Seanad Éireann debate -
Wednesday, 9 Feb 2005

Vol. 179 No. 6

Pension Provisions.

Ms Terry

I thank the Minister of State for coming to the House to respond to this evening's Adjournment matters. The Minister of State may be aware that the Government is to provide €500,000 to the pensions board to fund a national pensions awareness campaign this year. I am concerned that the pensions board will use the money to sell pension products by pointing out their benefits and informing people of the reasons they should provide for their retirement. I have heard the arguments involved for a long time and have raised in the House on a number of occasions the pitfalls of pensions.

Many people rang in to a radio discussion last week to tell the programme producer about their disappointment with the pensions plans into which they had paid for many years. As they approached retirement age, they were told by their providers that their pension schemes were underfunded or were being wound up. We never hear the pensions board advising people of the risks attached to pension schemes. In the interests of fairness and transparency, 50% of the €500,000 being provided should be spent to highlight the disadvantages or risks attached to pension schemes. The risks are not highlighted currently and people buy into pension schemes unwittingly without sound advice or information. As the Minister of State knows, the result of the McKenna case was that 50% of funding to inform a referendum debate should be spent equally on either side of the argument. I ask that the same happens here. We must have transparency. People are not receiving adequate information on how they should invest their money. They are realising after many years that they will not even get back the money they invested in their pension schemes.

In anticipation of this matter, I read last night through a document all Members received from IFSRA in which it set out its strategic plan for 2004 to 2006. While I would like to see the policies set out by IFSRA applied by the pensions board, I see nothing of the sort in any of its documentation. IFSRA plans to introduce in 2005 an integrated and harmonised code of practice for all financial services providers. As part of this project, IFSRA will endeavour to ensure that product costs, risks and benefits are explained clearly by financial service providers in the documents they provide to customers. IFSRA intends to produce new advertising rules and guidelines for financial service providers to ensure products and services are clearly explained. IFSRA points out that it acts in the best interests of consumers and works with integrity and transparency.

While I do not contend that the pensions board does not act with integrity, there is a lack of transparency in its operations. While the board is required to work in the best interests of consumers, it appears to be working in the interest of the pensions industry. The board pushes pension products constantly and the industry gains from the process. The board is not highlighting the risks.

When the pensions industry and the Pensions Board highlight, advertise or promote their products, they should point out that occupational pension schemes do not guarantee benefits, similar to a Government health warning. Financial institutions are quick to point out that a product is State guaranteed but the reverse is not the case and people are not given a warning that the benefits of a product are not guaranteed and may be at risk. A requirement or obligation should be placed by the Government on the pensions board to adopt such warnings in its code of practice and ensure financial institutions adopt that approach. The board works on behalf of consumers and its funding, which is provided by the taxpayer, should be spent fairly to highlight the risks of investing in occupational pension schemes so that people know what they are doing and the board is being fair to everybody at the end of the day.

The number of people who do not have pensions speaks for itself. People have not bought into PRSAs in the numbers anticipated unlike SSIAs. People opened SSIAs because they knew what would be the return on the fixed rate accounts and the risk attaching to the equity-based accounts. However, few people know what the return will be on a pension plan or what it is worth until the time comes and they are disappointed.

I have raised the issue a number of times and it needs to be addressed. I hope the Minister for Social and Family Affairs took my previous comments on board and I ask that my comments in this debate are conveyed to him so that something is done to improve the lot of people on occupational pension schemes.

Mr. Callely

The Senator asked a number of relevant questions, which I will answer as best I can. The allocation of €500,000 is specifically for the campaign to raise awareness of pension issues and the need for people to supplement their current pension plans if they wish to maintain their living standards following retirement. The campaign does not focus on or recommend a particular product but encourages people to consider the options available or to consult with their employers or a pensions provider to identify the most appropriate arrangement for their circumstances. Pension schemes, in general, depend on investment returns to fund future pension needs. Equities are an important part of the investment portfolio of pension schemes and, accordingly, the assets of schemes can vary depending on market conditions.

This Minister will be before the House in the next few months to introduce the social welfare and pensions Bill, which he intends to publish shortly. It contains measures to ease difficulties being experienced by many schemes in meeting the funding standard laid down in the Pensions Act. A statutory review of the overall pensions strategy was due to be carried out in 2006. However, given the limited progress on coverage targets over the past two years, as the Senator pointed out, the Minister has decided to bring the review forward. It will be undertaken this year and it will focus on a range of issues, including coverage and measures to improve the current position.

The Government is anxious to encourage people to participate in occupational pensions schemes or to consider personal arrangements such as personal retirement savings accounts, PRSAs. The pensions board in its report on the national pensions policy initiative in 1998 suggested that up to 70% of those in the workforce aged 30 years and over needed to supplement the basic social welfare pension if they were to maintain their pre-retirement standard of living. Government policy in recent years on pensions has, with the support of the social partners through successive partnership agreements, focused on achieving this target.

A national campaign to raise the profile of pension issues among the public has been an important part of the Government drive in this area over the past two years. In this regard, €500,000 was provided to the pensions board annually in 2003, 2004 and this year to run such a campaign. The objective of the national pensions awareness campaign is to raise public awareness of pensions generally, to educate people about options available and to encourage them to consider the most suitable arrangement for their circumstances.

The Minister does not consider that statements along the lines suggested by the Senator would be an appropriate part of this campaign. The objective is not to sell a particular arrangement or product but to raise awareness and to educate so that people are equipped to make informed pension choices. The disclosure requirements for pensions and PRSAs and the sales procedures for personal products, laid down by Irish Financial Services Regulatory Authority, are intended to ensure people are aware of the issues associated with particular arrangements and that they choose the most appropriate arrangement for their requirements.

The campaign has been extremely successful in raising public awareness of pensions issues. The Minister suggests that as a result of the debate engendered by the awareness campaign over thepast two years that not only are people aware of the need for supplementary income in retirement, but they are also conscious of the risks involved. While there has been success in increasing overall coverage rates, unfortunately, the progress does not suggest that the overall targets are likely to be reached within a reasonable period.

An overall review of our pensions strategy is required to be completed by September 2006. However, given the progress made the Minister decided to bring forward this review. It will address issues of coverage and ways of improving the current position. The Minister expects to receive the pensions board report in June and, at that stage, he will consider what further action is required in this area.

The Seanad adjourned at 8 p.m. until 10.30 a.m. on Thursday, 10 February 2005.