I welcome the opportunity to discuss this important issue. The Minister will agree that what we are dealing with is an injustice - where a defined benefit pension scheme is wound up and, as a result of the manner in which our pension and taxation laws are levied, its existing pensioners are given no option but to purchase an expensive annuity that does not do them or their families any good and just makes the insurance companies a great deal of money. The purpose of this debate is to examine the source of the problem and determine what we can do to rectify it.
The situation was aptly summed up by the situation of the supplementary Aer Lingus pension scheme that the House discussed previously. The trustees wrote to existing pensioners and made the point that, in order to protect those people's funds, the trustees would approach insurance companies in the market and get an annuity. No other option would be entertained, just an annuity. In one instance that brings the point home, a woman was told that the cost of that annuity for one person would be €300,000. That money was being taken from the wound-up scheme to buy her annuity.
We inquired of an Irish insurance company this morning and received a quote for a joint life annuity that allowed for annual inflation of 1.4%. The quote was €5,000 per year. If this person lived for 40 years and got €5,000 per year, which would not happen in a pension scenario, the insurance company would benefit to the tune of €100,000 for nothing. On top of that, the company would get €6,000, or 2% of the purchase annuity price, in fees. If a recipient died, his or her spouse would get nothing, which is unlike the case with an approved retirement fund, ARF, but that option is not available to the people in question. It would have allowed them to get a greater yield in their retirement years and their families, spouses or children to benefit from some of that income later on.
A product that is bad value for money is being imposed on members of pension schemes under the excuse that this is just the way the legislation is. This legislation might not be within the remit of just the Minister's Department, but also the Department of Finance. Frankly, though, I do not care. It is every Deputy's responsibility to address the situation immediately.
I put it to the Minister that, interestingly, the then Minister for Finance altered the rules in 2011 to allow pre-retirement bonds to invest in ARFs because of the outrageous cost of annuities at the time. However, he did not extend that option to defined benefit schemes. Last year, the rules were again altered to allow defined benefit scheme members access to ARFs. Guess what? This could only be done in cases where the members were classified as directors of a company. Rich people can benefit from this arrangement but the pensioners who pay into a defined benefit scheme for all of their working lives cannot. They are frogmarched into an annuity where the pension industry takes the excess cash and charges a large price for the privilege. Only really wealthy people would benefit.
I appeal to the Minister. We need to address the weaknesses in the legislation urgently because this issue is affecting people's livelihoods in their retirement years.