Social Welfare and Pensions (No. 2) Bill 2013 [Seanad]: Report Stage (Resumed) and Final Stage

I move amendment No. 3:

In page 9, between lines 19 and 20, to insert the following:

“9. The Principal Act is amended by inserting the following new section after section 47:

"47A Where the company is solvent the discharge of the liabilities of a relevant scheme under (1AB), the resources of the relevant scheme are not sufficient to discharge,

in whole or in part, the liabilities of the scheme in respect of the benefits referred to in paragraphs (b), (c) and (d) of subsection (1AB), or any of those benefits referred to in any of those paragraphs, the employer shall, in accordance with section 48A, provide such moneys as are required to provide for the discharge of

those liabilities in respect of those benefits in accordance with those paragraphs,".

Amendment put and declared lost.

I move amendment No. 4:

In page 9, between lines 19 and 20, to insert the following:

“9. The Principal Act is amended by inserting a new section 48A as follows:

“48A. A solvent firm shall not be allowed to wind-up a defined benefit pension scheme except where the scheme has reached a level of 100 per cent under the funding standard, subject to a maximum pension benefit of €60,000.”.”.

Amendment put and declared lost.

Amendments Nos. 5 to 10, inclusive, 13 to 21, inclusive, and 23 to 28, inclusive, are related and may be discussed together.

I move amendment No. 5:

In page 9, to delete lines 29 to 36, and in page 10, to delete lines 1 to 5 and substitute the following:

“(a) firstly, a PRSI contributions record sufficient to ensure eligibility for the full State Pension for every retired scheme member who has not attained this record themselves and an age-appropriate equivalent for those that are pre-retirement;”.

These amendments represent a different order of priorities than what the Minister has suggested in the event of a fund becoming insolvent. I am referring to single rather than double insolvency. The objective is to capture more equally what will happen in that event and to ensure it is not just existing pensioners who are protected, as happens, but also active members - those paying into the fund - and deferred members. They should all receive a more equal slice of the cake. We have suggested in the amendments that, at the very least, everybody have the missing PRSI contributions purchased for them by the fund to ensure every single person in the pension scheme would qualify for a State contributory pension. That is vital because it is worth about €12,000, the figure the Minister has in her own order of priorities. If that was done, at least everybody across the board would have a contributory pension. This is particularly urgent for those who are near retirement age and who, without this provision, could be paying into a pension fund that could collapse later, following which they would be left with nothing. That happens and has happened to some. At least, they would then be able to fall back on a State contributory pension.

I tried to get the transcript of the discussion when we discussed this issue on Committee Stage, but it is not available yet owing to the rushed nature of the Bill. As a result, I have not been able to check exactly what the Minister said in reply.

That is a pity. It is a poor legislative process when we cannot have time to put amendments together.

People signed up for these defined benefit packages and at the time many had a different PRSI stamp because they were going to have these guaranteed pensions. Now it is emerging that they do not have these guaranteed pensions and some people lack the required number of PRSI stamps, especially since there are changes to the way one qualifies for the State contributory pension which would guarantee all pensioners at least €12,000. If that is not done, many will end up dependent on the non-contributory pension and it will cost the State money one way or another. At least this way the contributions are being purchased by the funds. The 100% of benefits up to €12,000 for those currently in a scheme would mean that pensioners would have €12,000 and the State contributory pension; therefore, we are talking about a figure of nearly €24,000. It is not a gilt-edged pension like those some people have, but it is much better than the current state of affairs for some in receipt of pensions. One then goes back and forth between active members, deferred members at different ages and existing pensioners. The reason is to ensure those on the lower scale and the lowest pay during the years and who tend to be on the lowest pensions will have this guaranteed as much as possible as the fund is being distributed.

We talked earlier about trying to ensure the companies which were economically viable would live up to their responsibilities. I will not go over that issue again, but on Committee Stage I asked whether there was any move in Europe to establish the equivalent of a globalisation fund. Under such a scheme, in the event that a company was closing its operation in Ireland but was still active elsewhere in the European Union, it would have responsibility for the pension fund in Ireland. That would help to address some of the problems we mentioned on earlier amendments and also to ensure there was enough money in the pension fund of a collapsing defined benefit scheme to ensure distribution according to the criteria I have laid out.

There is urgency attaching to this issue, which is why we have not opposed the Bill or sought to delay its passage. We have the figures. There were 2,500 defined benefit pension schemes in previous years. It is now down to 800, which affects approximately 200,000 people. That is a large number.

We need to ensure that whatever protections we can provide are accepted and that they are as robust as possible. I will not oppose the Bill and hope it will go further. That is why on Committee Stage I expressed my disappointment that the Mercer report which was a review of the pension scheme wind-up priorities and which the Minister had commissioned had not been published. When I received it, albeit late in the day, I was able to use it to examine my proposals to see whether they complied with any of the models Mercer had run and whether the Minister's proposal was a replica of some of the numbers and figures run.

My proposal is not exactly the same as that in the Mercer report.

That is what I am saying.

I improved significantly the thresholds for pensioners.

Neither of our proposals complied with it, but one can extrapolate from the data the eventualities of this, that and the other. I have said that what the Minister has put forward is better than the existing model. However, it does not go far enough or as far as the Minister originally suggested in October 2011 when she said the issue would be dealt with. She could have gone much further to ensure equality or fairness across the board. She mentioned the Attorney General's advice. It is always a pity when advice is quoted that we do not have access to it. I know there is Cabinet confidentiality, but it would be helpful if the issue was considered in the future. If one is being quoted legal advice, it is nice to see it in order that one can agree or disagree with it, challenge it or show it to one's legal advisers to see if they have a different opinion because the Attorney General is not always correct. Part of the advice is that one does not always put a cap on the amounts that can come out of a pension. Amendment No. 21 in my name proposes a cap. In the case of a distressed pension fund, where not all of the money expected will be distributed, this would ensure nobody would get over the odds and that everybody would get as much as those at the lower end as possible. If, at the end of all the distributions in the order of priorities, there is money left to give those over €60,000 their funding, one might distribute it. If that were the case, it would mean that the fund was very near the figure of 80% or 90%. Having a cap would send the message that those at the lower end of a pension fund would be protected.

I will not repeat the earlier arguments I made on Committee Stage, albeit that it is a pity the information is not available for the public to view. Some of the arguments I made on the Mercer report should be exercised again and we should have that discussion about the risk of leaving active and deferred members at a loss over and above some of those who have a much higher pension, over €60,000, which some call gilt-edged or gold-plated pensions. The Minister has made an order. Some of the steps should be introduced at an earlier stage.

I will leave it at that because other Deputies want to speak.

I ask Deputies to bear in mind that I will be putting the question at 5 p.m.

On which amendment are we?

We have a long list of amendments which are being discussed together. They are amendments Nos. 5 to 10, inclusive, 13 to 21, inclusive and 23 to 28, inclusive.

Amendment No. 12 in my name has been ruled out of order. In amendment No. 13 I am trying to achieve a variation of amendment No. 12.

Pension schemes are infinitely various and there are differences between all of them. Even within pension schemes pensioners can be treated in different ways, for example, in the contributions they make. Some people have worked in a firm for much longer than others. Therefore, one size does not fit all. Some account should be taken of length of service and other conditions with which pensioners have to comply which might not apply to their counterparts.

As the Bill stands currently, everybody is guaranteed the same amount - €12,000 - in the event of a wind-up of a pension scheme in a single insolvency. These differences should be taken into account and should be reflected in the figure.

There is quite a range of amendments in this group and many of them involve complex issues which need time that we obviously do not have. I agree with the point made by Deputy O'Dea that the flat percentage being proposed by the Minister does not give any recognition to some important variable factors, such as length of pensionable service, the amount the person contributed over his or her working life or the age of the person on retirement. All of these variables form part of the calculation to arrive at the amount of pension and should in some way be factored into this scenario in order to provide equity.

There are some issues at stake that are covered by this group of amendments. What the Minister is seeking to do is to guarantee a certain threshold of benefits and also to alter the current situation in which anybody in receipt of a lower pension is not eligible for any cut. However, now a cut would be permissible for those on amounts over €12,000. A 20% reduction would apply to those on pensions of €60,000 or more. This lets high earners off the hook. One of the amendments in this group provides for a greater hit for those with pensions in six figures, over €100,000. The amendments propose a reduction of 50% in that scenario. It would be fairer to hit the high earners on lucrative pension schemes. This would meet the definition of proportionality far better than hitting somebody on the lower level.

A pension of €12,000 or slightly above that is quite low. I note the Minister has said that in many instances people would also be in receipt of a State pension and their pension therefore would amount to €24,000. That may not be the case, however, because the person may not be in receipt of a State pension. Some of my amendments agree that the appropriate figure is €24,000, which is two-thirds of the current average industrial wage. Guaranteeing a pension at that level and not allowing it be cut is appropriate in the current circumstances, but I am not sure the Bill as constituted does this, because some people would not be in receipt of a State pension.

Proportionality is important here. The implication is that somehow existing pensioners have got off lightly in the defined benefit pension crisis. The Minister could argue that point, but it must be taken into account that many pension schemes have not been paying consumer price index hikes in their pension provision over the past number of years. Many of the big schemes do not provide for this. For example, the ESB, the banks, the airport schemes and so on have frozen pensions for their employees, although there is some relief in that regard currently. Therefore, de facto, pensioners have contributed to moneys going back into the pot to be shared or to keep others afloat. If inflation was at 2%, over a ten year period €100 would only provide the purchasing equivalent of approximately €60. These people have therefore made a contribution, and we must look at the issue more closely.

The point is that when this legislation is passed, the position of deferred pensioners will be improved compared to what it is today. However, it will not be as good as it was in 2009. Those points have been well articulated here. Previously they were treated in the pensioner category, but as a result of the change in 2009 they have been included with the others. We will probably not have time to deal with the points made in the significant correspondence we got from many people in regard to the later amendments, but those points should be taken on board. Unfortunately, they do not appear to have been; nor have those points regarding right of audience and so on.

I support the general thrust of this group of amendments. This Bill allows trustees of a scheme to reduce the minimum benefit of a defined benefit pension scheme to €12,000. This is far too low. The purpose of amendments Nos. 15, 16, 18 to 20, inclusive, 23 to 25, inclusive, 27 and 28 is to ensure that the minimum pension benefit should not fall below the basic rate of the non-contributory State pension plus that of an adult dependent, because that is the level below which the State has decided a person cannot exist without undue hardship. For that reason, it makes sense to peg the minimum pension benefit at that level. We could pick different figures, but the State itself has claimed that the figure of just under €19,000 is the minimum amount a pensioner couple would require to survive. There is sense in that. Pegging the minimum pension benefit to a State pension payment would mean that pensions would be index-linked for the future. It is important to take this into account. Based on the rate of inflation, there should be commensurate increases in the minimum pension payable. As has been stated, in most cases people in private pension schemes also have an entitlement to a State contributory pension, but not all of them do. We need to ensure that we cater adequately for people who are not entitled to a contributory State pension.

When I spoke on this issue on Committee Stage and discussed taxpayer liability, the Minister stated that this does not arise in the case of a single insolvency situation but only in a double insolvency situation. Taxpayer liability would arise in a situation in which the minimum pension benefit was only €12,000, because in the case of a couple that couple would be entitled to claim a non-contributory pension for the spouse. This means the State will be picking up the tab and taxpayer liability is involved. To return to the arguments made this morning, what the Minister is doing here is shifting the financial responsibility away from the employer, even in a situation in which the company is profitable, and onto the State. There is no justification for doing this.

Liability does not arise only in regard to the entitlement of the spouse of a pensioner to a non-contributory pension, as there are other costs. There will be higher costs due to the provision of medical cards, fuel allowances, household benefits packages and so on. Therefore, there are significant potential costs for taxpayers, but there is no justification for shifting those costs onto them. For this reason, I believe the pension needs to be pegged at the higher level. Why should the Minister, on behalf of the State and taxpayers, take on the financial liability?

In regard to limiting pension benefits to €60,000, I found it extraordinary to hear the Minister this morning defending the right of people to retain pensions in excess of €60,000, given all that has happened in this country in recent years and given the collapse in so many pension schemes. It is amazing that the Minister seeks to defend these pensions. The people we are talking about with these highly generous pensions are people in senior management, bankers and so on.

The Minister is defending a situation whereby they would retain an entitlement to a pension in excess of €60,000 at the expense of people who may have a very small pension provision of €12,000. The Minister spoke about the response needing to be proportionate and fair, and this is true. How can the Minister possibly defend pensions in excess of €60,000 while cutting the pensions of people at a much lower level? In any such move the decision must be proportionate and fair and must also take into consideration the common good or public interest. I do not believe the Minister is doing this by allowing pensions in excess of €60,000 to continue. Overall there does not seem to be much coherence in this. The Minister needs to revise the figures. It is very unfortunate we are being squeezed like this so we will not have adequate time to discuss various aspects of it.

A right of audience for pensioners should be ensured and deferred pensioners should have a right to be consulted and have their say. We know this has not been possible since 2009 and the Labour Relations Commission has made this quite clear. This situation is opening up for several thousand deferred pensioners and it is very important they are given a voice. The Minister spoke about having several rounds of consultation but this is no substitute for a statutory arrangement whereby they can give their views and must be consulted prior to the Labour Relations Commission making an adjudication. It is unfortunate the Minister is overlooking the many deferred pensioners who might have contributed to a pension scheme over 37 or 38 years and suddenly found the rug pulled from under them. They had a legitimate expectation to get a reasonable pension and now this will not happen. They should be given a statutory voice in the process so they can be consulted and taken into consideration fully when trustees make a proposal on the restructuring of a scheme. It is quite unfair.

Many points were raised and unfortunately our time has been cut very short. This is a rebalancing effort. We hope nobody has to suffer serious cuts in their pensions. If, as Deputy Ó Snodaigh stated, the fund is highly funded, which a significant number are, the consequent reduction would be far smaller than anything outlined in the legislation because it will be a repetitive process until the final distribution is made. A tone is coming across that this is mandatory whereas it is the final outcome for heavily underfunded schemes, down to the situation of a double insolvency.

On the issue of representation of pensioners, as I stated last week and on Second Stage it is a labour relations issue and, to be clear, it must be considered in the context of industrial relations legislation. I stated on Committee Stage the matter can be explored in this context, and following discussions on various Stages of the Bill the officials met with pensioner representatives this week to tease out what way it could be done. On foot of this consultation I will write to the Minister for Jobs, Enterprise and Innovation, who has responsibility for industrial relations, to see what can be done. It is not part of this legislation and I want to be clear on this. I am perfectly happy to do this.

I want to be clear the Bill does not give any entitlement to trustees, as may have been implied, to reduce pensions to €12,000 or any other figure. This is in the context of a restructuring where we are trying to save the maximum amount for all pensioners in a rebalancing way where the pensioners with the highest level of pensions contribute the most. This is the purpose of what we are trying to do and why at the outset on Second Stage Deputies from various parties broadly welcomed the Bill and stated they were supportive of it.

With regard to the 20% and the €60,000, I set out for the Deputies this is the advice made available to me and with regard to bringing forward legislation. To ignore legal advice would risk the legislation being ineffective. This reform is badly needed and has not been addressed before despite the pensions crisis.

I understand the points made by Deputies Daly and Shortall, but we are discussing people who do not have a contributory pensions record. I explored the history of this and the fact is in certain semi-State bodies people did not pay a contribution for a contributory State retirement pension. The legislation per se has nothing to do with the State retirement pension except, as Deputy Ó Snodaigh stated, when I received the Mercer report and we had all the other consultations I mentioned. Deputy Ó Snodaigh has studied the Mercer report in detail and the proposals on the ceiling were far lower than what I have been able to achieve. I have achieved double what was set out.

One must bear in mind the median pension in the private sector is €11,000 and this is covered. People in the private sector are most likely to have made State PRSI contributions to qualify for a State retirement pension. For decades employees and management in semi-State companies did not want to make contributions, and this was probably an advised, considered decision at the time it was made. As a consequence of these employees not qualifying for a State retirement pension because they never contributed to it - and pay 0.9% while by and large semi-State companies as employers pay up to 3% whereas the actual contribution is 14.75% - their average pension is €22,000, which is much higher than the €11,000 in the private sector. This situation was a feature of semi-State companies and was agreed until it was changed in 1995 and full contributions became the norm for new employees. The cost to buy back a State pension contribution is approximately €300,000.

Deputy Shortall raised the issue of a pensioner couple and she is right. I have not included it in the calculations. In the case of a pensioner couple where there is a €12,000 pension and an entitlement to a State retirement pension, the pensioner couple would receive €12,000 and the dependent pension payment. We are not calculating this because when pensions are paid by a firm, whether semi-State or private, no consideration is given in the calculation to the relationship or dependency status of an individual member of a pension fund. It is simply not possible to work this in our system. Is there a cost to the State of providing for a dependent pension? Yes there is, but it is one every party in the House is happy to pay because it is a recognised cost in the State system of providing for pensions.

It is not necessarily an explicitly recognised cost in private pension schemes other than when somebody becomes widowed who was formerly a pensioner. That is something that applies in these cases.

I thank all of the officials who have worked hard on this legislation which is in a complex area in which no legislation has been introduced for a long time. I hope it will be of significant assistance in getting more pension funds over the line in the context of their sustainability and viability. I also thank all of the Members who contributed on the various Stages, particularly the spokespersons on social protection. Everyone made a valuable contribution. I referenced the preparation of guidance and guidelines and indicated that we would examine a number of issues. We will also contact the Department of Jobs, Enterprise and Innovation regarding a right of audience for pensioners, an issue which was raised on Committee Stage.

As it is now 5 p.m., I am required to put the following question in accordance with the Order of the Dáil of this day: "That Fourth Stage is hereby completed and that the Bill is hereby passed."

Question put and agreed to.

A message will be sent to the Seanad acquainting it accordingly.