JOINT COMMITTEE ON SOCIAL AND FAMILY AFFAIRS debate -
Tuesday, 5 Dec 2006

Pensions Issues: Presentation.

Chairman

We are in public session. I welcome officials from the Pensions Board, Mr. Brendan Kennedy, chief executive, Mr. Jerry Moriarty, head of investigation and compliance, and Ms Yvonne White, head of technical services and research. Members will be aware that Ms Anne Maher is no longer on the board and Mr. Kennedy is the new chief executive. We wish him well in his new post and wish Ms Maher well in whatever post she takes up.

I also welcome officials from the Department of Social and Family Affairs. Ms Anne Vaughan, principal officer, has been before the joint committee on many occasions. I welcome Mr. Clive Slattery from the Revenue Commissioners and Ms Cloda Ryan and Mr. Eamonn Robbins from the Department of Finance. I hope we have a fruitful meeting.

I remind members that the Select Committee on Social and Family Affairs meets at 5 p.m. this afternoon so we must conclude business at 4.30 p.m. Deputy Stanton is a good cross-examiner so I do not anticipate any problem in that regard.

Before we hear from officials, however, I remind members of the parliamentary practice that they should not comment on, criticise or make charges against any person outside the Houses or an official, either by name or in such a way as to make him or her identifiable. Members who wish to make a declaration on any matter being discussed may do so now or at the beginning of their contribution. Members are also reminded that if there is a possibility of there being a conflict of interest, they should make a declaration of interest now or at the start of their contribution.

I also draw witnesses' attention to the fact that while members of the committee have absolute privilege, the same privilege does not apply to witnesses appearing before the committee. While it is generally accepted that a witness has qualified privilege, the committee is not in a position to guarantee any level of privilege to witnesses appearing before it.

I invite Mr. Kennedy to make his opening remarks, following which the floor will be opened to members and other invited witnesses who may wish to contribute. I am sure issues will be raised, in particular concerning pension tax relief, income continuance and the treatment of pension scheme surpluses.

Mr. Brendan Kennedy

I will briefly go through the submission the board has made in response to the joint committee's letter to it. Our submission deals specifically with the points raised in the letter and I will go through them quickly while making some additional comments.

The first issue concerned the presentations made at the joint committee meetings of 11 and 25 July relating to income continuance plans. We understand that the Financial Services Ombudsman has agreed to examine the issues case by case. As was said at previous meetings, the board has no regulatory function in respect of those plans so there is nothing we can add at this point.

The committee's letter posed a number of questions on frozen benefits. The first asked how many people were entitled to frozen benefits or benefits from more than one pension plan. The board does not have, and never has had, statistics for active members of schemes. Therefore, it has no means of providing the data requested by the joint committee. Furthermore, even in cases where data were available for former members of schemes with frozen benefits, it would be difficult, if not impossible, to estimate how many of them were entitled to benefits in more than one scheme.

The board is aware that an estimate was provided by the Department of Social and Family Affairs, based on discussions with members of the pensions industry. This suggested that the figure was between 100,000 and 140,000 people. The board's sources do not enable it to comment on that figure. We have had conversations and correspondence with the Central Statistics Office and hope to be in a position to begin to collect the data in question with effect from 2008.

The next question related to the cost of revaluing frozen benefits in line with the consumer price index. We are not in a position to provide an estimate in this regard. We know neither the number of members concerned nor have any idea of the value of their benefits.

The next question concerned the number of people in receipt of non-indexed pension benefits. The board does not have data on the benefits provided by pension schemes. In our response we set out the generally held view that approximately one third of pension schemes provided benefits which were indexed to some extent; that one third provided benefits which, although not formally indexed, provided for some increase in pension payments; and that the remaining one third did not provide for any increase. Our experience leads us to believe this is approximately correct but we have no way of being more precise.

We do not have the necessary data to provide an answer on the cost of indexing benefits in line with the consumer price index and the average industrial wage. The cost of increasing benefits would include the cost of increasing them for those already in receipt of pensions, as well a substantial additional amount in respect of increased benefits for those who have not yet retired. We referred in our submission to the difficulty of seeking information from schemes where such information might lead to the imposition of costs or where the board may not have the right under legislation to insist on information being provided. However, we would be happy to correspond with the biggest schemes in order to provide an estimate for the committee of the numbers involved. I remind the committee that participation in the provision of supplementary pension cover in Ireland is voluntary and that issues arise in terms of the effect imposing requirements in terms of minimum benefits would have on the continued willingness of employers to sponsor pension schemes.

Commutation factors apply to most private sector defined benefit schemes, whereby on retirement scheme members may be entitled under the rules of the scheme to surrender part of their pension in return for a lump sum. We were asked by the committee what commutation factors were used. As the Pensions Acts do not specify any commutation factors, they are determined by the rules of each individual scheme. There is no standard set of rules for Irish pension schemes. Scheme rules leave commutation factors to the discretion of scheme trustees, oblige trustees to seek actuarial advice or specify the factors to be employed. In some cases the commutation factor which translates a pension payment into a lump sum is valued at less than the cost of buying the pension. In other words, the lump sum paid to a member as a tax free benefit is less than the market cost of the pension it replaces. Where this occurs, the saving to the pension scheme would fall back into the assets of the scheme, with the result that the scheme's surplus would be slightly increased or, where the scheme was in deficit, the deficit reduced.

Mr. Clive Slattery

I thank the joint committee for giving me the opportunity to discuss this issue. In the submission I forwarded to it in September I noted that the tax legislative provisions governing pension schemes and individual pension products came under Part 30 of the Taxes Consolidation Act 1997, section 772(4)(a) of which extends discretionary approval powers to the Revenue Commissioners for the approval of occupational pension schemes. These discretionary powers have developed into a code of practice which is outlined in Revenue’s pensions manual. Day-to-day interaction between the Revenue Commissioners and pension scheme administrators and their professional advisers is managed by the financial services pensions business unit, in which I am the principal officer and which is part of Revenue’s large cases division.

The committee asked me to brief it on the issue of scheme surpluses. Chapter 5 of Revenue's pensions manual deals primarily with the funding of Revenue approved pension schemes. The tax advantages attaching to exempt approved pension schemes are controlled by the imposition of limits on benefits. The other important control is ensuring excessive funding does not take place. The basic requirement is that the value of scheme assets should not amount to more than what is required to provide the benefits the scheme has committed to pay. It is the duty of scheme trustees and their administrators to monitor a scheme's funding. In the case of self-administered schemes, appropriate actuarial advice should be obtained at commencement and regular intervals thereafter. Actuarial reports are not required for insured schemes where contributions are invested exclusively in policies which provide benefits according to a predetermined scale of premium rates. Particular attention should be paid to employees' additional voluntary contributions.

Paragraph 5.3 which deals with scheme surpluses states there is no objection to a scheme holding a reasonable reserve. In any case where a valuation discloses a surplus in excess of 10% of the value of the fund assets the matter should be brought to the attention of the Revenue Commissioners. Schemes are reviewed on a case by case basis. It is important to protect Exchequer interests by prohibiting the build-up of moneys in a tax exempt fund that could not be used for the purpose of providing relevant benefits. Normally a scheme surplus should be disposed of by augmenting benefits within approvable limits or by reducing or suspending contributions to the scheme. In exceptional cases part of the surplus might have to be refunded to the employer and taxed as a trading receipt. In my experience during the past 12 years, during which time investment returns have been somewhat volatile, it has been rare that a pension scheme has been in surplus. Cases arose in which scheme trustees informed Revenue that a scheme was temporarily in surplus. Our response in all cases was to allow this to continue for a couple of years while observing developments.

The invitation extended to me advised that the committee would deal with specific issues which had arisen, including pension tax relief and income continuance schemes. I trust it will accept that that is a broad range of issues. If members agree, I will go into detail on issues about which they would like to learn more.

Deputy Stanton

I am somewhat intimidated by the representatives appearing before the joint committee today because they are experts in what is a very complex area. I ask, therefore, that my ignorance be excused because I find it difficult to grasp many of the issues under discussion, as is the case, I am sure, for many of the ordinary people I represent. In case I might be accused of self-interest, I note that, as a member of the Teachers Union of Ireland, I have an income continuance plan and participate in a pension scheme.

A number of issues arise. According to replies to parliamentary questions I tabled recently, the cost of income tax relief relating to pension contributions was €2.7 billion in 2002. Could Mr. Slattery give the committee an estimate for the current year? Significant moneys are involved and I am concerned that the pensions industry needs to be supervised firmly and carefully for the benefit of the ordinary man on the street. Pensions are extraordinarily complex. Although I generally absorb information easily I find this difficult. Pension law enforcement and mis-selling, which is unprofessional and unethical but not illegal, are concerns that have been brought to my attention. People are at risk if products are mis-sold to them and there is a major information gap. A culture of "let the buyer beware" pervades the entire industry and, as a result, employees are vulnerable to exploitation, particularly in the public sector where pension optimisation computations can be very complex.

Apart from the usual factors such as age, service, deficit, taxation relief, disposable income and pension aspirations of the individual, one must examine pension regulations and limitations and how the normal occupational pension entitlement combines and interacts with the employer's notional service purchase, AVCs, PRSAs and the State pension, particularly if the individual is close to the average contribution threshold. Public servants need an advice centre to make personal pension enhancement decisions. Given the significant vacuum in information and advice, it is not surprising that public servants, given their lack of knowledge, could fall victim to ill informed or more predatory selling practices. The Pensions Ombudsman referred to the information problem relating to public service pensions in his annual report in 2005. Serious problems must be addressed.

Is it correct that AVC sales consultant scheme administrators are at liberty to sell their pension product without obligation to advise employees of potentially better financial choices available via the NSP alternative? If so, are public servants losing out by not making the switch to notional service, which is a defined benefit? The arrival of cost effective PRSAs does not alter the legal issues but it creates competition. However, is it true that some are protecting their AVC services and do not welcome competition? Mr. Moriarty and Mr. Kennedy will be familiar with the Denis Lynch case, which is pending. He has given me permission to say he was awarded €5,000 in damages for failure on the part of administrators to advise him, as required by pensions law, on retirement of his right to purchase an NSP with his AVC fund, as per the 2002 Pensions Act. The committee needs to seek independent advice to address many of these complex issues.

I am also concerned the Pensions Board is having difficulty obtaining information and I thank Mr. Kennedy for his explanation in this regard. Another issue relates to income continuance plans. The committee received a letter from Ms Anne Vaughan, a principal officer in the Department of Finance, which states:

Workers who are members of corporate or employer sponsored plans do not have access to a suitable avenue of redress in the event of difficulties with a scheme. As the schemes in question are insurance policies, the normal avenue of address would be through the Financial Services Ombudsman. However, the structure of the schemes in question militates against this and there are also issues in relation to the disclosure of information to the members of those schemes.

What are those issues?

Light needs to be shone on the pensions issue. Has the board sufficient manpower, expertise and authority to do what is expected of it under the Pensions Acts? On 30 November, I asked the Minister in a written parliamentary question "his plans to require directors and trustees of pension schemes not to belong to a scheme operated or administered by the firms and agencies responsible for the schemes operated on behalf of their employees or scheme members". He replied that the Pensions Board was being consulted about this but it is not aware of such practices in the industry. Has the board inquired into this?

Some 40% of occupational pension schemes that report to the board fail to meet the funding standard required under legislation and last January I asked the Minister the action that would be taken on this. At the end of the day, I was informed there was no magic formula to address the issues, that he was aware of the concerns expressed and that he would ask the Pensions Board to review the issue. Has that happened? On 3 November last, I asked about the estimated amounts charged by insurance fund providers and intermediaries and other agents in each of the most recent four years for which data are available in setting up and paying annuities and other benefits under personal private and occupational schemes. The Minister replied, "The Deputy should note the administration of pension schemes is primarily the responsibility of the scheme trustees". Who minds the minders?

A lack of disclosure has been the most significant source of misunderstanding regarding income continuance plans. This is ongoing and it is unclear where this will end. I am sorry I am jumping from pillar to post. How does the board or the State monitor or audit value for money on behalf of the taxpayer relating to the massive subsidies on pension contributions? Many people do not invest in pensions, despite the €3 billion State subsidy, because they are not getting value for money from the industry. How could the Pensions Board improve this perception so that take-up would increase? We would welcome additional State investment to encourage take-up but the perception issue needs to be tackled.

It may not be possible to obtain replies to all the questions I asked but perhaps the representatives will reply in writing. The committee may need to revisit the issue in depth.

Chairman

The Deputy asked myriad questions. I hope the officials will reply in writing to the committee regarding any questions not answered orally. I am aware it might not be possible to have all the information to hand. However, we anticipate that the board will reply to individuals who raised issues and also to the committee so it will be aware the issues were addressed.

Mr. Kennedy

The board will be happy to respond in writing to the extent that we cannot deal adequately with the issues here. I will answer a number of the questions and my colleague, Mr. Jerry Moriarty, will deal with those that are specific to the board.

On the question of resources for the Pensions Board, we are currently engaged in a review about the way the board supervises pension schemes and exercises its legislative responsibilities to give adequate protection to members and ensure it prioritises the most important risks to members of pension schemes. Part of that review must be the resources required by the Pensions Board to provide adequate supervision. The board is considering a report at the moment. It is also engaged in discussions with the Department of Social and Family Affairs and the Department of Finance.

A subgroup of the Pensions Board is currently examining the funding standard. As of the end of 2005, one third of defined benefit schemes failed the funding standard in that if they wound up at that point they would not have had enough money to pay their benefit commitments. In the great majority of schemes that failed the funding standard, additional contributions are made to restore the schemes to a position of being able to meet their funding obligations.

Failing the funding standard is not the same as being insolvent. It means that at a particular time additional contributions are required. We will have more figures at the end of this month and we anticipate an improvement in the situation because the environment for schemes has improved and also because substantial additional contributions are being made in many cases by schemes. There is also a process within the board of re-examining the funding standard to make sure it is appropriate and achieves the right balance between encouraging continuation of schemes and providing adequate protection for members, because that is a balance that must be achieved.

In terms of the board monitoring the value for money of the tax supports for pension schemes, the value for money issue is specifically a matter for the Department of Finance. However, the board made specific recommendations in the national pensions review, published in January, particularly as regards improving the perception of the tax supports for pension schemes in order to improve equity among taxpayers and also to make those supports more obvious and easier to understand, because everybody in the Pensions Board is aware of the complexity of tax relief for pension schemes.

I will ask Mr. Jerry Moriarty to address the committee's concerns about pensions misselling and connected issues.

Mr. Jerry Moriarty

The issue in question is the sale of AVC products to public servants. Everything connected with pensions is complex and this is particularly complex. There are two means by which public servants can enhance what is provided under their pension schemes — by purchasing additional service through the public service scheme or by purchasing AVC products, which are often actively sold through trade unions. The people who actively sell defined contribution AVC products are not regulated by the Pensions Board. These are sales products and are regulated through the Financial Regulator. Those people are only authorised to give advice on products of which they have knowledge. They would not be deemed to have knowledge of the public sector scheme and, therefore, would not be in a position to advise someone as to the merits of one product versus the other.

Part of the reason AVC schemes are so popular is that they are not subject to the same restrictions as the public sector scheme. It has happened that people who have gone in one direction have reached retirement only to find that they would have been better off going in the other direction. There is an information gap. It is very difficult when purchasing any financial product to work out what it will do in the long term. There is also the benefit of hindsight element. The Pensions Ombudsman has spoken about the information gap, particularly in the public sector. That is one of the issues we want to address as part of our review.

Chairman

There was a question regarding correspondence with the Department of Social and Family Affairs.

Ms Anne Vaughan

The Chairman might be referring to an earlier letter. I sent the committee a letter last week. I am not sure if the committee was in a position to circulate it. It may not have been. After our last conversation we discussed the position with the Department of Finance and with the Department of Enterprise, Trade and Employment. To give the positive news first, the Financial Services Ombudsman is now happy that, on a case-by-case basis, he can take issues relating to all income continuance plans. The Pensions Ombudsman may have been saying to the committee that there are different types of income continuance plans and that regardless of who the beneficial owner of them is — nothing is simple — he or she can now go to the Financial Services Ombudsman. Everybody with an income continuance plan has an avenue of redress. I have written to the committee but, to be fair to the clerk, I wrote to the previous clerk so the letter may have gone astray.

We discussed the issue of disclosure with the Department of Enterprise, Trade and Employment. I have written to the Department to ask it to look at the issues because I believe the way forward is in the information that is given to the employee as part of his or her contract. Income continuance plans are complex, as are pensions, but where there is a link between the two the employee needs to understand that. I am hopeful that this will be progressed. We will keep the committee posted.

In regard to what the Pensions Board is saying vis-à-vis resources, the Department is very supportive of what we are trying to do. We obviously must agree it and agree it with our friends in the Department of Finance. However, there is a willingness to accept what it wants and the way it wants to do its business in the future. Parliamentary questions have been put down on a number of issues. The Minister may have asked whether there was a particular case. That is what is said in both the social welfare and occupational areas. We would be more than happy to take that up. I understand the board is not aware of the issues raised, but that is not to say there is not an issue to be addressed. I fully accept there is.

I will take the opportunity to mention the Green Paper on pensions. I would not disagree with the Chairman and Senator Terry in regard to the macro area. The Green Paper which the Minister has promised by the end of March gives us an opportunity to set out all the issues. By definition, it sets out the issues, the challenges and the possible options, and people will be able to comment on it. The Green Paper is under a partnership umbrella because it arises from a commitment in Towards 2016. Broadly speaking, it includes an examination of demographic projections, social welfare pensions and all the issues of which members are aware from their clinics as well as what I term "legacy issues". It will look at occupational pensions, PRSAs, the personal pensions and the point made by Deputy Stanton on the interface between the two. In defined benefit schemes, the promise to the employee is the payment of a half or two thirds of salary, taking account of the social welfare pension, so that the social welfare pension is part of that package. The tax advantage is a pillar of occupational pensions. That must be on our radar for the Green Paper. There are more specific issues, but if members have particular issues they wish to raise, we are open to putting them on our radar.

We are willing to return to the committee if members would like us to talk them through the Green Paper.

Senator Terry

I wish to highlight a number of issues which I have highlighted before. Deputy Stanton learned that in 2002 the cost of income tax relief relating to pension contributions was some €2.7 billion and the figure was probably higher last year. Has the Pensions Board or the Department of Finance conducted a cost benefit analysis of the tax foregone as against the cost of social welfare pensions? As the tax foregone for occupational pensions is greater than the cost of social welfare pensions, are we getting value for money?

As far as I am aware no study has been carried out. It would be a good exercise for the Pensions Board to conduct such an analysis. Mr. Kennedy, the new chief executive, might like to take that on and make recommendations on whether the Government and taxpayers are getting value for money in the tax foregone and whether the pensioner is getting value for money. The majority of pensioners are dependent on social welfare for the major part of their income in retirement.

In response to my questioning of the Pensions Ombudsman, Mr. Kenny, at a committee meeting, it was discovered that thousands of people were not drawing their pension entitlements from their occupational schemes. People may have worked for a number of years and paid into a company scheme and then moved to another company and on retirement were paid a pension. Nobody reminds them that they may have paid into a pension scheme in an earlier period of employment. Are the Department of Social and Family Affairs or the Pensions Board doing anything to ensure that people are reminded of that fact? Does the Pensions Board have figures on the numbers involved?

We have raised other issues at meetings. For example, after 20 years in retirement a public sector pensioner is three times better off than his private sector counterpart with frozen pension benefits. The reality is a sad indictment of how badly served many pensions are. We need to know the number of people with deferred pensions — frozen benefits. I welcome Mr. Kennedy's commitment to get the information on the number of people in the top 55 schemes. However, I would like to know how long it will take to get this information as we need it for the Green Paper. We will leave the issue of the cost of remedying the pensions for another date. Does Ms Vaughan have information on people with frozen pension benefits as I would like to have this information included in the Green Paper?

I have a number of questions for the Pensions Board and the Department of Finance on the payment of a tax free lump sum on retirement. Let me give an example of an individual who opts to take a lump sum of €60,000 tax free and by so doing will forfeit an annual income of €7,000 from his or her pension. We encourage people to take out pension policies, but by giving a tax free lump sum payment, we encourage them to reduce their income stream. It is really bad value for money. The pensioner could borrow €60,000 from the bank at a cost of €3,000 at current interest rates, so it would be much cheaper to leave the money in the pension fund, providing a good income stream, and borrow the €60,000 if it was really needed.

I tabled a motion on the Adjournment on this issue. I thought the Department of Finance was being disingenuous when it stated that the tax free lump sum option has always been viewed as a major attraction in incentivising private pension provision and that I appear to suggest that we should pay people in some way not to draw it down. I thought the writer was blinkered. I asked if we could incentivise people to leave the lump sum money in place instead of drawing it down. If we want people to have an adequate income stream surely we should be encouraging them to save throughout their lifetime for it. Why do we give it away when they could borrow the money from the bank at a much cheaper rate? I would like the representatives to examine this issue. I welcome the reduction announced last year by the Minister for Finance of the amount people can have in their funds. I hope he will do something further in that regard this year. However, I have seen nothing so far to indicate this will happen.

I would welcome a review of the board. Any review that would bring about greater protection and supervision of pension schemes would be welcome. Legislative change may be required to allow the Pensions Board greater authority in ensuring trustees and companies do what they can to protect members' interests. I do not believe the board currently has these powers given the abuses in this area.

On funding, we have played to the industry in extending the periods by which they must put in place their funding standards and not making demands on them in that regard. At the end of the day, even if we extend the period by ten years or more, they will close if they so wish regardless of what we do.

Deputy Stanton

I would like to know whether voluntary whistleblowers have assisted or tried to assist the Pensions Board? Is this type of issue covered by the Pensions Act and has it ever arisen?

Senator Leyden

I am delighted there are so many senior people here today from the Pensions Board, the Revenue Commissioners and the Departments of Social and Family Affairs and Finance.

I believe the Pensions Board has been inactive in terms of a pension scheme for local authority members. Approximately 900 local authority members, working for the State on behalf of the public, have no pension scheme whatsoever though they do receive a small remuneration which is regarded as a representative allowance. During my time as a councillor this was recorded on my pay sheet as part of my wage.

Local authority members are not members of any pension scheme and the Pensions Board has done nothing about this issue. It has, as far as I am concerned, ignored this issue. The Department of Finance has been accused of preventing the Minister for the Environment, Heritage and Local Government from furthering this idea. The Department of Social and Family Affairs will not allow local authority members to register for the higher rate of PRSI which would enable them to qualify for a State pension on reaching 65 years of age. These are people who serve the public just like politicians. However, we are entitled to a generous pension for serving the public if and when we retire from public life. This is an anomaly about which nobody is prepared to bell the cat. The Irish Independent in an article on 12 October 2005 criticised the fact that this pension would be paid in light of difficulties in the health services. This is appropriate, however, given the €10 billion in taxes collected last month.

I will summarise the situation. Representations on this issue have been made by the Local Authority Members Association, LAMA, an organisation which represents local authority members and is supported by the Association of Municipal Authorities of Ireland, AMAI, and the Association of County and City Councils, ACCC. My colleagues in the Seanad have been supportive of this matter also.

Perhaps the representatives from the organisations present will give clear and open consideration to the needs and demands of councillors who serve the public on a full-time basis. Local authority work is increasingly demanding. I attended a meeting last night in Roscommon in regard to water rates at which all the local councillors were present. Councillors are out working most nights of the week. However, they have no cover if they get sick and do not qualify for a pension on reaching 65 years of age. There is an anomaly in that regard.

I am proposing that the Local Government (Superannuation) Act 1980 and Local Government (Superannuation)(Consolidation) Scheme 1998 be extended to allow elected members of local authorities the option to avail of the local authorities pension scheme and that this be pursued in consultation with the councillors' representative organisations. I use the word "option" because some councillors are contributing to State pension schemes through their involvement in work for the State or in the private sector and may not wish to avail of such a scheme. The Chairman is a former councillor and has family members involved in local authorities as I have. I believe such people are getting a raw deal.

A person who takes up employment in a local authority is entitled to avail of the pension scheme. However, the Pensions Board, the Revenue Commissioners and Departments of Social and Family Affairs and Finance will not co-operate in or assist local authority members in this regard. I am sure all of the representatives before us are entitled to a very generous pension. However, they cannot find it in their hearts to assist these 900 local authority members get their entitlement. It is a scandal. I am delighted to have the opportunity to raise this matter today. I am sick, tired and sore making representations to the Minister for the Environment, Heritage and Local Government in this regard. I am now making a public appeal to the representatives, as decent officials of the State, to give careful consideration to this issue. I do not expect them to come up with a resolution today. I am asking that they study the matter in consultation with their officials and the Government to see if they can come up with a method by which local authority members could be entitled to PRSI cover or to avail of a pension scheme to be administered by local authorities.

Chairman

We did not anticipate that issue arising today. Is the Pensions Act 1990, which has been in force for some 16 years, outdated and no longer capable of fulfilling its functions? Is it not time this legislation was updated? Is it also not time that income continuance plans were incorporated into this legislation and that the Pensions Ombudsman received additional powers, as requested by him at this committee on a number of occasions? Does not doing so constitute a major dereliction of duty? We have been pursuing this matter for the best part of a year and have made suggestions such as that the Act be amended to provide various people with additional powers.

Having examined this issue, does Mr. Kennedy believe there are deficiencies in the Act? Are there areas in which the Pensions Board would like to get involved but is prevented from doing so by the Pensions Act? Another issue considered by this committee is that of income continuance plans. Ms Vaughan stated earlier that the financial services regulator will deal with this issue. Nevertheless, while income continuance plans are insurance products they have the appearance of a pension product. They have all the indicia of pensions yet they are not pensions. Has Mr. Kennedy identified deficiencies or lacunae in the Act? The Pensions Ombudsman, in his report, indicates clearly and unambiguously the areas where he perceives deficiencies. The Pensions Board has an investigation and compliance function. Do you have similar reservations regarding aspects of matters that come to your attention? Are there issues you feel unable to pursue because you do not have the statutory powers to do so?

Mr. Kennedy

Although the Pensions Act was passed in 1990 it can be amended every year in the Social Welfare Acts. If lacunae are identified there is an annual opportunity, with the agreement of the Minister for Social and Family Affairs, to make changes. That has been extremely useful. I do not think there has been a year since 1990 when some change has not been made to the Pensions Act. The introduction of the Pensions Ombudsman's office is an example of that. We are happy that mechanism exists and that we get good consideration from the Department of Social and Family Affairs when issues are identified. The Pensions Board has a legislative responsibility to advise the Minister for Social and Family Affairs and that includes, in the normal course of events, discussion among board members of what amendments it might like to see to the Act, on an annual basis. We are certainly happy with the mechanisms available to us.

With regard to specific further changes we would like to see, we always welcome comment, particularly from Mr. Paul Kenny, the Pensions Ombudsman. He is in a position to identify issues, through consideration of cases presented to him that we would not necessarily see. His comments are always of great interest and importance to us. We note his recent comments on particular aspects and some of them were taken into consideration in our recommendations to the Department for the 2007 Social Welfare Bill. We also anticipate that we might identify changes we would like to see to the Act, as a result of our operational regulatory review, which we referred to earlier. An aspect of reviewing the way we regulate schemes and their administrators and trustees is identifying powers that might lead to more efficiency. At this point I would not like to identify more specific incidents where we see shortfalls but where we identify such shortfalls we certainly see it as our responsibility to bring them to the attention of the Department. We are happy that we have always received a sympathetic response from the Department.

Ms Vaughan

Since the Pensions Board says the Department is very supportive I will not disagree with that. Every year significant pensions legislation is included in the Social Welfare Bill and there will be some this year. I do not think the Act is outdated, unless one is to put it all aside and start on a totally different basis, which might be less prescriptive and more principled. That is talked about. The better approach is to build on what we have and to look at lacunae where they are identified, by whoever. As Mr. Kennedy said, the Pensions Ombudsman's office was established in 2003 with a specific remit. It is an independent office. However, in consultation with the ombudsman, we would certainly examine any proposals for change that he brings forward. For example, the board has sent the Minister a review of the issue of trusteeship. The Pensions Act works through trustees. One might ask if that is the best approach. The board has done a review for us and I believe it is the Minister's intention to publish it shortly. It contains proposals for change following discussion with people out there. Those changes will not be included in the forthcoming Bill but possibly in the 2008 Bill. That is how we address the issue of updating the legislation.

In response to Deputy Stanton's question, there is significant provision for whistleblowing, both voluntary and compulsory, in the 1996 Act. Certain protection is available to voluntary whistleblowers and compulsory reporting must be by certain named categories of persons in certain circumstances. That is how we are moving forward.

For the moment we must agree to disagree on income continuance plans. They are, in themselves, insurance products. They exist separately and, as such, do not come under the remit of the Pensions Act. As insurance products they are caught by other insurance legislation. Obviously, there can be an overlap with pensions and this can cause confusion. Some time ago a consultants' report on income continuance plans was prepared for the board and the Department of Enterprise, Trade and Employment. Their recommendation, which was supported by the Pensions Board, was that income continuance plans should not come within the remit of the Pensions Act. These are not issues that are done and dusted. We could review them. However, the fact that the Financial Services Ombudsman sees that he can take them under his area suggests to me that they tend to be more insurance products than pensions.

Chairman

They are a recent development.

Ms Vaughan

Yes. Income continuance plans where the employee was the beneficial owner had a right of redress direct to the Financial Services Ombudsman. The problem arises where the beneficial owner appears to be the employer and the employee is the one seeking redress. I am told by the Department of Finance that the Financial Services Ombudsman, on foot of legal advice, is happy to take those cases.

Every year we make significant changes. In 2002 we made changes to do with vesting and preservation, brought in the Pensions Ombudsman and introduced the PRSA structure. In the following year we made our pensions arrangements fully compliant with EU equality directives.

Chairman

Why not have a consolidated Act? Are these piecemeal amendments not part of the problem? They are not satisfactory. Why not consolidate the code?

Ms Vaughan

The short version of the answer to that question is that the Pensions Board provides an excellent legislation service that reads like a consolidated Act. I fully accept that the code is not legally consolidated but the legislative services from the Pensions Board read like a consolidated Act.

Chairman

I accept that. Nevertheless, can the Pensions Board, the Department or someone not make available to every pension holder in the country a simplified code of entitlement and of the rates of return on various levels of contribution? This is where the confusion arises. Deputy Stanton and Senator Terry, who appear to have considerable expertise in this area, say it is impossible for an ordinary person to understand pension plans. Surely we have a responsibility to ensure that ordinary people who invest in pension schemes know what they are putting in and what they will eventually get out.

This is the nub of the issue that has been exercising our minds for 12 months or so. Our guests are experts who know the situation inside and out, but even we are wrestling with it. We deal with legislation and have opportunities to get explanations from people such as our guests, that help significantly, but how can we assure ordinary people on the street regarding what to anticipate if all goes well? There are many types of internal market difficulties and we are all prisoners of the great market.

Ms Vaughan

I will ask two people to reply because the committee's time is tight.

Chairman

We want to ask Ms Ryan because she has been patient.

Ms Vaughan

I was going to ask her to speak about the Department of Finance's calculator in respect of the public sector. Perhaps my colleagues on the board will say a little about what they have because it is good.

Ms Cloda Ryan

To reply to Deputy Stanton on communication, we are aware of the need for improvements and have been working in the Civil Service for the past two years or more in that regard. It is a complex area. As there is increased mobility in the workforce and atypical work, people have different types of working structures and may not be clear on their entitlements.

In October 2004, we launched the Civil Service pensions information website, www.cspensions.gov.ie, which includes a series of frequently asked questions and a pensions modeller. One can go to the modeller, insert one’s age and service and anticipate what one’s pension would be at the current rate. One can choose whether one will retire at the minimum or maximum retirement age. One can also determine the impact of reducing one’s working week to three days or four days, which people have found to be an effective instrument. Upon seeing how much a three-day week would damage their pensions, as it were, some have increased their hours.

In the past two years, we have had a programme of communication with Departments via letters, seminars and workshops. Today, one of my colleagues is addressing personnel officers on the requirements under the pensions disclosure regulations to enter into effect in January and advising them on best practice. The Minister for Finance has direct responsibility for the Civil Service only, but our aim is to set up a model that we can encourage Departments to roll out to various State bodies. While many public service schemes are similar, each is different and will have its particular nuances.

A superannuation handbook is available to practitioners in hard copy format. Its updating is almost complete and it will be launched electronically for access via the Internet. We hope to launch it before the end of the year or in early January. If it would be helpful, someone could talk the committee through the electronic version when it becomes available. As a practitioner's handbook, it is quite technical, but the information would be available.

Mr. Kennedy

The Pensions Board has a range of publications to explain the important details to those unfamiliar with pensions. On our website, we have a pensions calculator that allows any member of the public to estimate how large a pension he or she may receive on the basis of the contribution made. Perhaps most importantly, the disclosure regulations we are working on with the Department of Social and Family Affairs will require that members of all schemes will be provided each year with a simple projection of the benefit they are likely to get upon retirement. In drawing up the regulations, a straightforward explanation rather than a detailed technical document is necessary.

Senator Terry

I asked a number of questions, but I have not received any reply.

Chairman

We do not have much time because we must adjourn shortly. The Senator's last question was detailed. Who will answer?

Senator Terry

I asked one or two questions, but I do not know whether people were listening to me.

Mr. Kennedy

I will answer briefly because I have notes on the questions. Value for money of tax is a Department of Finance issue primarily, but included in the national pensions review, which the board provided, was a modelling of the effects of tax reliefs and projections of the tax forgone and the tax income 50 years hence. Tax support for pensions will be addressed in the Green Paper next year and everyone is aware of the importance of the issue.

The Pensions Board is aware of the issue surrounding reminding pensioners of their entitlements and our data on same. In our discussions with pension trustees and administrators, we emphasise the need for them to make greater efforts to pursue people who may be entitled to schemes' pensions, but have not drawn them down. It is an additional consideration that we may include in the information provided via our national pensions awareness campaign.

The Senator asked a specific question on how long it will take us to respond to the committee regarding data from the 55 schemes, but I hesitate to give a commitment without checking. The end of January would seem reasonable, but I will confirm in writing.

The Senator's point regarding the effect of lump sums on pensions is valid in that they reduce pensions whereas we are trying to encourage people to have pensions. If people can receive lump sums without paying tax, they will give it consideration. There is a question of balance because, in some cases, the lump sum may encourage people to take out pensions whereas they would not otherwise do so.

Senator Terry

The advantage to the pensioner is not always real, that is, it is never highlighted that he or she could borrow more cheaply. Concerning the provision of information to customers, to which Deputy Stanton referred, people are not told of the loss the tax free lump sum could bring about. It may seem an attractive offer, but whose job is it to point out to people that they will lose money?

Mr. Kennedy

I agree with the Senator and we are reviewing the information that should be provided at the point of retirement.

Deputy Stanton

What is the situation regarding the notional service provision versus the AVCs for public service workers such as teachers? Which would be better, if someone is 60 years of age? The Pensions Ombudsman stated that there is an information gap. Will Mr. Moriarty update the committee on the case of a man who was not advised?

Senator Leyden

Should the matter go before the Minister with responsibility?

Chairman

The matter should be addressed at government level. It is a political issue.

Senator Leyden

Is not the Pensions Board independent?

Chairman

Yes, but it advises the Government. The political masters make the decision. I will send a transcript of the points made by speakers to our guests, including those of Senator Terry that were not responded to. We hope that the Pensions Board will, in deference to the Deputies and Senators who made those points, respond with detailed and comprehensive replies. They have raised a number of extremely important issues which they have been pursuing for a number of months.

I thank the witnesses for attending what has been a useful discussion on a variety of complex issues. We note that a process of simplification is taking place and hope that, while it will never be as simple as ABC, pensioners and pension applicants will be aware of their entitlements and the impact of the contributions they make, because that is important.

I am sure the witnesses will be invited back before the joint committee in the future and we look forward to receiving replies to the various issues raised which they were not in a position to address today.

The joint committee adjourned at 4.50 p.m. sine die.