit schemes in operation in the State and deals with the single insolvency and double insolvency situations that may arise in the future and the restructuring that may take place within schemes. It is amazing to think that the private pension industry is subsidised so much by the State, which forfeits €2.6 billion per year of taxes on pension contributions. The industry is like a betting shop, where one gives one's money and hopes it will deliver the best outcome. The exorbitant fees that fund managers have charged on private pensions have been outlined many times in the House. The performance of many Irish pension schemes has been dismal, to say the least, over the years.
Over the last number of years we have seen a number of very high-profile defined benefit cases. ESB workers have served strike notice on their management because of the way it unilaterally changed the terms of their pension scheme. Changes took place within the Aer Lingus and DAA pensions which are having a major impact on deferred pensioners. The Waterford Crystal workers had to go to the European courts to have their rights vindicated, and that case is still before the courts. The High Court will adjudicate on the level of compensation they will receive regarding their pensions.
It is hard to escape the fact that in this legislation we are laying down a marker to say we believe 50% is the acceptable figure in a double insolvency situation. That is sending a none-too-subtle signal to the courts as to where the line should be drawn in double insolvencies. The courts will probably take that on board when making their judgement on the Waterford Crystal workers, and that is a retrograde step. It is a historic case and we cannot deal with it in this legislation. It should have been left for the courts to come to an adjudication on that. The European Court of Justice has indicated that the Waterford Crystal workers must receive somewhere between the 49% guaranteed in European legislation and 90% of their contributions.
In all defined benefit schemes the workers, by taking up employment, have had no choice but to contribute. They did that in the expectation that they would have a certain amount of benefit on retirement. The workers have always contributed to and played their part in pension schemes, but the companies have made unilateral decisions and cut contributions, with a direct impact on the workers. While it may be acceptable to see some buy-in for pensioners in the future with the possible cuts to pensioners included in the Bill, it is a breach of trust and of contract when the companies or their pension scheme trustees unilaterally decide to change the terms and conditions of the schemes. That is a poor situation for workers to be placed in.
The Bill seems to let companies off the hook. Particularly in cases of restructuring, it does not seem to force companies to contribute some of their profits to the pension schemes and funding the deficits. While in most cases companies do end up contributing, the onus should initially be on the company to make up the deficit. The company has benefited over the years from the work of the workers who have contributed to the scheme, and the pensioners who are benefiting from the scheme have contributed in the past to the success of the company. Companies such as the ESB, with annual profits in the region of €600 million, should be asked and made to contribute more to the restructuring and solvency of their schemes. Company profitability should benefit the workforce as well as allowing the company to reinvest. That is missing from this legislation. In the hierarchy of dealing with restructuring and insolvencies, the company should be placed at the top and should be the first port of call for the trustees.
In response to parliamentary questions the Minister has outlined that the trustees of the companies will be obliged under this legislation to consult widely with regard to restructuring that might have to take place or changes in the winding up of schemes. They must consult with the employers, members, retirees and the unions that represent the members of the schemes. What about the deferred pensioners? They will be left out in the cold. I do not see how they are being accommodated in this legislation. A mechanism to allow deferred members to feed into the process should be included in the legislation.
In the Aer Lingus pension scheme restructuring, Aer Lingus has offered existing members, of whom there are approximately 2,500, a contribution of €110 million towards the scheme, while for deferred members, of whom there are more than 3,800, they are contributing only €30 million. That is a very unfair system because deferred members have also contributed considerably to the success of the company. Many of those deferred members are of an age at which they will not be able to accrue extra benefits that might offset some of the shortfall in their pensions. The legislation should at least give deferred members some input into the plans of the trustees and the scheme.
The type of consultation that takes place is also very important.
It appears that much of the consultation is in the form of telling people what will happen, how it will happen and when it will happen, rather than meaningful consultation where people are brought around the table to ensure everybody will be satisfied with the outcome of the agreement.
I would like to focus now on the restructuring arrangements contained in the legislation. Section 11 of the Bill deals with this and amends section 50 of the 1990 Act. It outlines the priorities for what options are available to trustees or the Pensions Board, in terms of a scheme that is being restructured. This will apply in situations where a company's scheme is solvent, but needs to be restructured to enable it meet future liabilities. It provides for options where contributions can be increased or the retirement age can be extended for members of the scheme and for reductions in benefits. It outlines the provision for benefits up to €12,000 to be fully protected, for a reduction of up to 20% between €12,000 and €60,000.
I have a concern in this regard that needs to be examined. I imagine this legislation is intended to work for many years into the future and that it is not something we intend to revisit again and again. However, if, for example, a scheme that is solvent now is restructured and current members and pensioners see a reduction in their benefits from the scheme, what will happen if in five years time or so the Pensions Board or the trustees decide there is another large deficit and go for another restructuring? Pensioners could then see another reduction in their benefits and an increase in their contributions or retirement age. The situation could deteriorate to the extent that in 15 years time when the scheme is wound up, workers who have been contributing all along to it, and pensioners who have been benefiting from it, will have seen numerous reductions and then be faced with the same again on the wind up of the scheme. This is very unfair and difficult for members of schemes. It is not something we should have to envisage.
The Minister said in response to a parliamentary question last week that there are no indications that continued restructuring of scheme benefits gives rise for concern. However, we do not have a crystal ball and cannot look ten or 15 years into the future to see whether this will happen. We cannot turn around and say it will never happen. This is something that should be examined in the context of this legislation. Where a scheme has been restructured on a number of occasions or restructured once and then wound up, the level of benefits should be frozen at the point the restructuring took place. I urge the Minister to consider this.
While this legislation was broadly welcomed when published, the general response is that we must wait to see how it will work in practice. This is not a great way to introduce legislation - waiting to see how it will work in practice and not knowing the intended result at the start.
I thank all of the Deputies who contributed to what has been an extremely informed debate. I appreciate the fact that people have welcomed the Bill, because a huge amount of work has gone into it and some difficult decisions have had to be made to find the best balance to protect the various interested parties in regard to pensions. Striking that balance is difficult. Some people have suggested the balance should be as high as €24,000 while others have suggested a figure as low as €6,000. I have aimed to get a balance of fairness.
The contributions of Deputies from all sides reflect the view that a decent income in retirement is a mark of a civilised, modern society. All of the parties which have been in government in recent decades have accepted as a working premise that the retirement pension should be adequate. In the context of the financial tsunami which hit the country, the bank guarantee, the property crash and so on, it is important to recognise we have been able to protect the weekly rate of the old age pension, both contributory and non-contributory, so that retired people have the security of a fixed income.
Pensions, however, must be funded. Some Deputies, including Deputy Dooley, commented on the poll in The Irish Times on what people think taxpayers' money is spent on. The poll indicated that some people think we spend more on child benefit payments abroad and on jobseeker's payment to people in Ireland and elsewhere than on any other area. The child benefit payments for children abroad are now down to approximately €13 million a year, whereas payments to pensioners in 2012 were €6.279 billion. Despite all the restrictions on spending, every year for the past three years my budget has provided approximately €200 million extra for the pensioners coming into retirement pension payments and to cover pension payments for pensioners who are living longer. Therein lies a large part of the crisis in regard to defined benefit schemes.
We often forget that many employers are good employers. Some of these good employers made promises decades ago about levels of pensions to be paid but, as the OECD pointed out, many Irish funds were invested where the level of risk was very high. Individuals also invested in these pension funds. Unfortunately, much of that risk crystallised in investments in bank shares and so on, which once seemed the practical, profitable and patriotic way to invest, and these investments turned out to be a disaster for the funds and for those individuals who had also invested their private pension fund in bank shares.
In response to Deputy O'Dea, in the period 1997 to 2011, the number of defined benefit schemes declined from 2,242 to just over 1,000. The close down of these schemes happened largely on the watch of the previous Government, for the reasons I have outlined. The issues date back over the past decade and were raised by the previous Government in both the 2007 Green Paper on pensions and the 2010 national pensions framework, which set out what the retirement age in Ireland would be for retirement pension purposes. This was agreed by the previous Government and included in the troika programme.
This Bill, for the first time, addresses the issues relating to the priority order. It has taken time to bring this about, but it is important to try to balance these difficult changes, which affect people's rights and entitlements to pension. We want to get the balance right between existing pensioners, the active members currently contributing and the deferred members who have paid in but who, because they have not yet reached retirement age, are some distance from claiming from the scheme.
Deputy O'Dea and others mentioned the pension levy. The levy introduced on the defined contribution schemes, of 0.6%, related to the jobs programme.
At the outset the Minister for Finance undertook to terminate this in 2014, and he gave this undertaking again in this year's budget debate.
The Minister also announced a separate levy of 0.15% which would apply to all pension fund assets. He indicated that this would continue to fund the jobs initiative, including the continuation of the reduced 9% VAT rate in the hospitality sector, which is very popular on all sides of the House, and would make provision for potential State liabilities which may emerge from existing or future pension fund difficulties. The 0.6% levy ends this year, as was promised, and another levy will begin this year. This will continue to fund the lower 9%VAT rate for the hospitality sector and liabilities that may arise in the context of future pension schemes, including existing cases to which many speakers referred, particularly the Waterford Crystal case.
With regard to the exemption from the funding standard, I remind Deputy O'Dea that in 2008 almost 200 schemes were exempt from the funding standard. This doubled the number of schemes exempted in the previous regulations. No additional schemes have been added to this in the period since. The OECD report that I commissioned and published in April described the Irish funding standard as undemanding, and this is an important point. It is not of a high enough standard to absolutely secure the future of everybody's pension to the level they would like. However, we are in a recovery position from very difficult situation. I acknowledge that I have acted with a degree of caution in reintroducing the funding standard and trying to get the balance right in this legislation.
A number of Deputies spoke about retrospective legislation. The advice received is that the proposed legislation will apply to any scheme that enters wind-up after the legislation has been enacted and will not apply retrospectively. A number of Deputies asked whether schemes restructuring at present could take advantage of the legislation. I assume that if it is to their advantage they may well do so. In other words, they will await the enactment of the legislation to proceed, and this is perfectly possible if they are in restructuring discussions at present. This is how I understand it.
Deputy Joan Collins and others asked about the right to audience. Significant efforts were made, particularly by the departmental staff dealing with pensions, to identify an approach that strikes a reasonable balance between the interests of pensioners, active members and deferred members across a broad range of scheme portfolios and structures. To ensure the broadest range of views and expertise was considered, the consultation process during the review of these provisions included a stakeholder consultation forum in late 2012 for those representing older people, pensioners, the pensions industry, employers and trade unions. The older representatives who attended included representatives of the Senior Citizens' Parliament, Age Action and the National Federation of Pensioners' Associations. Written submissions were also sought from the groups and informed the review process where they were received. In addition, the provisions brought forward in the Bill regarding the restructuring of scheme benefits provide for engagement with pensioners and other beneficiaries.
On Committee Stage I will be happy to return to this point if committee members have proposals that might facilitate stakeholders and increase and improve levels of communication. I do not know about other people, but I find legislation dealing with pensions to be technically very complex, demanding and difficult. It is important that we examine how to improve communications to make it more understood. At the end of the day we can have promises on pensions but unless they are properly funded and those funds are invested appropriately, people will live with a risk about which they have not been told. Unfortunately, from 2008 on these risks crystallised.
With regard to the Waterford Crystal workers mentioned by a number of speakers, I noted all the points made on the Waterford scheme and I am very conscious of the issues involved. The Deputies will appreciate that as the specific case remains before the courts it is not appropriate for me to comment on any aspect of, or possible issues arising from, the case at this time. I emphasise this point to Deputy Shortall. Everybody has enormous sympathy with the workers at Waterford Crystal because of what happened there. This goes without saying. It is before the courts and the applicants have the right to present their case as they see fit before the courts. I emphasise this. There is close concern about the issues as they affect Waterford Crystal workers.
Deputy Shortall also complained that the Bill had been presented within a short period of time. It has been technically very difficult to complete the Bill and fine-tune the balance of constitutional and property rights involved. It has imposed huge demands on the resources of the Office of the Attorney General. If there were an extended presentation it would postpone enactment until sometime in 2014. Deputies, including Deputy Shortall, asked for a Bill to address the issue of the priority order. I felt on balance we should deal with it now. We brought it through the Seanad where we had a very detailed debate, as we have had here. It is better on balance, in terms of the interests of the various parties to pension schemes, including pensioners, current members and deferred members, to enact this legislation before the end of 2013. This is my decision, and if people want to be critical about it I understand their point of view. I would not like to delay until well into 2014, which is what would have happened if we had had a very protracted publication period before the Bill came to be discussed in the Houses. People who spoke in the House, particularly the Opposition spokespersons, have engaged very deeply with the legislation and are quite informed about it. The committee hearings will give us an opportunity to discuss the legislation in much greater detail.
The aim of the Bill is to ensure a fairer deal for workers and sufficient protection for pensioners while allowing employers to tackle their pension problems. Representatives of employers, employees and the pension industry have been encouraging action in this area for some time. I am heartened to see a broad welcome for the measures contained in the Bill. I am aware that a number of people want to see an employer obligation. I am prepared to discuss this in some detail on Committee Stage because on balance the advice was not to do this. I do not believe we have the time to go into it in detail now, but I will come back to it on Committee Stage.
A good degree of priority is being maintained for older people and pensioners in the scheme.
It is also fair that some measure of protection be afforded to all members - both currently active and deferred members - of defined benefit pension schemes. In a way, what we are doing here contemplates the concept of intergenerational risk sharing. The level of €12,000 is appropriate, particularly when one takes account of the fact that significant numbers of people also have contributory State pensions.
A number of Deputies referred to the ESB, and I wish to comment from my Department's perspective on the company's scheme. The ESB's defined benefit scheme has always been a funded defined benefit scheme. It is therefore subject to the provisions of the Pensions Act and has complied with those provisions relating to the funding standard. The defined benefit scheme is closed to new entrants and a defined contribution scheme for new entrants has been in operation since 2010. The ESB has stated that the scheme is currently viable on an ongoing basis and can meet its expected cashflows. The ESB and the trustees of the scheme agreed a funding plan with the Pensions Board in 2012. This was following a lengthy period of discussion and negotiation involving the trustees, the management of the ESB and the members of the scheme. The agreement in question will lead to the scheme being restored to solvency by 2018. There are approximately 5,600 active members, more than 1,000 deferred members and more than 7,000 pensioners involved.
As public servants, many ESB workers have class D PRSI contributions. Permanent and pensionable employees in the public service other than those who were recruited after 6 April 1995 are liable to pay PRSI contributions at a lower, modified rate. Subject to having the required number of PRSI contributions, employees who pay modified contributions have access to widow's or widower's contributory pension, a guardian's payment and carer's benefit. They do not have access to the contributory State pension. This matter was referenced in a number of recent media discussions. However, the employer and employees have benefited for many years from the lower class D rate of PRSI rather than being obliged to pay - as almost everyone else does - class A contributions. Their occupational pension is not an integrated pension but, importantly, their final defined benefit pension is, as a result, much higher than pensions in the private sector. I understand that their average pension is approximately €25,000. This reflects the fact that many of those who were taken on pre-1995 did not pay class A contributions but rather paid the lower class D contribution and qualified for more limited benefits as a result. My understanding is that this was very much the result of the desire of the workers involved and the ESB to have the scheme dealt with in this way. There has been some confusion in respect of this matter and I am anxious to clarify the position for the Members who referred to it.