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.