Scrutiny of the Pensions (Amendment) (No. 2) Bill 2017: Irish Association of Pension Funds and Irish Congress of Trade Unions

We will resume in public session. I welcome Mr. Jerry Moriarty of the Irish Association of Pension Funds, IAPF. I will invite Mr. Moriarty to make his presentation in a moment, and then we will take a number of questions.

Before we begin, I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable. Once again, colleagues, please switch mobiles phones off or to flight mode.

Mr. Moriarty's opening statement has been circulated. I invite him to make that statement now.

Mr. Jerry Moriarty

I welcome the opportunity to attend the committee this morning. The Irish Association of Pension Funds, IAPF, represents pension savers with an aim of ensuring pensions in Ireland are secure, fair and simple. We are a not-for-profit membership organisation. Our members are pension schemes set up by employers for their employees, and companies that provide services to those schemes. The services we provide for our members are representation, education, and information. In terms of the Bill we are looking at today, we have advocated for some form of debt on employer legislation for quite some time, with correspondence on the issue with the Department as far back as 2008. In a joint paper with the Society of Actuaries in Ireland, submitted in December 2008, we advocated for some form of debt on employers in order to provide greater security for members of pension schemes, discourage employers from abandoning pension schemes, and to provide greater flexibility in the ongoing funding of schemes.

Since 2008, there has been a significant decline in the number of defined benefit schemes and the number of active members, which are employees who are continuing to accrue benefits within those schemes. As a result of funding issues, many schemes have restructured, often reducing members' benefits and also requiring increased funding from employers. According to the most recent figures from the Pensions Authority, 126 of 611 defined benefit schemes did not meet the minimum funding standard. However, in total, the aggregate assets of defined benefit schemes, at €64.1 billion, were higher than the total aggregate liabilities, which were €59 billion. Schemes that do not meet the minimum funding standard are required to put a funding proposal in place, which is designed to get the schemes back to meeting the standard. The proposal has to be agreed by the trustees, the employer, and the actuary to the scheme. If the proposal is for a period longer than three years, it also has to be agreed by the regulator, the Pensions Authority.

Defined benefit provision is declining worldwide for many reasons, including cost and fluctuation of cost, accounting practices and changes in work practices. Ireland is no different in this respect. That has been reflected in the decline in the number of schemes and active members of schemes, with just over 100,000 active members of private sector defined benefit schemes today. A concern often raised with this type of legislation, which imposes a contingent debt on employers, is that it may precipitate the closure of schemes in order to avoid its impact. However, schemes have had plenty of opportunities to close or wind up in recent years, and this legislation has now been under consideration for two years with no evidence of that happening. It could be argued that the schemes that now remain, therefore, have already decided they are in it for the long term. It should also be remembered that the rules of the scheme may give trustees the power to request contributions from the employer in a wind-up situation which may have the opportunity to bring funding above the minimum funding standard level.

I thank Mr. Moriarty for his opening statement. I call on Deputy O'Dea.

I thank Mr. Moriarty for coming in. I know he has time constraints so we will not delay him unduly. I want to ask a few questions on the documentation we received from the Oireachtas Library and Research Service. One of the objections it raised was on wind-ups being delayed as a result of this legislation. It made a few comments on that, but Mr. Moriarty has already answered the point very effectively about people being forced to wind up. This has been talked about for the past two years and that has not been reflected. One of the issues mentioned was that it might disproportionately affect younger members of the scheme, because the scheme would continue while the wind-up was postponed and the retired members would continue to get their entitlements, which might increase the deficit to the ultimate detriment of younger members. I would like to hear Mr. Moriarty's comments on that.

The Oireachtas report also states that there might be some constitutional difficulties about the legislation being possibly retrospective, and it goes on to say that it might force people to wind up before the legislation comes into effect, which seems to be contradictory. It also mentions that a law like this might put some employers at a competitive disadvantage, and that it might drive some companies into insolvency. Question were also raised about the first section of the Bill, which deals with appeals, and I might have to modify that, because I do not think I got what I wanted to get, now that I read the section again. Perhaps Mr. Moriarty could comment on those issues.

Mr. Jerry Moriarty

On younger members, there would need to be a very long delay period, and a lot of people retiring in that period, to fundamentally alter the structure of the scheme.

It may differ from scheme to scheme, but the provision in terms of valuing the benefits for members in wind up is that, as members start to approach retirement, their values get higher than they are when further away from retirement. It is no longer the sort of cliff edge where there was a huge difference in the value of one's benefits the day before retirement and the day after. Possibly for some schemes, it may make a difference if there is a member in the scheme who has very large benefits, and there are only a small number of members, but overall I would not see that as a huge issue, unless it is a really long delay where the whole structure of the scheme is fundamentally altered. I do not see that it could be a significant issue for the vast majority of schemes.

On the constitutional difficulties, the minimum funding standard was introduced by legislation after the Pensions Act came into effect in 1990. There have been a lot of changes made to that to enhance members' benefits over time, such as preservation of benefits, where once someone has been in a scheme for two years, he or she is entitled to the value if it is kept as a deferred benefit. There was a time when one could work up to just before retirement, leave the company and get all one's member contributions back. More recently, there has been the introduction of a risk reserve, which has raised the funding requirements as well. None of those issues, as I understand it, caused any constitutional difficulties, so I do not see how something like this could either.

I would imagine what they were thinking about was that we were imposing changes on pension schemes, which were already in existence. All those changes affected pension schemes that were already in existence.

Mr. Jerry Moriarty

Exactly. I am not a lawyer, but when all those changes took place and there were no issues, I could not see why that was the case. I touched on the forced wind up before it comes into effect. As I said, this legislation has been discussed for the last two years, and there are other similar Bills. There has been no experience of a rush to close schemes in that time. I think that there have been a lot of opportunities for schemes, particularly when there were a lot of funding issues in the middle of an economic crisis. If there was ever a time for a company to wind up a defined benefit scheme, that would have been it. I think there is still a lot of employer goodwill towards defined benefit schemes, and a lot of the restructuring that has been done happened in conjunction with trade unions. People have sat down together and reached solutions, so again, if that was going to happen we would have been seeing evidence of that over the last two years, and there certainly has been none of that.

Regarding the issue of putting employers at a competitive disadvantage, employers already have to account for defined benefit schemes within their balance sheets, so I am not sure that putting a contingent debt on the employers, from a balance sheet perspective, is going to make any significant difference for most employers. It is already there, and is already accounted for in their books, so again, I do not see that as a huge problem. As this is a contingent liability, it is only triggered, and only comes into effect, if the employer is trying to wind up a scheme that is not fully funded. From an accounting perspective, it is not a real debt, and it is already in the balance sheet in some form anyway.

I do not intend to introduce legislation which is ultimately going to drive some companies into insolvency. I realise that we might have to refine that section of the Bill because a solvent company be a company with a very slight excess of assets over liabilities and a pension deficit of €1 billion. It can be a very profitable company with a very small deficit. I have tried to mitigate that by giving the Pensions Authority the right to allow people to pay a lesser sum up to 50%, or to pay it over a five year period with an appeal to the High Court, but that might need to be modified further because we do not want to drive companies into insolvency. That is the last thing we want to do. Would Mr. Moriarty agree with that?

Mr. Jerry Moriarty

Absolutely. If there are any specific circumstances where that might be the case, or there is potential for that, I would certainly agree that should be looked at, because I do not think any employees are going to welcome a situation where they have better pensions but have lost their jobs as a result.

Would Mr. Moriarty agree with our approach in asking the Pensions Authority to examine the minimum funding standard, or should we be asking somebody else to examine this thorny question?

Mr. Jerry Moriarty

I would certainly agree that it should be examined. I think the minimum funding standard looks at a snapshot picture in time, and it looks at what would happen if a scheme were to wind up at that time. However, many companies and schemes will argue that they are in a good position, and there is no reason they should wind up at this particular point in time. While they might have an issue in that, if they had to, they could not pay all the benefits at once, if they look out over the next 40 years when they are planning to pay benefits, they are perfectly fine from a cashflow perspective. I can also understand from a regulatory perspective that because there are no protections which force employers to bring schemes up to full funding, and there is no pension protection fund, which would cover an insolvent employer situation, the regulator might be focused on protecting against that worst-case scenario because there are no other triggers and protections in place at the moment. Certainly, if this type of legislation came into effect, which had that additional protection, I think that would give a very good opportunity to then re-examine the funding standard as it works.

What does Mr. Moriarty think of the pension protection scheme? I know there is a pension protection scheme in the UK but that is a totally different scenario, and a vastly bigger market. Is there any scope for anything similar here?

Mr. Jerry Moriarty

I think it would be difficult, just because of the small size of the market. The danger is, because the market is very skewed as well, there are a very small number of very large defined benefit schemes, which would in effect just be paying for everybody else, like an insurance scheme. It certainly merits being looked at. I know it has been looked at before, but there is a lot more evidence now around how the protection fund works in the UK, and maybe that could be brought into the discussion.

I received correspondence this morning from somebody with an interest in this subject asking me about the institutions for occupational retirement provision, IORP II. We have already had discussions with the Minister on this directive, and there seems to be some conflict about it, judging by the representations we are getting on all sides of the political divide. Does the IAPF have a position on that or any views on that?

Mr. Jerry Moriarty

Not particularly. I think the particular issues are for very small, self-directed schemes, which are mostly for company directors. Our members tend to be more on the large employer schemes. While the Government has been clear that the current IORP directive only applies to schemes of more than 100 members, the intention is to apply it to all schemes. We certainly feel that should not happen, at least until there are suitable alternatives for those smaller schemes. The regulator has been very clear that it wants greater consolidation of schemes, because we have too many small schemes. I think this is a trigger to make that happen, if the governance requirements become so difficult that it forces schemes to do something else. At the moment, those other options that are available are planned to be changed. The regulator wants a new regime for regulating and authorising master trusts, which are multi-employer schemes, or one scheme with lots of employers in it, but those provisions are not in place yet. We also know there are plans to introduce auto-enrolment, where all employers are going to have to put their employees into a pension scheme, and our concern is that, without either of those two options being on the table yet, if a lot of additional requirements are forced on smaller schemes, employers are just going to stop doing anything. We feel that would be a mistake. Until that is in place, the derogation should continue to apply to smaller schemes.

Mr. Moriarty indicated in his statement that only 20% of defined benefit schemes actually meet the minimum funding requirement. Is there a significant cost involved in regularising that and increasing that percentage?

Mr. Jerry Moriarty

Yes, there can be. All those schemes would be on funding proposals, and because of the aggregate figures I gave, where there are more assets than liabilities, for the system as a whole I think it is fair to say most of the schemes that do not currently meet the standard are probably pretty close to getting there. A lot of them would have put in ten year funding plans eight or nine years ago, so they are coming to the end of that. A lot of the schemes would probably have done a combination of things in an effort to get back to full funding, such as reducing some of the benefits within the scheme. Quite often what schemes would do is take out any future promised increases or change retirement ages, which increases the overall funding position, but it will also involve additional contributions from employers, and often from employees as well. There would be a lot of pain in terms of getting back to that full funding position.

It is that pain I want to ask you about. I take it that it is a global figure. For companies that are in a position where they may have to get back to a particular level and where there is employer input, is there a risk this would make such companies less competitive in the marketplace for whatever activity in which they are involved? Do we have any figures to underpin that? While Mr. Moriarty clearly said that many of these companies may be near, the question is how near. Do we have statistical data on the range of companies?

Basically, as only 20% of companies have not reached the minimum funding standard, 80% have done so. The lady who emailed me this morning gave me a figure for the total deficit of the 126 companies that have not registered of €1.8 billion, which means the other 80% of companies must be at €1.8 billion plus the difference, which is €5.1 billion.

I appreciate that. I acknowledge what Deputy O'Dea is saying in terms of the global figure. If one is introducing a mechanism, it is necessary to ensure there are not unintended consequences whereby a particular company may lose competitive advantage in trying to meet the employer contributions.

Mr. Jerry Moriarty

Companies will always argue they can do better things with their capital and spend it on the company. However, that is one of the things they sign up for when they have a defined benefit scheme in place, namely, there is going to be a fluctuation in cost. For companies that go to the other side and go back into surplus, the contributions will start to reduce over time. Certainly, companies are probably spending more than they would have planned. The whole idea of the restructuring plan or funding plan that gets put in place is that it is signed off and agreed on between the company and the trustees, and also the regulator if is for longer than three years. There is quite a bit of toing and froing in the negotiations that go on so everybody can come out with a figure they are comfortable with and can live within. Companies have to look at, first, what they can afford and, second, what they want to pay, and try to get the right balance between them.

I am not nit-picking with Mr. Moriarty but it is not just about what they can afford. The point I would make is that it concerns the cost base and competitiveness of a company with a defined benefit scheme versus a company which is trading against the first company but which does not have that scheme.

Mr. Jerry Moriarty

Absolutely. Those companies would have had the opportunity to close those schemes down. Many of them feel strongly that, as part of the overall benefit structure they offer to employees, it is important enough to continue to offer that. I take the point. There are many other things they would prefer to be spending the money on in terms of making the company more competitive.

Mr. Moriarty understands this is a Private Member's Bill. I want to ask one general question. Are there any elements of the Bill that cause him concern?

Mr. Jerry Moriarty

I would not say "concern". There are probably some technical issues around some of the wording in it. For example, it talks about a situation where if a company decides to wind up a plan, it is the trustees who, technically, will have to wind up the plan. Generally, if the company tells the trustees it is going to stop paying contributions, the trustees are forced into winding it up at that stage. However, I am guessing those technical issues can be picked up on. Where categories of members feel they are being treated inequitably, I am not sure about that in some ways because-----

What I was trying to get at is not so much a winding-up situation because there is legislative provision for wind-up; it is in regard to a restructuring. This is in response to the many representations we have had from company pensioners that they have no input and no part in the negotiations, and they are simply communicated with to say that, as part of the restructuring, the company is going to unilaterally reduce their pension, refuse to pay them cost of living increases or whatever. They simply want an input into that, which is what I was trying to achieve.

Mr. Jerry Moriarty

That helps in terms of context. I understand the point because I hear a lot of those arguments. I suppose pensioners feel a bit left out because trade unions negotiate on the part of current employees and deferred pensioners and people who have left the company probably do not get a lot of say and, other than the fact they are communicated with and have the right to respond to that communication but then, things can move on. It is probably more a question for the Pensions Authority as to what it can do and what the output that would be. I better understand the context now.

To add to the Chairman's question, would it have been better if we put in an appeal to the Financial Services and Pensions Ombudsman rather than the Pensions Authority?

Mr. Jerry Moriarty

It probably comes more within the remit of the Pensions Authority because it is the party that signs off on those restructuring proposals as part of the plans. The Financial Services and Pensions Ombudsman is more specifically in regard to whether there has been malpractice and so on.

That is very clear. I thank Mr. Moriarty. If he has any further comments or observations before we move on to further Stages of the Bill, he should feel free to send them on to me.

Mr. Jerry Moriarty

Absolutely.

I was going to make that point. Mr. Moriarty referred to what might subsequently become technical amendments. If he has any information on those that he could send either directly to the Deputy or to the committee, that would be very useful.

Mr. Jerry Moriarty

I would be happy to do so.

I thank Mr. Moriarty for his attendance. He has been very helpful.

Sitting suspended at 10.26 a.m. and resumed at 11.01 a.m.

I welcome Dr. Laura Bambrick and Mr. Billy Hannigan. We have received the opening statement. I will allow the witnesses to make a presentation and then we will take questions. I draw the attention of the witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the Chairman to cease giving evidence on a particular matter and they continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that where possible, they should not criticise or make charges against a person or entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable. I invite Dr. Bambrick to make her opening statement.

Dr. Laura Bambrick

On behalf of the Irish Congress of Trade Unions, ICTU, I thank the members of the committee for the invitation to have an input into the pre-Committee Stage scrutiny of the Pensions (Amendment) (No. 2) Bill 2017 and to outline the views of congress on the regulation of the defined benefit, DB, model of pension provision. I am accompanied by Mr. Billy Hannigan, national secretary at Fórsa.

Congress is the largest civil society organisation on the island of Ireland, representing in excess of 700,000 workers across the economy. Congress has been to the fore in highlighting the serious need for radical reform in the area of second-tier pension provision. That is not least because fewer than half of all workers have an occupational or private pension to supplement their State pension. A total of 90% of public sector workers do, compared with one in three workers in the private sector.

As the State pension is paid at a flat rate rather than being earnings related, workers without a supplementary pension are exposed to a significant drop in their living standards in old age. Congress represents the great majority of members of defined benefit pension schemes. Most DB schemes were first established in the collective bargaining process, with trade unions and employers agreeing the terms, rules and benefits of the schemes. With pension assets plummeting due to the international financial crisis, many DB schemes, already under pressure, fell further into deficit from 2008. Today, more than 90% of DB plans are closed to new entrants. However, while in decline, approximately 102,000 pensioners, 111,000 active members and 415,000 deferred members draw, or will draw, retirement income from DB pension schemes. As such, the DB sector, with assets under management of more than €62 billion, remains a very important part of pension provision.

Congress has played a leading role in the attempts to rescue the DB system from the sustainability challenges it faces. We have done that in two ways: first, by negotiating the restructuring of individual schemes and, second, by engaging with the Government to strengthen regulation and oversight so that there is greater protection for workers who are members of private pension schemes. We had several meeting with the former Minister for Social Protection, now Taoiseach, Deputy Varadkar, and we had a general understanding that he was well disposed to legal protection to limit, where possible, DB scheme closures.

The publication of the heads of the Social Welfare, Pensions and Civil Registration Bill 2017 confirmed that in several ways: by requiring employers to put forward funding proposals within six months of the actuarial funding certificate, by obliging employers sponsoring DB schemes, whether in deficit or not, to give 12 months' notice of their intention to cease contributions, and by enabling the Pensions Authority to determine a schedule of contributions that will restore to solvency DB schemes which do not meet the funding standing or reserve in circumstances where the employer has failed to engage with the trustees to develop and agree a funding proposal. To date, however, the Government has failed to legislate for these measures.

In February of last year, the Government published an ambitious five-year plan for pension reform, covering the entire pension landscape. One of the roadmap's six strands focuses exclusively on improving protection for DB pension schemes in the form of more effective regulatory oversight and transparency. Disappointingly, the action deadlines set out in the roadmap have been missed.

Congress therefore welcomes the committee's scrutiny of Deputy O'Dea’s Bill and the issues it highlights. In short, as the committee will be aware, this Bill aims to protect DB scheme members against the risk of employers winding up a scheme. It proposes to provide an appeals mechanism for members where a scheme is being wound up by the trustees and to make it illegal for a solvent company to wind up a scheme in deficit without consent. The Bill also proposes to give new powers to the Pensions Authority.

This Bill, together with the roadmap, makes clear that there is political consensus that stronger regulation is required to support DB pension schemes and to protect the interests of members of the schemes. A key weakness with the current regulatory regime is that there are no safeguards to prevent an employer unilaterally deciding to cease making contributions to a scheme or otherwise trigger the wind-up of a scheme. The consequential unfairness of that has been crystallised in a number of high-profile cases where financially secure employers announced their intention to withdraw their support from a DB pension, putting the pension benefits of members in jeopardy.

Congress is aware of some employers' concern that a rebalancing of the regulation of DB schemes will result in a deterioration in the financial standing of firms operating such schemes. We do not accept that it is an inevitable consequence. The purpose of what the Government has proposed and what is proposed in this Bill is to ensure that employers are required to enter into discussions with the trustees to address funding issues where they arise. It is the view of congress that this is entirely reasonable.

Congress sees the scrutiny of this Bill as an opportunity to deliver on the political consensus that stronger regulation of DB pension schemes is required so that the hundreds of thousands of active, deferred and retired members of DB pension schemes can rest assured that their interests are protected and that they will get to enjoy the benefits they have accrued over their working lives. I thank members for their attention. We are happy to take questions.

I thank Dr. Bambrick for her opening statement. I will let each member ask a number of questions and either witness can feel free to respond. I remind members that this is not a general chat about pensions. It is specifically to scrutinise the provisions in Deputy O'Dea’s Bill and I ask that the questions would be formulated in that regard.

I thank the witnesses for coming in and making a presentation which we appreciate. Dr. Bambrick rightly said the Government's proposals have yet to be legislated for. Having studied an outline of those proposals, I understand they do not add much to the existing protections. There is much talk about extra consultation but no compulsion. We are proposing something stronger involving compulsion. The unpaid amount of the deficit will be a debt on the company etc.

While in the case of a wind-up where there is a statutory provision for distribution of assets, my original intention in drafting section 1 was to provide for cases where there is a reorganisation and benefits are reduced across the board. At the moment in cases of a reorganisation there is a certain amount of discretion. I have received representations saying that pensioners have no say in that even though they are often one of the parties adversely affected. I want to ensure that provided a majority of the overall membership is in favour of looking at what is proposed by the trustees by way of reduction of benefits in the case of a reorganisation, there would be some appeal mechanism which includes pensioners. I may not have taken the most elegant route to reach that conclusion, but we can redraft it.

The Department analysis suggests that something along the lines of what we are proposing would be a disadvantage to younger members because in the case of a scheme which is eventually closed down, if the closure is delayed the present beneficiaries can continue to receive their benefits thereby increasing the overall deficit and this would adversely affect younger members.

We also need to guard against driving companies into insolvency. I have tried to do that to the best of my limited ability by allowing for a lesser payment but not less than 50% or having it payable over a five-year period with ultimately an appeal to the High Court. Perhaps we could be more flexible there. Solvency can range from cases where the assets barely exceed the liabilities to very wealthy companies. A pension deficit can be anything from €50,000 to €1 billion or €2 billion. We need to get that balance right.

It has also been mentioned that a proposal such as this would put companies at a competitive disadvantage. They seem to be the main issues raised. I would appreciate ICTU's comments on those.

Dr. Laura Bambrick

On the competitive disadvantage, with the movement towards auto-enrolment another concern raised was that such legislation would encourage companies to close down their pension scheme before this legislation or similar legislation was enacted. Since this legislation was last in the House and since the Social Welfare Bill 2017 coming from Government, we have seen movement towards auto-enrolment albeit that other milestones are being missed. Members will agree there is momentum towards auto-enrolment that did not exist in 2017 when this legislation and the other legislation were introduced.

While auto-enrolment will not remove the incentive and the unfair competition, it will seriously reduce it. DB pension contributions will be much higher than what is likely to be required by auto-enrolment. While there is no current legal obligation for companies to provide a pension, that will soon be addressed. On competitive disadvantage, auto-enrolment will even the playing field because we would regard most employers with a DB scheme as good employers. We share the concern that nothing should be done to put those jobs at risk. While we are eager to have this protection for members of DB schemes, we also want to protect the viability of those jobs. Therefore we are not requesting anything we feel would jeopardise that.

Mr. Billy Hannigan

I will make a general observation about the original Government proposals which were published but not proceeded with. In referencing them I believe my colleague was simply saying there appears to be a degree of consensus that something needs to be done and that employers must have some obligations not to simply shut down schemes. There might be some divergence between the current Bill and the intentions behind the original Government proposals.

The Roadmap for Pensions Reform is a clear statement by Government that something needs to be done. That was the reference Dr. Bambrick made in her contribution. Whether it is done through this Bill, an amendment of this Bill or a combination of the two efforts, something needs to be done.

I ask the witnesses to comment on my point about younger members being disadvantaged by delaying a wind-up that ultimately takes place.

Mr. Billy Hannigan

I acknowledge that where changes to benefits structures are being put in place, there is the potential of a conflict between the interest of the pensioner or the person coming close to pension age who believes they will be fine and the younger member. Unfortunately there is no Harry Potter solution to that. There is a potential for conflict in trying to protect somebody's benefit that is due to become payable in 30 years and Billy's benefit that might become payable in six years.

Picking up on the last point, there can be a touch of disingenuity in trying to effectively pitch the participants in the scheme against each other. I have been a young contributor to schemes and have left organisations before benefiting from them. It is very important that younger employees can have a level of trust in their pension scheme and trust in their employers. If they see their older colleagues being treated poorly or having their schemes withdrawn, it will make many younger employees question the trust in the relationship they have. There is an element of trust in pension schemes, including defined benefit schemes, especially trust in the idea of employees of one company engaging collectively with the scheme, which is probably equally important.

We have referred to the danger of people closing schemes because legislation is coming. I tabled amendments to the Social Welfare Bill 2016 on Report Stage in the Seanad. Of course, if they had been agreed, it could have been law within ten days. I know this committee expedited looking at this issue back in 2017 when we did a legal review of that area in the hope that change could have been introduced in the summer of 2017. It is unfortunate that we have lost two years on the matter.

The Bill makes reference to a number of time periods. I know that Deputy O'Dea is considering a five-year time period. I like the way the Bill does not simply take a snapshot of a company's finances.

Instead of simply looking at a snapshot of the company right now, it considers whether the company has the capacity to restore itself in the next five years. That avoids the danger of an outlier moment of artificial depression in company finances perhaps being used to justify the infeasibility of a scheme as a longer period is under examination. Dr. Bambrick might comment on how that could be used effectively. There may be scope in terms of members making an appeal. That also might need a time period because we want to ensure it is not just a technical opportunity for members to lodge an appeal over a bank holiday weekend or something. Unfortunately, we have seen circumstances where very short notice periods were applied but we would like to ensure there is a reasonable period of notice in this regard.

Will Dr. Bambrick refer to the auto-enrolment schemes? Is there potential in the Bill or in complementary legislation to deal with situations where companies may wish to move from a defined benefit, DB, scheme to an auto-enrolment scheme? I mean where companies are bringing in auto-enrolment schemes for their new, current or young employees but have a defined benefit scheme for others. Will Dr. Bambrick outline what she thinks good legislative practice might look like regarding that transition? Let me give an example. If I have been working for five or ten years and only have a certain number of defined benefit contributions that I have made and the scheme is winding up, do I carry that benefit or how does it work? Does Dr. Bambrick have an outline of what good practice might look like? Will the DB pension systems run parallel within companies or is there scope for the winding up of one scheme to segue into the other in a situation of transition that did not involve insolvency?

A roadmap for pensions has been mentioned a number of times. Without wanting to stray too far, with due respect to the Chair, what we are discussing concerns people who, in good faith have paid into a scheme over their lifetime and expected and planned for a certain level of security in their retirement. Similarly, in relation to the roadmap for pensions, there are issues at present around the contributory pension which again, people have planned for contributed to and paid in to. While the transition from 20 years to 30 years' contributions to qualify for the State pension had been signalled for ten years, I refer to the discussion that has taken place around the move to 40 years' contributions in order to qualify for the full State pension. Might Dr. Bambrick see any parallels for those who have planned and contributed over their working life, only to suddenly find the goalposts moving in that regard?

Dr. Laura Bambrick

I will start with the Senator's last point and work backwards. The Senator referred to the total contributions, the move from yearly averaging to the total contributions method. While we thought the original proposal was that 30 qualifying years would be required, we are now looking at 40 qualifying years. Let me remind members that total contributions is due to come into effect in January 2020. We are talking about it taking effect in eight months' time. We have seen very little progress in that. If that is going to be the new movement, people will have to be informed and know the situation. The Irish Congress of Trade Unions has already received messages from people who are nearing retirement and want to know what number of contribution years they will require. As for those with DB pensions, we think the real difficulty is in the move to the qualifying age with the pension, where in 2021, that is, in 18 months' time people will have to wait until they are 67 years to qualify for the pension. Arguably anybody who has a defined benefit, DB, pension and is nearing retirement, will be able to start drawing it down from 65 years, if not earlier. Those pensioners with DB pensions are possibly in the best of the worst-case scenario in that they will have their DB pension to bridge the time between their retirement and the State pension coming into effect. We would argue that it is the qualifying age is causing the most difficulty for people, rather than the qualifying years of contributions. People have now had to bridge an extra year, where they might not have a supplementary pension to help them and in 18 months' time, it will be a gap of two years. With the total contributions approach, we are very surprised that we have not had clarity to date on that so that we would be expecting clarity very soon.

On that point, I do not think there will be clarity. I think what the Minister has told us is that it is a matter for discussion and a debate. Will Dr. Bambrick clarify the position of ICTU on the issue of the number of contributions and the issue of having at least a ten year lead in time, if the Government is going to increase the contributions requirement by ten years? Will Dr. Bambrick comment on the increase from 30 years of contributions to 40 years of contributions?

Dr. Laura Bambrick

The position of the Irish Congress of Trade Unions is that it should be 30 years and its reason for that is based on practicality. Social insurance coverage was very late coming to Ireland because we did not industrialise until the 1970s. While we had the requirement to pay social insurance from the mid-1960s, very few people in Ireland were working in insurable employment. People who are coming into pension age will find it very difficult to have 40 years of contributions. If one was self-employed, one did not need to pay a contribution until 1991. If a self-employed person is due to retire next year in 2020, it is not possible for the person to have 40 years of contributions. If one was working part-time, one only had to pay a social insurance contribution from 1988. Some civil servants have not been required to pay the full social insurance contribution, so we cannot introduce a standard of 40 years of contributions when people who were in full-time or part-time employment were not required by the law of the land at the time to make a social insurance contribution. Forty years is just not practical. There are other reasons, such as the Senator suggested not giving people enough of a lead-in time, but that for us is the ultimate reason. It is just too difficult for people to reach that goal. It is unrealistic. We have seen the difficulties the 2012 pensioners had but that will be small fry if we introduce a 40-year target in January of next year. We would say that the qualifying age will be the bigger problem for people as the age of eligibility is being pushed out.

When making our submission to the Government on auto-enrolment, it was a concern and is a concern of ICTU that auto-enrolment will cause displacement with current occupational pensions. For some pension schemes, where the contribution is less that the 6% employer contribution, that would be fine and it will bring people up. Our fear would be that the recommended contribution would become a ceiling and not a floor, that employers would reduce their contribution down to the proposed 6% of salary, if that is what it is going to be. Auto-enrolment would displace existing pensions by employers moving over or reducing the level of contribution if it is above the minimum. Another possible fear is that auto-enrolment will displace current good occupational pensions and that these occupational pension schemes will be closed to new members and new members will be auto-enrolled into the State pension and existing workers would remain in the occupational scheme. In our submission to Government on auto-enrolment, we ask that this area will be examined within the first year and in time after that to see if there is a displacement and if there is, that we will look towards the good practice Senator Higgins mentioned.

Timelines were mentioned. We think it is really good, regardless of what they will be, that timelines will be introduced because the current legislation as it exists is that an employer can wake up on a morning and decide it no longer wishes to contribute to a DB scheme, which mostly has the effect of triggering the winding down of that scheme. As there currently exists no timeline, the fear is that if employers see this legislation or other legislation gathering speed, it will accelerate the closure of those schemes.

They can already do that and this is the current legislation gap. Timelines are really important and sponsoring employers are required to come up with a plan in a timely manner to engage. There is room for negotiation on what those timelines should be but the inclusion of timelines is something we support.

Mr. Billy Hannigan

Ultimately, in terms of looking at employers and the provision of defined benefit schemes, Deputy O'Dea is correct that there can be an incentive never to lose the opportunity of some crisis. It does not matter how temporary the crisis is, as a crisis, generally speaking, would not necessarily be visited on the shareholders of a company but rather the employees in a pension scheme. Any piece of legislation that provides a degree of protection to workers in such circumstances must be welcomed. With a defined benefit scheme, a person has with a degree of some certainty - insofar as we can have certainty over 30 or 40 years - to be able to plan for retirement and know what benefits he or she is likely to get when that person gets to 65 or whatever the provisions are in the pension scheme. In defined contribution schemes, as we know, the only certainty is what is put into the scheme. Workers have no idea what investment people are going to make with the money at the end of the day. Where defined benefit schemes operate, they need protection. This is particularly the case where an opportunity arises to take advantage of a crisis, no matter how temporary is that crisis.

Dr. Bambrick mentioned the eminence of the total contributions system and I raised this the other day in the Dáil during Question Time. The Minister told me it is now envisaged this would not be introduced until at least the second half of next year. There is clearly consideration of the 40-year model versus the 30-year model. As the committee knows, the 40-year period applies to the temporary arrangement for the post-2012 people. We have strongly argued and made submissions to the Minister about why it should be 30 years for the proper system, which will go into place next year. I hope we will be successful in that regard. There is also another issue that has been brought to my attention and which will require a decision from the Government. In order to qualify at all for a contributory pension, a person will have to meet 520 contributions paid in total. That used to be 260 and this was unilaterally increased to 520 in 2012 but I do not know the reason behind that.

I take the point on auto-enrolment versus defined benefit pension schemes. The Government proposals on auto-enrolment indicate that where companies have a pension scheme in place, members will not be automatically enrolled and it will be a choice for members. There are a number of issues around that. I take the point about increases if benefits are lower or people losing out. We have made detailed submissions to the Government on that. It invited different political parties to make submissions and we have done so.

I take Mr. Hannigan's point, which has not been sufficiently emphasised in all this debate. It is the fundamental difference between defined benefit and defined contribution schemes. Anybody who has paid into a defined contribution scheme would have seen investment wiped out during the recession because investment managers do not have some sort of hidden wisdom and get things wrong. The auto-enrolment scheme is going to be a defined contribution scheme, which is the problem. I put it to the Minister and I did not get a response but if there is a 2% payment by the State, with 6% coming from both the employer and employee, is it possible that the State contribution could be used to provide an element of defined benefit? This could bring some certainty and people would not be hammered just because the guys who get the money to invest it make a hames of it, get it wrong or are unlucky. Is it possible part of that funding could be used to give more certainty about a minimum floor? I know the floor is already the contributory old-age pension but I would like to think there could be a second floor. The Chairman can confirm that we debated the Estimates for social welfare recently. The €5 per week we gave last year cost the Government approximately €80 million. The fact that so many extra people joined the ranks of the pensioners cost the Government three times that sum, and that trend will continue.

Dr. Laura Bambrick

The Deputy mentioned the 520 contributions that must be made to qualify even for a reduced pension. In the UK in recent years, they have removed the stipulation that they must be paid contributions. They can be a mixture of paid or credited or all credited. That is a good move. If the stipulation for 520 contributions remains and there is no return to the 260 contributions, it may be beneficial to individuals and the type of people, mostly women caring in the home, to have a mixture or allowing credited contributions to be taken into account to make the higher number. That is something that congress has requested.

The 520 number is also required if a person wishes to make voluntary contributions. It changed when the Taoiseach, Deputy Varadkar, was Minister. There used to be a one-year window to make voluntary contributions and now there is a five-year window. I did not succeed in getting the Government to reduce the threshold. If a person has 470 contributions, for example, it is not just a case that he or she would not be in the scheme but such a person could not even make voluntary contributions to make it up.

Dr. Laura Bambrick

I was not aware of that. The Deputy asked if a portion of the total auto-enrolment contribution could have a defined benefit element for the purpose of at least guaranteeing a return. A concern of congress is that we are more or less requiring workers - there is an element of compulsion as there is a small window if people want to opt out - to put 6% of their pay into a second-tier pension. How can we guarantee that they will have some return? Our understanding is that with the limited number of schemes that will be introduced, there will be some sort of timing factor. When people reach a certain age they will automatically go into a low-risk plan, which in itself will guarantee a minimum. There will not be a minimum floor, however.

Ultimately, congress would argue the best protection for workers in the auto-enrolment is not allowing this to be divvied up by commercial pension providers. There should either be a public fund or congress is currently looking at an employer-worker master trust. Instead of being profit-driven, this would be led for the worker's benefit. That is how we are looking to protect the best interests of workers.

Mr. Billy Hannigan

Part of the emphasis in the congress submission on auto-enrolment with respect to investment and minding of money is a view, on the part of congress, that no matter what our citizens think of the State, they at least believe that if the money is entrusted to the public service, somebody will look after it for them. If it is entrusted to investment vehicles, the primary motivation of that vehicle would be how much money it can make.

Looking at the briefing paper the members prepared in the context of the legislation, I read what has to be the most extraordinary statement, namely, that in order to protect people from the potential closure of defined benefit schemes we should do away with them altogether. That is like a suggestion that we should abolish umbrellas in case one would open it on a windy day.

Remarks were made about auto enrolment and total contributions that were somewhat an aside to the Bill. They will be dealt with in separate proceedings of this committee. We expect the Minister to come back to the committee on that. Some years ago the perception was that the total contributions would be over a 30-year cycle but because of the remedy the Minister introduced on the 2012 issue a 40-year cycle is now under consideration. We expect the debates on auto enrolment and total contributions will be dealt with in other proceedings of this committee. We had the Minister here previously. She has made opening statements so they are not concluded.

Before I conclude, are there any elements of the Bill proposed by Deputy O'Dea about which Dr. Bambrick or Mr. Hannigan have concerns or that they believe should be modified in any way?

Mr. Billy Hannigan

In terms of the provisions in the proposal as originally published by the Government-----

Let me stop Mr. Hannigan there. We are not dealing with the Government's proposal today. The Government's proposal is parked. That is its prerogative. This committee is dealing specifically with pre-legislative scrutiny of Deputy O'Dea's proposal.

Mr. Billy Hannigan

Our observation is that perhaps there could be modifications to Deputy O'Dea's Bill to deal with some of the concerns published in the briefing paper. However, the absolute principle underpinning the Deputy's Bill is welcomed by congress because it is to provide protection to people in defined benefit schemes. To be honest, in terms of the mechanics as to whether a more detailed item of legislation or protections over a more detailed timeframe should be introduced, the principle that we would wish to see agreed is that the protections need to be put in place.

Dr. Laura Bambrick

I would echo that.

Does Deputy O'Dea wish to make any further comments?

I will be amending and redrafting the Bill when the pre-legislative scrutiny discussions finish. If congress has any specific suggestions for amendments or anything like that it should feel free to send them either to myself or the Chairman.

Dr. Laura Bambrick

Absolutely.

Despite it being Private Members' legislation the Bill will go through the same process so there will be Committee, Report and Final Stage amendments. On the specific proposal made by Deputy O'Dea, if there are elements of the Bill the witnesses have significant concerns about, whether they are in terms of timelines and so forth, please make those known to the committee. While the Bill is published it will go through the normal Stages so amendments on Committee and Report Stages are possible.

And also the Seanad Stages.

Yes. Deputy O'Dea is open to those amendments. The witnesses might have a look at it and come back to us if anything further arises. I thank Dr. Bambrick and Mr. Hannigan for their attendance today. We are sincere about that offer. If there is anything they believe should be changed, please correspond with us. I thank colleagues for their attendance. The committee is adjourned until 10 a.m. on Thursday, 9 May.

The joint committee adjourned at 11.45 a.m. until 10 a.m. on Thursday, 9 May 2014.