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Dáil Éireann debate -
Tuesday, 24 Jan 2017

Vol. 935 No. 3

Priority Questions

Defined Benefit Pension Schemes

Willie O'Dea


45. Deputy Willie O'Dea asked the Minister for Social Protection his views on the fact that a profitable company can close down a defined benefit pension scheme whilst the scheme is in deficit to the detriment of existing and deferred pensioners; his plans to rectify the situation; and if he will make a statement on the matter. [3027/17]

Willie Penrose


49. Deputy Willie Penrose asked the Minister for Social Protection the action he will take to prevent profitable companies from winding up their defined benefit pension schemes; and the way he will ensure the pension rights of workers and those already retired are protected. [3026/17]

The Minister will be aware of the controversy before Christmas that indicated a major gap in Irish law, namely, that a solvent company can walk away at will from a defined benefit pension scheme. I ask the Minister if there are any proposals to change that situation.

I propose to take Questions Nos. 45 and 49 together.

I am very much aware of the public concern highlighted by the recent publicity surrounding defined benefit schemes.

The provision of occupational pensions in this country is on a voluntary basis and depends on the willingness of employers and employees to contribute to, and maintain schemes for their members. Traditionally, many such schemes were organised on a defined benefit basis. This is now much less common. In recent decades, defined benefit provision has been under pressure because of volatility in the stock markets and increasing liabilities arising from demographic pressures, longer life expectancy, lower interest rates and regulatory requirements. Accountancy standards, which make pensions liabilities very apparent on a company's balance sheet, also contribute to the pressures under which defined benefit schemes are operating. During the financial crisis, the decline of defined benefit pension schemes accelerated to the extent that the whole pension sector was possibly at risk.

As a consequence of all these factors, the movement from defined benefit to defined contribution schemes has become a feature of the pensions landscape, even in cases where firms are very profitable. Almost all defined benefit schemes have a rule that allows the employer to cease contributions, usually after a notice period. There is no legislative obligation on the employer to make contributions and no further liability on the employer where contributions cease. Where changes to these schemes are being sought by employers, I am strongly of the opinion that they should first engage in discussions with the trustees and employee representatives or unions. The introduction of a debt on employer - as proposed by some - would raise a range of issues including possible negative consequences for defined benefit schemes, some of which may not be beneficial for members or the employees in the companies concerned. Neither the Minister for Social Protection nor the Pensions Authority has the power under legislation to intervene to freeze the winding-up of a scheme or to compel the employer to make contributions to a scheme. In recent years, however, the Government has amended pension legislation to protect the pension sector and to ensure fairer and more equitable outcomes for all scheme members. These changes make more resources of the scheme available in the initial distribution of assets to active and deferred scheme members. At this stage, further regulation may only serve to add to the pressures on defined provision and could be counterproductive.

While there are strong arguments in favour of the introduction of greater employer obligations, it is also important that we consider the less desirable side effects. These could include: prompting well-funded schemes to wind up to avoid future new obligations; threatening a company’s financial stability; rendering some employers insolvent; or giving a competitive advantage to employers that never provided a pension or put defined contribution schemes in place.

While I have no immediate plans to bring forward amending legislation to enhance the provisions in the Pensions Act regarding defined benefit schemes, I assure Deputies that the issues in respect of defined benefit schemes are continually scrutinised by my Department, especially in the current environment.

I take the Minister's point about these being voluntary and depending on the willingness of the employer to engage in them, but everything the Minister has said applies equally to the defined benefit schemes in the United Kingdom. The UK has introduced legislation to prevent a solvent company from winding up a defined benefit scheme until such time as it makes up the deficit that is owed to the scheme. Why is Ireland different to the UK? If the UK can do it, surely Ireland can follow suit. If it is right and fair and proper that it should be done by our neighbouring jurisdiction, what is the insurmountable barrier that is preventing us from doing it here? Has the Minister taken any cognisance of how the system has worked in the UK? What has he learned from that? Does he not think that such a system could be used here, with the appropriate adjustments for the particular circumstances in Ireland?

There are two points. First, it is important to point out that the law in the United Kingdom has been different for a very long time. When employers established those defined benefit schemes decades ago, they knew they would have a liability in terms of making up any deficit. We know, unfortunately, that even though the law in the United Kingdom is different, employers there have found any number of ways to get out of that obligation. This was seen in a number of scandals in the United Kingdom where companies used mechanisms to avoid their obligations. Even though the law is very different, it is not necessarily successful. In this State, we must consider what the impact would be if we were to change the rules, effectively retrospectively, and impose a liability on employers for liabilities accrued. Consider a situation where, for example, a company is solvent but where the pension fund associated with it is not. One could turn the company insolvent and the consequences would be that the employees would lose their jobs, receive only the statutory redundancy and, potentially, lose their pensions also. Consider the consequences for a company that plans on expanding. Having that liability added to its balance sheet would mean it could not expand any more. Consider the difference between two companies, let us say, for example, two airlines. Perhaps I should not use airlines as an example because I do not mean what people may think I mean. Consider one factory next door to another. One is a good employer that traditionally has a defined benefit pension scheme and the other does not and never did. If one imposes an employer liability on the factory that had the defined benefit scheme, it would be placed at an enormous disadvantage against the factory next door that never provided anything for its employees' pensions. Thus, the good employer would be punished and the bad employer rewarded. All those issues must be considered.

Solvent employers can legally walk away from their liability to fund defined benefit pension schemes, as required under the employment contracts with current or former employees, simply by deciding to wind up the scheme. It is possible because most defined benefit scheme trustees and rules allow an employer to wind up a pension scheme and cease contributions while ignoring any deficit in funding of the scheme and its inability to pay the benefits promised. It is most unsatisfactory that an employer's liability to fund the deficit of a scheme on wind-up is determined solely by the trustees rather than by legislation. Ireland is one of the few countries that does not underpin this right with legislation. My pensions amendment Bill will deal with this. I put it to the Minister that accountancy standards require employers to recognise the liabilities of pension schemes either on their financial statements or balance sheets.

Removing those liabilities from the balance sheet has a major transformative effect for the employer, as we saw in a recent case. That malaise is spreading across the country, which Deputy O'Dea knows from events in his constituency. These companies are running amok because there is an incentive to walk away from a defined benefit pension scheme. My Bill includes a provision to end that incentive and allow for the crystallisation of the debt there and then, which would enable the trustees to sue the company for the debt. Does the Minister agree this is a simple way to deal with the matter once and for all? Deputy O'Dea is right that we are no different from the UK or anybody else. The companies that are running away from these schemes are profitable. They are skedaddling out the door and leaving their unfortunate workers behind. If we do not do something for those workers, we will have even more problems.

I explained in my initial reply the difference between our regime and that of the UK. The Deputy has spoken passionately about his concerns for workers and his desire to do something for them. Will he consider the possibility that there may be unintended consequences of legislation such as he is proposing? Will he consider the situation of a company that is doing okay, is solvent and making a small profit, but has attached to it a pension scheme that is in trouble and with a large deficit? If that deficit is imposed as a legal liability on the employer, the company will become insolvent and where, then, will the workers be? These are the kinds of things the Deputy must consider if he is genuinely concerned for workers. I presume he does not want to bring forward a Bill that has unintended consequences, the result of which will be workers losing their jobs.

The Minister, in comparing the UK system with the Irish system, said that Deputy Penrose and I are trying to achieve something retrospectively. Everybody knows defined benefit pension schemes were in place in the UK before the relevant legislation was introduced, and its introduction did not have all the dire consequences the Minister has outlined today. The Minister's position seems to be that we should do nothing because there were technical difficulties with the UK legislation which allowed people to get around it. Surely, with the knowledge of those technical difficulties, we can draft proper legislation which addresses the issues? I take the Minister's point about driving companies into insolvency. There has been a great deal of discussion around the UK legislation, including a detailed review by a parliamentary select committee, and the possible consequences of its provisions. The UK Government has indicated it will introduce legislation to provide the necessary modifications to the existing legislation and ensure the threat is greatly reduced. Instead of doing nothing, as the Minister tells us is his intention, surely we should attempt to do something along those lines?

The attitude the Minister is displaying in the Chamber today will come as an awful shock to the working people of this country. Does he realise he is condoning an incongruous situation whereby the workers of a very profitable company with a pension fund deficit will be left with nothing? Moreover, many of those funds will not be in deficit within the next 12 months given that inflation and bond yields are coming back. Meanwhile, where there is double insolvency, that is, an insolvent fund and an insolvent company, the State has to ride to the rescue. That anomaly must be remedied and the only way to do so is through the legislation Deputy O'Dea and I are bringing forward. The Minister could have his input and we could resolve the matter in the Chamber. I am astounded the Minister, above all people, is becoming a prisoner of the bureaucrats in his Department. I never thought I would say that about him because he generally takes a great independent stance. I ask him to throw off the shackles of the Department and work with us to deal with this matter. We will co-operate with him to resolve it. It needs to be done within the next month because there is a cascade coming. These companies are running for the hills and they are not troubled firms. In fact, they are the corporate beasts of this country, some of which have tax-free status and pay nothing to the Exchequer. I advise people to watch this space in the coming month.

I will check to confirm this but, as far as I understand, the UK legislation has been in place for decades. It was introduced at a very different time when there were not such extensive liabilities arising from defined benefit pension schemes. Certainly, the pension protection fund has been in place for decades. I am not sure about the employer guarantee but I will check to confirm. I assure Deputy Penrose that my only concern is for people's pensions and their ongoing employment. I do not want this House to put through legislation that jeopardises people's employment and potentially their pensions. We must be very careful that in an effort to do something good, we do not do enormous harm. That is why the only legislative changes I will recommend to the House, in association with the pension authorities, are ones I am confident will do good and not unintended harm. If Deputies Penrose and O'Dea and colleagues from other parties want to come together to put through legislation that could potentially do untold harm to many people, they should by all means do so. However, the consequences will be on their heads.

Carer's Allowance Eligibility

John Brady


46. Deputy John Brady asked the Minister for Social Protection the criteria in place for those applying for carer's allowance; if any reviews of those criteria have taken place; and if he will make a statement on the matter. [3060/17]

Will the Minister outline the eligibility criteria for the carer's allowance and indicate when the last review of those criteria took place?

The Government acknowledges the crucial role family carers play and is fully committed to supporting carers in that role. This commitment is recognised in both the programme for Government and the national carers strategy. Carer's allowance is a means-tested payment, made to people who are providing full-time care and attention to elderly people or people with disabilities and whose income falls below certain limits.

The principal conditions for receipt of the allowance are that full-time care and attention is required and being provided and that the means test which applies is satisfied. The means test is one of the least onerous in the social protection system. For a single person, €332.50 of gross weekly income is disregarded in the calculation of means. The equivalent for someone who is married, in a civil partnership or cohabiting is €665 of combined gross weekly income. A married couple with two children could have weekly earnings of €1,135 net of PRSI, union and superannuation contributions and still qualify for the lowest rate of carer's allowance. In other words, a family earning €59,000 per annum would meet the eligibility criteria.

Considerable improvements have been introduced for carers in recent years. In budget 2016, the carer's support grant, which is payable without a means test, was increased to €1,700. Other measures benefitting carers include extending the period when carer's allowance can be paid following the death of a care recipient from six to 12 weeks. In addition to the Christmas bonus and the €5 increase in the weekly rate, budget 2017 introduced a measure that extends payment of carer's allowance for 12 weeks where the care recipient enters permanent residential care. Carer's benefit is available to employees who have to take time off to care full time. It can be paid for up to three years on foot of PRSI contributions and is not means tested.

There are no plans for a formal review of the qualification criteria for carer's allowance. Instead, specific measures will be considered as part of the budgetary process in line with the commitments in the programme for Government.

In order to ascertain and assess priorities within the sector, my Department actively engages with carers' representative groups and hosts an annual carers forum.

At a committee meeting last December, the Minister indicated that in the first half of 2016, there was a 19% increase in applications for carer's allowance compared with the same period in the previous year. I asked at that meeting what percentage of those applications were refused and I am still awaiting a formal response. Will the Minister provide it now? Statistics showing a high refusal rate for carer's allowance applications are reflected in the outcome of such appeals at the Social Welfare Tribunal. Indeed, compared with other social welfare payments, the refusal rate for carer's allowance is notably much higher.

Clearly, there are more rigid criteria at play here and I need the Minister to outline that. How much discretion is given to the officials when making decisions on applications? Is the Minister genuinely concerned about the high refusal rates?

Is the Minister concerned that genuine cases may be being turned down? Such cases have been brought to my attention and to the Minister's attention. Is the Minister concerned about genuine cases that are being refused?

Of course I am concerned about any genuine cases being refused. That is why applicants can request a review and it is why they can also go to the appeals office. Applicants do go to the appeals office and have the decision changed.

What is particularly different about the appeals system in Ireland relative to that in other countries is we allow applicants to introduce new information on appeal which is not the norm in other jurisdictions. Applicants have the opportunity to apply, get a review and appeal. Therefore, there are adequate checks and balances in place to ensure genuine cases are looked after.

Obviously, a person must qualify under the means test. I mentioned to the Deputy earlier that the means test is the least onerous in the social protection system. A person qualifies with an income of nearly €60,000. If that person has been paying PRSI, he or she can qualify for carer's benefit without any means test at all, and regardless of whether he or she paid PRSI, that person can qualify for the carer's support grant without any means test.

The second test, beyond the means test, is whether the person requires full-time care and attention, and that is largely a medical assessment. It requires that the person is so incapacitated as to require continuous supervision to avoid a danger to himself or herself, or continuous supervision and frequent assistance throughout the day in connection with normal bodily functions, and that he or she is so incapacitated as to be likely to require full-time care and attention for a period of at least 12 months.

The Minister outlined some of the financial criteria. I am glad he outlined some of the medical criteria that are needed. Last week I was made aware of a man who applied for carer's allowance to look after his wife. There was a letter of refusal from the Department and this has been sent to the Minister. The letter stated his wife, whom he was seeking to become a carer for, was not ill enough. His wife is terminally ill with cancer. She has been fighting cancer for ten years. Her husband, who is a full-time carer, applied for the carer's allowance and was turned down on the basis that she was not ill enough. That highlights to me, if anything ever did, there is a problem with the criteria being applied here. I ask the Minister again to examine the criteria that are applied in applications for carer's allowance.

The Minister indicated a 19% increase in applications being submitted. There is a considerable delay in assessing those applications and in appeals being turned around. There are significant problems, but especially around the criteria. I ask the Minister to re-examine the criteria. That is a graphic case and there are many other genuine cases. The Minister stated he was concerned that genuine cases are being turned down. That is one example of many.

I cannot comment on an individual case of which I have no information or prior details, but I would encourage anyone who feels that he or she was assessed unfairly to seek a review or to appeal. That is why we have that system in place.

The Deputy mentioned the delays in processing applications for carer's allowance. That is something on which I placed a strong focus in recent months and I visited the staff in Longford to talk to them about it. We have seen a significant reduction in the average carer's allowance application processing time from 22 weeks at the end of May shortly after I took up office to 11 weeks at the end of December, and the carer's benefit application processing time has now been reduced to eight weeks. We have put additional resources into those assessments in Longford and, as a result, the waiting times for those who have applied for carer's allowance have halved.

Pensions Reform

Willie O'Dea


47. Deputy Willie O'Dea asked the Minister for Social Protection if he will clarify recent comments he made in the media to establish a new SSIA-style universal scheme for private sector workers; and if he will make a statement on the matter. [3028/17]

This is as a result of a recent newspaper interview given by the Minister referring to the pressure that what we know as the old age pension system will come under due to the rapidly increasing elderly population. I merely want the Minister to elaborate on his ideas on how to deal with that.

I have made pension reform a priority for my term as Minister for Social Protection. This includes an intention to develop a new supplementary retirement savings system for those workers without adequate savings for retirement.

The rate of supplementary pension coverage in Ireland is estimated at only 35% of the working population when the private sector is considered in isolation. If measures are not taken to ameliorate this low rate of coverage, many future retirees will suffer potentially significant unwanted reductions in their living standards on reaching retirement.

Despite considerable efforts over many years to incentivise voluntary pension participation, the purely voluntary approach is not achieving the desired goal of increasing coverage. Therefore, it is my intention to bring forward proposals for an auto-enrolment retirement savings system. The reform would be consistent with the outcome of the OECD's 2014 Review of the Irish Pensions System, a key recommendation of which was to increase private pensions coverage through the introduction of a mandatory or quasi-mandatory earnings related system.

Initial consultations have taken place with Irish sectoral interests and international experts in this field. While there is much to learn by looking at the strengths and weaknesses apparent in aspects of other countries' pension systems, any solution must be tailored to fit the Irish situation. Therefore, as work progresses, I will ensure that extensive efforts are made to build consensus across political, business and civil society lines and to consider the manner in which such a system would be best delivered.

What the Minister is talking about is an auto-enrolment scheme where one will be opted in and one can opt out if one wishes. The Minister's calculation is that, if he starts at 1% extra per annum, it would eventually rise to 6% per annum to be matched by employers and the State. Is he talking about a situation where, ultimately, when this is in place, there will be 6% extra on the individual, 6% on the employer and 6% extra on the State to provide a pension of approximately half the average wage? That was as I understood the interview.

This would be a supplement to the old age pension. Does the Minister envisage that we will not be able to continue increasing old age pensions at their present rate, and possibly even have to reduce them, but that this will be some form of supplementary income to compensate for that?

The reason I have held back on too much detail in this area is because the detail has yet to be worked out and anything that is done, as we will be aware from experience in other countries, needs to be done with a degree of political consensus. It is one of the issues that I hope the new labour-employer forum will consider this year. Indeed, the Government will ask it to do that. It is something we want to develop with agreement, if possible, from unions and employers.

My view on the State pension is that it should remain the bedrock of the pension system. It is the mechanism by which we have 98% avoidance of pensioner poverty in this country. That is why I expressed the view, previously and in that interview, that I believe the State pension should increase every year at the very least in line with the cost of living. What I am saying clearly is that any new system brought in should be supplementary and on top of the State pension.

We do not yet have exact figures but if a person wanted an occupational pension that delivered roughly half his or her salary at retirement, the kind of figure that would need to be put in is roughly between 15% and 18%. That is the kind of sum workers have to put into their pensions to get the kind of return they would like, but of course that includes the tax relief from the State and, therefore, it is really approximately half of that.

Does the Minister intend to start putting this system in place in time for the next budget and what sort of timescale does he envisage to have it completely in place? I accept this depends on political consensus and various other issues, but the Minister must have some sort of a timescale in mind. Does he intend to start at the next budget?

On the timescale, based on other countries that have done this, such as the United Kingdom, New Zealand and Australia, people must be given a number of years' notice that this will happen because employers have to factor it into their business plans. As wage demands are being made, for example, these matters must be factored in. What they did in Australia, for example, instead of getting a 3% or 4% pay rise every year, was to provide one percentage point of that 3% or 4% towards the pension system.

Nobody was ever worse off in a year but instead of taking the full 3% or 4% pay increase, 1% of it went into the pension fund. That is the type of thing I envisage. Based on what other countries have done, it takes three to four years before the first set of accounts is opened and it takes approximately ten years to phase in and phase up the contributions. The UK did not bring everybody in on year one. It took in different sectors one by one. These are the types of issues that must be worked out and agreed, if possible.

I am convinced it must be done. I am anxious to ensure that nobody suffers poverty in retirement and that everybody, particularly in the private sector, at least has the opportunity to retire on a pension that is roughly equivalent to half his or her salary, just like people in the public service can at present.

Local Employment Service

John Brady


48. Deputy John Brady asked the Minister for Social Protection the reason for the reduction in referrals to the local employment services; and if he will make a statement on the matter. [3061/17]

In the space of a year the Minister has reduced referrals to the local employment services by 10,454. People working within the local employment services across the State are asking the Minister to explain the reason he hugely slashed referrals to those excellent services.

The Department has contracted with 22 local employment service providers for 2017, the same number as in 2016, and funding for the provision of the service has also been maintained for 2017 at the 2016 level of €20 million. We have not cut the budget for local employment services.

Local employment services form part of the State’s public employment service. This service is managed by the Department of Social Protection and delivered directly by its own Intreo service as well as by contractors, such as JobPath, the local employment service, LES, and job club providers.

Both Intreo and contractor staff provide unemployed jobseekers with advice and assistance to identify, pursue and secure employment.

Prior to the introduction of Intreo, my Department had approximately 300 case officers, including contracted LES staff, to serve more than 460,000 people on the live register. This was equivalent to a caseload of over 1,500 jobseekers per case officer as against an international best practice benchmark of 200:1.

In developing the Intreo service and introducing JobPath, the total number of case officers has increased to approximately 1,200. Combined with the welcome reduction in the number of people on the live register - from a peak of over 460,000 in July 2012 to about 275,000 today, with a reduction last year alone of just under 45,000 - the average caseload today is approximately 230:1.

The reduction in unemployment has also allowed the Department to increase the quality of case officer support to people who face the most difficult challenges in finding employment. These jobseekers are typically long-term unemployed and are dealt with either by the local employment services or by JobPath. In line with international norms, the Department is seeking to maintain the caseload for this cohort at no more than 125 clients per officer. In order to achieve this level of case officer support, the Department has reduced the number of people referred to local employment services but has asked the providers to increase the time they allocate to work with each jobseeker. This should result in reduced pressure on the local employment services and an improved level of service for clients.

In 2015, the LES saw 30,321 referrals. In 2016, it saw 19,867 referrals. Every county in the State, with one exception, experienced a reduction in referrals in the space of a year. People working in the LES are deeply concerned about the Minister's intentions for the LES and its sustainability into the future. If reductions continue at this scale, it will call into question the viability of the LES across the State. They are not my views or concerns, although I share the concerns, but the views and concerns of LES officers. The Minister said the reason for cutting the number of referrals is to provide a more intensive service to clients. That is like cutting an employee's hours from 40 to 15 hours and telling them it is to make them work a little harder and to be more productive. However, the Minister is doing nobody in the LES any favours whatsoever, nor is he giving any benefits to people who are referred to the services. What consultation has the Minister carried out with employment services throughout the State? I do not believe there has been any. I have spoken to LES officers and there has been no consultation with them. What consultation took place before the cut in the number of referrals?

This is not rocket science. The number of people who are unemployed has gone down by half. Unemployment was 15% and it is now approximately 7%, so of course the number of referrals has reduced. That is simple mathematics. There is half the number of unemployed people so obviously the number of referrals has gone down. As unemployment continues to fall, the number of referrals will continue to fall. However, we have not reduced the budget for the LES or reduced the number of case officers. The reason is that we want those who are still unemployed to get far more time and individual attention than they received previously. Moreover, they need it because the people who are still unemployed are those who are most distant from the labour market and require far more one-to-one attention. That is what we want from the local employment services. We want them to have a smaller caseload and the case officers to have fewer people on their books but to work with them longer and harder, because they are the people who need the extra support.

It is certainly not rocket science and I do not take the Minister's condescending remark lightly. However, it is interesting to see the emergence of the privatisation of this area. At the same time as the Minister has been cutting referrals to the LES across the State, more than 60,000 people have been referred to private entities in JobPath. Is the real reason behind the huge cuts in referrals to provide a private service instead of the local employment service, which has been doing exceptional work? In the Pathways to Work 2016-2020 strategy the Minister committed to undertake a review of the LES to assess the services' performance and value for money by the end of 2016. Where is that review? I have not seen it. If a review has been carried out, and I seriously doubt it, has that fed into the Minister's decision making or is this just an ideological position essentially to privatise this service? The latter point is the crux of this question. Where is the review and will the Minister publish its findings?

I apologise if the Deputy feels that I was condescending in some way. However, when one is talking about cuts in this area one is talking about a particular type of cut - the number of unemployed people being referred for support.

Then referred to a private entity.

If the number of people who are unemployed in a country halves, obviously there will be fewer referrals.

There have been no cuts to JobPath.

Every time we have questions the Deputy cannot handle the answers. Of course, when unemployment is down by half there will be fewer referrals. Would the Deputy like us to refer the same people twice or to start referring people who are not unemployed? What is the Deputy seriously suggesting?

With regard to the review, it is not ready for publication. It will be published when it is ready. One of the most interesting statistics from it, which the Deputy will see when it is published, is a comparison of the performance of the different local employment services in terms of the results they get. There is huge variation in that. Some local employment services get excellent results with 49% and 50% of people being placed in employment, while some do quite poorly with as low as 14% in some cases. That will be very useful in determining policy in the future.

Question No. 49 answered with Question No. 45.