The Bill gives legislative effect to the social welfare elements of the supplementary budget of April 2009. In the context of the current economic circumstances it has been necessary for the Government to take steps to reduce overall public expenditure to restore order to and stability in the public finances. In the context of very tough decisions having to be made across the range of Government expenditure, social welfare was prioritised in the supplementary budget. Almost €21.3 billion is being provided for welfare services in 2009. This represents an increase of €1.7 billion, or 8.7%, on the amount originally provided for this year in the last budget and is €3.6 billion or approximately 20% higher than the actual amount spent in 2008. This additional expenditure arises mainly from increases in unemployment, with the expected average live register figure for 2009 having been adjusted upwards, unfortunately, from 290,000 to 440,000 between the October and April budgets at an extra cost of €1.97 billion.
Significant extra expenditure also arises from the cost of the improvements announced in the October budget which provided for increases of between 3% and 3.8% in the basic social welfare payment rates. At that point, the expected rate of inflation for 2009 was 2.5%. This inflation forecast has, however, not been realised and instead deflation of almost 4% is now anticipated. With social welfare recipients getting between 3% and 3.8% more in their weekly payments and with prices having fallen in recent months, their living standard therefore has been protected.
After this budget, total gross spending on social welfare is expected to account for 29% of gross total Government expenditure in 2009. Putting aside borrowing, the social welfare expenditure provided in this budget is expected to account for €6 out of every €10 of the anticipated Exchequer current revenue from tax and other sources. At a time when Government expenditure must be controlled as much as possible, this very significant investment in social welfare is a clear demonstration of the Government's commitment to protecting the vulnerable and helping those who rely on the State for their basic income.
The Bill provides for certain amendments to the social welfare code, as announced in the Minister for Finance's Supplementary Budget Statement of 7 April 2009. It also provides for amendments to the Pensions Act 1990, the Health Contributions Act 1979 and the Financial Emergency Measures in the Public Interest Act 2009. It does not contain any provisions regarding the Christmas bonus as the budget decision not to pay the bonus this year does not require legislation. As I indicated on the day of the budget, if there were to be a windfall of finances at any stage towards the end of the year, of course this would be the first issue the Government would like to restore. I understand, however, that Senators are concerned about the non-payment of the bonus and I assure them that if at all possible it is the aim of the Government to pay it. It would cost €223 million to pay the 100% Christmas bonus in December 2009. The Government faced very difficult decisions in the budget. We have had to increase taxes and borrowing to pay for the rising cost of welfare services. We did that and avoided welfare cuts as much as we could, but we were also conscious that if we did not make some cuts and savings in the welfare budget to try to keep it at a level that the State could afford, much bigger ones would have to be made later.
In deciding on how to achieve savings of €300 million in the welfare budget, there were no easy options. Everything had to be considered, including a cut in the weekly rates of payment to all welfare recipients. This would have meant taking money from everyone straight away, with little advance notice. It would also have involved the recall of all social welfare payment books, with the distress that would have caused, especially for older people. In the end, we felt that instead of doing this it would be fairer to give people almost nine months notice that the Christmas bonus would not be paid. In making this decision, we were aware that it would be difficult for people, but we felt that the alternative of cutting all weekly payments would have a much greater effect on households and on a greater number of people. It was not an easy decision nor a choice that any of us took lightly, but we felt it was the fairest option.
I will detail the main provisions of the Bill to the House. First, the Bill provides for the changes in the rent supplement scheme that were announced in the supplementary budget. The purpose of the rent supplement scheme is to deal with emergencies and short-term needs that arise when a person suffers a change in circumstances, for example, when a tenant becomes unemployed and can no longer afford his or her rent. There are currently almost 85,000 people in receipt of rent supplement, an increase of 42% since the end of December 2007. The supplementary budget provides for a net increase of €29 million in rent supplement. This consists of an increase of €77 million for additional claims arising from the increase in the live register and a saving of €48 million in 2009 — €75 million in 2010 — as a result of the following measures.
First, from the end of this month rent supplement will be restricted to individuals who have been existing tenants for six months. Individuals who have not been tenants for six months or who are forming new households must be placed on a local authority housing list following a full housing assessment before they are eligible for a rent supplement payment. These measures will apply to all new applicants for rent supplement. Exemptions will apply where a housing authority designates that a person is homeless or a person has already been identified by a housing authority as having a housing need, the person is a tenant of a voluntary housing body — capital assistance scheme tenants — or is aged over 65 or in receipt of a disability type payment. These exemptions will ensure that young people coming out of residential care, such as foster homes, will be protected. Rent supplement will continue to provide support where the housing authorities are not in a position to respond within a reasonable timeframe and where the person is at risk of experiencing homelessness and-or hardship.
The second change being made to the rent supplement scheme is an increase in the minimum contribution that individuals and families make towards their rent. This is being increased by €6 to €24 from 1 June 2009, which will align the rent supplement more closely with the rents that local authority tenants have to pay. In Dublin city this is a minimum of €25.80 a week and averages approximately €59 a week. One of the reported impediments to the transfer of rent supplement claimants to the rental accommodation scheme is the significant difference between the contribution which is required of the tenant under the rent supplement scheme and the contribution which they are required to pay through the differential rent scheme.
The third rent supplement change is a reduction in the maximum level of rent supplement payable by the State in respect of all new tenancies or on renewals of tenancies. The limits will be reduced by 6% to 7% on average, ranging up to 10%, depending on the geographical area and household size and by reference to an analysis of rent supplement and the Private Residential Tenancies Board rent data as well as downward trends in private rents as published by the CSO. As Senators will be aware, trends in the private rental sector indicate that rents have fallen considerably in the past 12 months. This is evident from data available from the Private Residential Tenancies Board and the Daft property website.
I am sure Senators will agree it is vital that taxpayers' money is not used to pay landlords inflated rental prices. This change will help to ensure that this is not the case in respect of new rent supplement tenancies. However, with more than €490 million being spent by the State on the rent supplement, we must ensure that landlords of existing tenants are also not charging too much. To this end, from 1 June 2009, the rent supplements for all existing tenancies will be reduced by €6 to reflect their additional contribution towards their rent and by a further 8% to reflect the impact of the new rent supplement limits. While tenants are contractually obliged to pay the rent agreed to in their leases, we expect landlords to decrease the rent in recognition of the fact that rents have fallen generally and that there are now a large number of vacant rental properties nationally. I urge all Senators to support this and help us to send a clear message out to landlords that tenants supported by the State will not be overcharged.
On a positive note, agreement has been reached with the Department of the Environment, Heritage and Local Government on 1,000 transfers from rent supplement to the longer-term rental accommodation scheme in 2009. This will bring the total number of such additional transfers to 9,000 this year.
The Bill also provides for the legislative changes required to the early child care supplement scheme announced in the budget. The Government appreciates that this scheme has been a significant support to families with young children and we were glad to have been able to introduce it when funding allowed in 2006. However, in the current economic climate, very difficult decisions had to be made in the budget and there were no easy options in reducing expenditure. The early child care supplement cost €480 million in 2008. We need to achieve better results with fewer resources. It was announced in the supplementary budget that the monthly early child care payment would be halved to €41.50 per child from 1 May 2009 and that it would be abolished in full at the end of 2009. However, it will be replaced in January 2010 with a free pre-school year of early childhood care and education for all children between the ages of three years and three months and four years and six months. As Senators know, evidence and research show that children who participate in early childhood education benefit significantly.
The Social Welfare and Pensions Bill provides for changes to the jobseeker's allowance, which are designed to incentivise 18 and 19 year old jobseekers to avail of education and training opportunities and to try to avoid them becoming welfare dependent from a young age. The rate of jobseeker's allowance that will be paid to new claimants under the age of 20 will be reduced from €204.30 per week to €100 per week, with effect from the first week of May 2009. When jobseekers on the reduced rate of jobseeker's allowance reach the age of 20 but still qualify for the allowance, they will be entitled to the full adult rate.
The full adult rate of the relevant scheme will be paid to 18 and 19 year olds who participate in a full-time Youthreach course for young early school leavers or a full-time course in a senior Traveller training centre, qualify for the back to education allowance, BTEA, pursue a full-time second level course or post-leaving certificate course or participate in a full-time FÁS training course. To qualify for the BTEA they must have been out of formal education for at least two years and been in receipt of a jobseeker's payment for at least three months. They can also participate on a PLC course or third level course on the same basis as any other young person and may qualify for a third level grant.
A wide range of opportunities is available. For example, the Youthreach programme for early school leavers provides approximately 3,700 places. Approximately 1,000 places are provided in senior Traveller training centres, 50,000 places are provided nationally on adult literacy training courses and 32,000 places on post-leaving certificate courses. FÁS also offers a range of places, at various levels across a very wide range of disciplines, from sports and leisure to electronics and engineering. As announced on budget day, the Departments of Enterprise, Trade and Employment and Education and Science are also to provide an additional 23,435 places in education, training and employment opportunities and 18 and 19 year olds can be facilitated as part of that.
The reduction in payment rates will also apply to new claimants of supplementary welfare allowance who are under 20 years of age. The numbers affected will be small at first as it will only affect new applicants from the first week in May, but the numbers affected will rise on a weekly basis. Based on current figures and an expected overall live register average for 2009 of 440,000, we expect a weekly average of 5,000 18 and 19 year olds to be affected by this change in 2009 and a weekly average of 9,000 to be affected by it in 2010. These changes have the potential to generate savings of €12 million in 2009 and €26 million in 2010. If take-up of the education and training opportunities is high, less savings will be achieved in the short term, but the long-term savings generated by helping young people to avoid welfare dependency would be expected to be significant.
The qualified adult rate for a spouse or partner payable in these cases will also be reduced to €100 per week. This will mean that a couple, where the primary payment is to the 18 or 19 year old, will get a total of €200 per week, down from €339.90. This applies to new claimants. It is important to note that a number of people will not be affected, those being existing claimants, young people with dependent children, those who qualify for the jobseeker's benefit and people transferring to jobseeker's allowance immediately after exhausting their entitlement to jobseeker's benefit or those transferring from the disability allowance directly to jobseeker's allowance, thereby avoiding a large income drop. Vulnerable 18 and 19 year olds leaving the care of the Health Service Executive will also be exempt. Where an existing jobseeker's assistance claimant under 20 years of age who is being paid €204.30 gets a job and leaves the scheme but loses that job and ends up back on jobseeker's assistance within 12 months, he or she will get €204.30 per week rather than €100. Were this not done, there would be little incentive for those on jobseeker's assistance to take up offers of work.
Senators will be aware that the budget had a major focus on helping people to stay in employment and to return to work, with initiatives such as a €100 million enterprise stabilisation fund, a pilot training scheme for workers on a three-day week and increased training places through FÁS and in the education sector. These will be enhanced by improvements in welfare supports.
The back to education allowance, BTEA, scheme allows qualifying job seekers to return to education and maintain their welfare payments. The number of recipients increased significantly from 5,247 in 2004 to 7,952 in 2008. The Government is determined to maximise the scheme's potential and the Bill provides a number of improvements. Jobseekers who have been out of formal education for at least two years will be able to access the second level back to education allowance once they have been in receipt of jobseeker's allowance or benefit for at least three months, down from six months. Earlier access is also being provided to the BTEA third level scheme. There is a general requirement that a person be in receipt of a jobseeker's payment for 12 months before being able to access the scheme. People can access it at nine months if recommended by a FÁS employment services officer. This is now being extended so that they will also be able to access it at nine months if recommended by one of the facilitators of the Department of Social and Family Affairs.
To respond effectively to the growing numbers on the live register, the changing profile of jobseekers generally and the current employment situation, it has been decided to refocus the existing resources from the back to work schemes to helping people into self-employment. The intention is to support enterprises that will, in due course, create further employment opportunities. To this end, the employee strand of the back to work allowance will be closed to new applicants and the duration of the enterprise scheme will be two years, as distinct from four years. These resources will be used to support significant improvements in the back to work enterprise allowance, BTWEA.
Currently, to qualify for the BTWEA, a person must be in receipt of a jobseeker's payment for two years. Access will now be available much earlier under two distinct schemes. First, people who are entitled to jobseeker's benefit and have been awarded statutory redundancy or been employees paying full rate PRSI contributions for at least two years prior to their claims to jobseeker's benefit can access a shorter BTWEA scheme immediately. This new scheme will be payable for the duration of their jobseeker's benefit entitlement while they are establishing their enterprises, for example, for a maximum of either nine or 12 months. Second, access to the general BTWEA scheme is also being improved. It will now be possible to access the BTWEA at 12 months instead of two years provided a person has an underlying entitlement to jobseeker's allowance. Further flexibilities are being introduced into the scheme, including allowing a person who has availed of it previously and exhausted his or her entitlement to participate a second time after a period of at least five years has elapsed.
The overall purpose of the new arrangements is to assist those on the live register financially to set up a business almost immediately upon becoming unemployed, thereby ensuring their knowledge, skills and expertise are fully utilised at an early stage to promote enterprise and employment in the economy.
The Government has been working since the publication of the pensions Green Paper to table proposals to help the pensions industry. With the recent economic downturn and the significant losses in the equities markets in the past 18 months, it is important to put together a package of measures to underpin pensions provision. The Government's initiative started in December with the announcement of a number of short-term measures aimed at reducing the pressure on underfunded defined benefit schemes by allowing greater flexibility and time to recover funding positions.
In acknowledging the likelihood that some defined benefit schemes are likely to wind up owing to the current economic situation, the measures I am announcing are a timely next step in our response to the crisis. Furthermore, I expect to follow this in the near future by announcing details of the Government's national pensions framework which will set out the long-term future of pensions policy. People should be confident and secure about their retirement expectations. They should not arrive at pension age and find that their incomes are well below what has been promised to them. Our system must provide surety so that all of us can look forward to retirement, confident that our pensions are safe.
It is estimated that in excess of 90% of defined benefit schemes are in deficit, with estimates suggesting a shortfall of up to €30 billion. The Government is aware of the threat the current financial environment is presenting for some defined benefit schemes where the employer becomes insolvent, leading to a winding up of the scheme. The Government is conscious of the difficulties the global financial crisis is creating for Irish pension funds and the challenge it presents for the trustees of pension schemes. These amendments are the next logical step in the Government's approach to pensions provision. They will help to support the job of the pension fund trustees in addressing the challenges that they face.
I will table an amendment to enable the Minister for Finance to provide for a pensions insolvency payment scheme, PIPS. Currently, if a defined benefit scheme is in deficit and the sponsoring employer becomes insolvent, the trustees must first provide pensions for the retired members of the scheme, usually by buying annuities. Whatever is left is apportioned among the active and deferred members of the scheme. The more expensive the annuities, the less money available for those yet to retire. Annuities provided on the open market are priced to include certain costs such as commissions and expenses as well as a profit margin.
PIPS will provide an alternative for trustees of defined benefit schemes in deficit with an insolvent employer. In simple terms, trustees of participating schemes would pay to the Exchequer the amount necessary to cover the cost of providing pensions to its retired members. With ancillary costs distilled from the equation, PIPS should be able to provide these payments at less expense to the trustees. This should then free up extra money to go towards the pensions of those yet to retire. The scheme is not a bail-out of pension schemes in deficit and has been carefully designed to ensure that it will be cost neutral from an Exchequer point of view. We must be careful that our attempt to assist those in need is not misrepresented.
My amendment will set out the necessary enabling provisions to allow the Minister for Finance to introduce the scheme and to provide for the detailed arrangements to be set out in regulations. PIPS can commence once those regulations are in place and operate on a pilot basis subject to a review within three years of its establishment.
Employer insolvency will invariably lead to the winding up of pension schemes. In the event of such a wind-up, the Pensions Act stipulates the order in which the resources of the scheme must be disbursed. It gives priority to the liabilities accruing to pensioners before it distributes the remaining assets to other scheme members. The calculation of the liabilities includes provision for post-retirement increases in the third of schemes that provide for such increases. The Seanad will acknowledge that, with increases in pension costs, the liability for post-retirement increases can be substantial. Where a severely underfunded scheme is wound up, the allocation of assets for pensioners in payment can significantly reduce the assets available for other scheme members.
Therefore, I will table an amendment to re-order the wind-up priorities by moving the provision for post-retirement increase to a lower priority. This change will not impact on the current pension payments to pensioners, but it will enhance the level of resources available to other scheme members. Once the basic pension entitlements of all scheme members are covered, the distribution of scheme assets for post-retirement increases will then be applied. This is an important change in the priority order and will, without impacting on the pensions of those already retired, improve the situation for other scheme members.
It is desirable to ensure pensions legislation supports the viability of pension schemes and that nothing in current legislation should be considered restrictive in the ongoing maintenance and sustainability of a pension scheme. To ensure this, I will table an amendment to the scope of the Pensions Act regarding its provisions for the restructuring of a pension scheme. Current legislation provides for the restructuring of a defined benefit pension scheme, but only by adjusting the benefits of those currently employed by the employer sponsoring the scheme. This restructuring does not extend to the accrued benefits of scheme members who are no longer employed in the company or to post-retirement increases in benefits. This limitation in restructuring a scheme could give the trustee no option but to wind it up.
The proposed amendment will broaden the scope for the restructuring of a scheme to include those who have ceased and the provision of post-retirement increases as well as current employees. It must be stressed that this change will not impact on the pensions currently in payment to pensioners, merely to any post-retirement increases for which the scheme may provide. This amendment will help the trustees to maintain the ongoing viability of the pension scheme and hopefully to avoid the scenario of a scheme wind-up. It is important to point out again that the measures I have outlined will retain the current priority given to pensions in payment, which means employees who have retired and those who have reached normal retirement age will not see any diminution in their entitlement to a pension.
Members will agree it is crucially important that any moneys deducted from an employee for pension purposes are remitted to the trustees of the pension scheme. Difficulties are being experienced at present by the pension regulator in bringing successful prosecutions against employers who fail to remit employee contributions to the trustees of a pension scheme. This is due mainly to the standard of proof required, based on oral evidence, which often is required to be given by an employee of the employer in question.
In response to this, I am bringing forward an amendment to the Pensions Act to strengthen the role of the pensions regulator by establishing a separate offence for such a breach of the Act and by enhancing the admissibility of documentary evidence. While the main focus of the amendments I am bringing forward pertain to supporting the work of the trustees in situations that threaten the future of a pension scheme, it is important to ensure the legislation is strong when an employer fails to remit pension contributions to the trustees of a scheme. While I must acknowledge the vast majority of employers comply with this requirement, I must ensure that those who fail to comply are pursued. Finally, I have introduced an amendment to provide a court with the power to relieve a trustee from liability for a breach of trust. This proposal is aimed at protecting trustees who have acted honestly and reasonably in the performance of their duties.
To conclude, this Bill is necessary to implement some of the changes announced on budget day and to assist trustees of defined benefit pension schemes in meeting the challenges that confront them. There were no easy options when deciding on where to achieve savings in welfare expenditure but given the requirement to increase both borrowing and taxes to pay the rising welfare bill next year, which I have indicated will be €21 billion, choices had to be made. It is important for each of the savings measures provided for in the Bill to be considered in the context of the overall economic situation and the need for immediate action to reduce the gap between public income and expenditure. The harsh reality is that unless some cuts are made now, much tougher ones will have to be made later. It is important for all public representatives to be up-front with the people about the stark choices that are required at this time, if the future prosperity of our young people is to be ensured. The changes in this Bill are necessary and I look forward to an informed debate about them today.