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Seanad Éireann debate -
Thursday, 28 Nov 2013

Vol. 227 No. 14

Social Welfare and Pensions (No. 2) Bill 2013: Committee Stage

Section 1 agreed to.
NEW SECTIONS

Amendments Nos. 1, 5, 6, 8, 11, 19 and 21 to 23, inclusive, are related and may be discussed together.

Government amendment No. 1:
In page 3, between lines 24 and 25, to insert the following:
“Definition
2. In this Part 2 “Principal Act” means the Social Welfare Consolidation Act 2005.".

These amendments are of a technical nature. Amendment No. 1 inserts a definition of the principal Act into part 2 of the Bill to mean the Social Welfare Consolidation Act 2005. This definition arises as a consequence of the other amendments that I am proposing in part 2 of the Bill, in respect of the revision of decisions for social welfare payment purposes. As a consequence of amendment No.1, the references to the Social Welfare Consolidation Act 2005 that are contained in the Bill as published, are being replaced with references to the principal Act, and this is provided for in amendment No.5.

In addition, this amendment will also require further consequential amendments to part 3 of the Bill, which deals with amendments to the Pensions Act. Part 3 of the Bill, as published, defines the term "the Principal Act" to mean the Pensions Act 1990, for the purposes of that part. In order to avoid having more than one definition of the principal Act for different parts of the Bill, the references to "the Principal Act" are being replaced with references to the "Act of 1990", which in turn is being defined as the Pensions Act 1990. This is being provided for in amendments Nos. 6, 8, 11, 19 and 21 to 23, inclusive.

I welcome the Minister to the House. The principal Act means the Social Welfare Consolidation Act 2005. I agree that it is mostly about pensions, but have I got an earlier version? The definitions are different and I do not know if we are working off the same paper. I agree with what she said, but I wonder if it is in fact reflected in the amendment under definitions, which has the "Principal Act" as the Social Welfare Consolidation Act 2005. This is just a technical point.

Yes. When we move to the next series of amendments, I will go through the reasoning behind this set of amendments, to which I referred in my Second Stage speech earlier in the week. They arise as a consequence of a very recent court case, but I will go through them in greater detail when we move to the next section.

Amendment agreed to.

Amendments Nos. 2 to 4, inclusive, are related and may be discussed together.

Government amendment No. 2:
2. In page 3, between lines 24 and 25, to insert the following:
“Amendment of section 301 of Principal Act
3. (1) Section 301 of the Principal Act is amended—
(a) by substituting the following subsection for subsection (1):
“(1) A deciding officer may at any time—
(a) revise any decision of a deciding officer—
(b) revise any decision of an appeals officer where—
(b) by substituting the following subsection for subsection (2A) (inserted by section 18 of the Social Welfare and Pensions Act 2008):
(c) by inserting the following subsection after subsection (4):
“(5) In subsections (1)(a)(ii)(II), (1)(b)(ii) and (2A)(b)(ii), the reference to any relevant change of circumstances means any relevant change of
circumstances that occurred before, or occurs on or after, the coming into operation of the Social Welfare and Pensions (No. 2) Act 2013.”.
(2) Where, before the coming into operation of subsection (1), a request had been made under section 301 of the Principal Act for a decision or a revised decision on the
grounds that there had been any relevant change of circumstances and the request had not been determined, that request shall be determined in accordance with section 301 of the Principal Act as if that section had not been amended by subsection (1).”.

The purpose of this amendment is to amend section 301 of the Social Welfare Consolidation Act 2005 regarding a revised decision by deciding officers.

Amendments Nos. 2 to 4, inclusive, address issues that have been raised in a very recent High Court judgment concerning the legal powers of deciding officers and appeal officers to revise decision in certain cases. This is a very complex area. Current legislation allows officials of my Department, including appeals officers, to revise earlier decisions in a range of circumstances. This includes situations in which new evidence is produced which indicated that the original decision was wrong, and situations in which there has been a change of circumstances since the original decision was given. These powers are wide-ranging and give considerable flexibility to deciding officers and appeals officers to deal with new evidence or changed circumstances which have been brought to their notice. In the past and at present, this flexibility has been seen as an asset in allowing deciding officers and appeals officers to deal with different circumstances. Many Senators will be familiar with this. However, in light of the recent High Court ruling the provisions relating to a change of circumstances are now considered problematic, as they unintentionally remove finality from social welfare determinations that refuse claims and introduce considerable uncertainty into the system of social welfare decision making as a consequence.

Until now, in most cases, it has been the practice in the Department that once a claim is refused and all review and appeal processes are finalised, if the customer seeks a revised decision based on a change of circumstances, he or she is advised to make a fresh application. The new claim is then fully assessed in light of all the circumstances of the case. Due to the recent High Court decision, the Department can no longer require people to make a fresh claim but must reopen a claim, even if that claim was closed many years previously. The purpose of the amendment is to address this issue, but in a limited range of circumstances. I stress that in cases in which the original decision was wrong, or if new facts and evidence emerge, the customer will still be able to seek a revised decision. The amendment does not change this. For a claim that is in payment, it will still be possible to revise the decision if circumstances change, but where a person was refused a social welfare payment in the past and his or her circumstances change, the correct channel is to make a fresh application so the application can be fully considered in light of the current circumstances. The amendment aims to ensure that this will be the practice in all cases.

Let me add that in the aftermath of the High Court decision I have asked officials of the Department to carry out a more wide-ranging review of the legislation on social welfare decisions. I will bring forward any necessary legislation at a later date.

I broadly welcome this amendment because other Senators and I have been dealing with people who have had to reapply on several occasions until their application is successful. The paperwork is immense. Are we safeguarding the social welfare system by putting in place a stipulation on how far back one can go? Once an application is reviewed and found to be successful, the payment is backdated to the date of application. If the initial application was made five years ago, will the ramifications be that the Department will have to pay significant arrears from the date of the initial application some five years previously? Are we safeguarding ourselves by saying that the claim will be backdated to the date the Department was notified of the change of circumstances rather than to the date of application? Are we allowed to do that following the High Court ruling? Will the Minister clarify the position?

As the legislation stands, if a deciding officer or an appeals officer revises an earlier decision, he or she has considerable flexibility regarding the date from which the revised decision takes effect. Apart from a small number of situations, such as cases in which a person knowingly makes a false statement or withholds relevant information or cases in which a payment is reduced due to a revised decision, the legislation provides that the revised decision will take effect from the date considered appropriate by the deciding officer, having regard to the circumstances of the case. This gives us, as I said, considerable flexibility to award a decision from any appropriate date. If there is a change in circumstance, the date of the revised decision will depend on the individual case, and it is not limited in the legislation. However, in the case of a person who makes a claim for the first time, there are fixed time limits with regard to how far a claim can be backdated. These vary according to the particular payment - for example, a person in general would be expected to apply for a jobseeker's payment immediately and payment would not normally be backdated to before the date of the claim, but some other payments, such as contributory State pensions, can be backdated for up to six months.

The amendments we are discussing today will have the effect of bringing more cases into the new claims category rather than the category of revision of an earlier decision. These amendments will give greater protection against the possibility of arrears being awarded against the State in some cases. I want to reiterate that if the original decision was found to be erroneous then a backdated decision is still possible. The proposed amendments do not change that.

Amendment agreed to.
Government amendment No. 3:
In page 3, between lines 24 and 25, to insert the following:
“Amendment of section 317 of Principal Act
4. (1) The Principal Act is amended by substituting the following section for section 317:
“Revision by appeals officer of decision of appeals officer
317. (1) An appeals officer may at any time revise any decision of an appeals officer—
(a) where it appears to him or her that the decision was erroneous in the light of new evidence or new facts which have been brought to his or her notice since the date on which it was given, or
(b) where—
(2) In subsection (1)(b)(ii), the reference to any relevant change of circumstances means any relevant change of circumstances that occurred before, or occurs on or after, the coming into operation of the Social Welfare and Pensions (No. 2) Act 2013.”.
(2) Where, before the coming into operation of subsection (1), a request had been made under section 317 of the Principal Act for a revised decision on the grounds that there had been any relevant change of circumstances and the request had not been determined, that request shall be determined in accordance with section 317 of the Principal Act as if that section had not been amended by subsection (1).”.
Amendment agreed to.
Government amendment No. 4:
In page 3, between lines 24 and 25, to insert the following:
“Amendment of section 324 of Principal Act
5. (1) Section 324 (amended by section 18 of the Social Welfare and Pensions Act 2008) of the Principal Act is amended -
(a) by substituting the following subsection for subsection (1):
(b) by inserting the following subsection after subsection (2):
(2) Where, before the coming into operation of subsection (1), a request had been made under section 324 of the Principal Act for a revised decision or a revised determination on the grounds that there had been any relevant change of circumstances and the request had not been determined, that request shall be determined in accordance with section 324 of the Principal Act as if that section had not been amended by subsection (1).”.
Amendment agreed to.
SECTION 2
Government amendment No. 5:
In page 3, line 26, to delete “Social Welfare Consolidation Act 2005” and substitute “Principal Act”.
Amendment agreed to.
Section 2, as amended, agreed to.
SECTION 3
Government amendment No. 6:
In page 4, line 5, to delete “Principal Act” and substitute “Act of 1990”.
Amendment agreed to.
Section 3, as amended, agreed to.
Amendment No. 7 not moved.
SECTION 4
Government amendment No. 8:
In page 4, line 7, to delete “Principal Act” and substitute “Act of 1990”.
Amendment agreed to.
Section 4, as amended, agreed to.
NEW SECTION

Amendments Nos. 9 and 18 are related and may be discussed together.

I move amendment No. 9:

In page 4, between lines 8 and 9, to insert the following:

“5. The Principal Act is amended by inserting a new section 48A as follows:

“48A.A solvent firm shall not be allowed to close a defined benefit pension scheme except where the scheme has reached a minimum 90 per cent funding standard.”.”.

This emerges out of the Waterford case and also the practice in the UK which has indicated that solvent firms shall not be allowed to close a defined benefit scheme, except where the scheme has reach a minimum 90% funding standard.

I do not propose to accept these amendments. Both amendments broadly entail placing a debt upon employers. It should be noted that while defined benefit pension schemes in Ireland are set up and maintained by employers on a voluntary basis, there has never been a statutory obligation on employers under Irish law to contribute to their pension scheme, although pension scheme rules can place some level of obligation. However, there is now a very robust regulatory structure in place as set out in trust law and the pensions Acts.

I am keenly aware that many schemes are making great efforts to ensure their ongoing viability. The process is generally managed through dialogue between the three principal parties - the trustees who operate in a fiduciary capacity under trust law; the employers who sponsor the scheme; and the members who are the employees who might, in many cases, be represented by their trade unions. Efforts are made to reach agreement on the steps that must be taken to secure scheme viability, which may include a mix of measures such as increased employer-member contributions, longer working and amended benefits. There have been a lot of such instances of restructurings in recent years.

It should be noted that pensioners, current and former members of pension schemes are collectively protected by a broad and detailed range of measures to safeguard their interests. First, the trustees of defined benefit pension schemes have a fiduciary duty under trust law and the Pensions Acts to act in the best interests of all scheme members. There are further regulatory safeguards and oversight by the Pensions Board. Scheme trustees must apply to the Pensions Board before they can reduce benefits. It is very important that people are aware of this fact. Before trustees make an application to the Pensions Board they must consult the employer, scheme members, pensioners and the authorised trade unions representing scheme members. Trustees must also have undertaken a comprehensive review of the scheme with a view to long-term stability and sustainability. They must have requested from the employer contributions sufficient to ensure the long-term stability and sustainability of the scheme. They are required to have taken legal advice on their powers and duties and the obligations of the employer to contribute to the scheme.

During the deliberative process consideration was given to placing a statutory obligation on the employer to provide for a base level of scheme funding that would secure a certain level of benefits in the event of a scheme winding-up or restructuring. The advantage of placing such a obligation on the employer would be to reduce further the possible risk to the State and protect the benefits of current and former scheme members. It would also prevent the employers from walking away from defined benefit schemes and encourage them to ensure a scheme was well funded and managed. However, there are strong arguments against the introduction of such an obligation on employers owing to uncertainty about the overall impact, particularly in the context of the current economic environment. Given current economic circumstances, the imposition of additional costs on employers might be counterproductive and impact on the viability of a business and the jobs of those employed. This is one of the issues in current circumstances that is particularly difficult. An obligation, or the perception that there is an obligation, could rank with company debt. It could have an impact on investment and growth and the employer's ability to raise fresh funds in the market. It would also give a competitive advantage to those employers who have never provided a pension scheme for their employees. My fear is that it would encourage employers to close their schemes. It would also be a complex measure to provide for and administer as employers could take avoidance measures. The measures would also need to be viewed in the context of a declining number of defined benefit schemes.

Given the complexity of the issues involved, the number of unknowns regarding their impact and the time constraints, it is not proposed to proceed with the measure. The overriding priority is to ensure pensioners and members of pension schemes are protected and that the future viability and sustainability of their schemes are ensured and made safer.

The purpose of the legislation is to protect pensions and pensioners and counter the possibility of a scheme being allowed to close, with no minimum percentage reached. That was one of the reasons the Waterford Crystal workers took their case to court and the figure arrived at was 49%. As I pointed out earlier, the norm in the United Kingdom is for schemes to reach a minimum figure of 90% of the funding standard. It is from that point of view that I still think the legislation in the best interests of pensioners.

I apologise for my late arrival. I was in a meeting with someone when I noticed that amendments Nos. 9 and 18, in which I was interested, were being discussed and rushed here.

The Minister will recall that on the last day she attended I mentioned the EMI pension scheme. I had been approached by a number of its members. Obviously the Bill will be of advantage to those who receive pensions to some degree, but it will also be of advantage to persons who are still in employment and will leave in a few years time. I understand the thinking behind the provision. EMI was owned by the investment company, Terra Firma. Owing to leveraging, the Citigroup foreclosed on the loans, took control of the company and sold it to an American company for a few billion dollars. When Citigroup dealt with the matter in Britain in order to achieve a sale, it had a hole to fill in the pension fund. EMI has operated in Ireland for between 40 and 50 years and in the early days there was one pension fund. Later the company was split, which meant that there were separate companies under the same parent company and the pension fund was split. My information is that in Britain EMI was required to meet the fund deficit and I understand it put £200 million into it to enable it to sell the company. There was no such requirement for it to do the same here and it chose not to do so. The Irish employees were seriously disadvantaged vis-à-vis their British counterparts. There is a great disparity between British and Irish pension laws. I raised the matter with the Pensions Board, but I got no comfort from talking to it. As a consequence, the matter needs to be addressed, which is why I was so critical of the legislation on Second Stage. There are lots of issues with pension schemes and unless we tackle and address the loopholes in a manner that will encourage and incentivises people to provide for their own pensions, our policies will be counter intuitive and we are being counter intuitive, given the fiscal policies the Minister's colleague, the Minister for Finance, has pursued by taxing pension funds and, in particular, the imputed distribution arrangements that apply to private pension funds. Obviously, some private pension funds are shipping a lot of losses and will not yield large pensions. We are now saying to the people affected that they must take out a figure of 5% per annum. Originally when the provision was introduced, the rate was 3%, but then it was increased to 5% and, in the case of a pension fund worth over €2 million, 6%. I do not object to a rate of 6% because €2 million in a pension pot is a substantial amount of money. However, there are people with much smaller pots to which no imputed distribution arrangement should apply.

I know that taxation is the responsibility of the Minister for Finance, but I have raised this matter because I want to draw attention to the fact that there is a ream of pension issues that need to be addressed.

I was surprised, perhaps I should have known, having spoken to the Pensions Board, that it appears to have no interest or no remit to deal with companies who are closing down their pension schemes, in particular, defined pension schemes. I cannot understand the reason the legislation will adversely affect many people who have invested in private pensions and who are in receipt of private pensions but at the same time does not do anything to focus on the employers. I have argued in the House many times that wages and salaries across all of Irish society, particularly in the public service, are much too high and are 22% or 23% higher in the private sector. There is no justification for that. I am one of those who receives a public service salary.

It is also the case that our pension entitlements supersede anything that, other than a small coterie, of people at the top in the private sector would enjoy. There is a need to look at that issue. It is the same in the private sector where wages are too high. We should be aiming to maximise the number of people in the private sector who are entitled to a pension. There is a huge fiscal challenge coming to us in the future with our public service pensions and our State pension. It has been estimated that if an actuarial valuation of the public service pension was undertaken there is probably a shortfall in it. The last figure I saw was one of about €120 billion to €130 billion. These are significant issues which need to be addressed. I hold the view - this is a change of opinion from five, six or seven years ago - that, perhaps, all defined benefits should be looked at with a view to changing them, including public service pensions, to a defined contribution scheme. I remember ten, 15 or 20 years ago, in the 1990s, looking at pension entitlement in the US. The US introduced what I think was called "mutual funds" or something similar, under which individuals made a contribution to a pension which grew. I remember speaking to people in the US who said that they had created within that fund a level of wealth they had never dreamed of being able to do. It is right to give the taxation provision for it. In this way people should know on an annual basis the amount in the fund and the growth in the fund. There should be no disadvantage by way of imposing levies on the fund. It should be allowed to grow. People will pay the full amount of tax on it when it is due - that is really the third tax on the fund. If we can do that, perhaps, in 2030, 2040 or 2050 when the demographics change dramatically, those retiring will have sufficient funds to live their life in a reasonable degree of comfort. I would like to see that proposal examined.

The amendments focus specifically on a situation where we allow trustees, because the company decides, as many profitable companies do, not to make any more contributions. There is no doubt that many companies have gone to the wall as a consequence of this unprecedented recession but there are also many companies who have taken advantage of the economic downturn in order to suppress wages and entitlements. I am strongly in favour of the private sector, as that is what drives the economy. However, there must be equity, fairness and ethical policies in the private sector and it is up to the State to ensure that is case.

We must ensure that companies fulfil their commitments to employees. It would be in employees' interests and in the State's interest if we were to seek to benchmark all salaries in the public sector and the private sector, which should have happened at the time of benchmarking, with those of other western European countries, that is, the countries with which we are competing. An analysis I did in 2008, based on research conducted by the university of Glasgow, showed that wages and salaries in Ireland were significantly higher than in any other country. I suspect wages and salaries are still higher here but if we are to be competitive we must bring pay rates to the average of those countries. In doing that the quid pro quo must be that people who are now much more likely to enjoy a longer retirement will be properly supported. The State pension will not achieve that.

Amendment No. 9 seeks that the sponsoring companies should not be allowed to close the scheme without ensuring the scheme has reached a minimum 90% funding standard. As I said on Second Stage, I think the OECD has recommended that. I ask the Minister to look favourably on this amendment because it is essential that we do more than is provided for in the Bill. I acknowledged on Second Stage, even though I have been critical, that what the Minister has done is a step in the right direction but there are too many other steps that have not been taken and that is where my criticism lies.

Amendment No. 18 seeks that the pensions board would not have the entitlement to direct the trustees of a pension scheme to reduce the benefits of current or former scheme members and-or post-retirement increases where a sponsoring company or its parent company have the financial capacity to meet the under-funding in the scheme. It is important to make the distinction that sometimes the sponsoring company may be borderline viability but its parent company can be well positioned to meet the funding deficit. Where a sponsoring company applies to close a scheme it should be required to provide the financial information necessary for the pensions board to assess whether it, the sponsoring company, or its parent company have the financial capacity to deal with the shortfall and should not be allowed to close the scheme. That they are not prepared to do so should not be a factor. There is a real need to protect pensions in this regard.

As I said on Second Stage, the Bill is about robbing Peter to pay Paul. It is seeking to take money from current pensioners to assist employees who have paid their contributions and who, perhaps, within a short number of years may seek to access the pension to which they have contributed. It also seeks to take money from those who have worked hard all their lives to provide a pension for themselves - that is a small percentage in the private sector. That is fundamentally wrong. If, on the other hand, employers, for whom all these people worked, are highly profitable have very good reserves and are not prepared to make their contribution to fixing this particular issue, that is fundamentally unfair. We should aim to be just, fair and ensure that those most in need are catered for. If the Minister does not accept the amendments now I implore her, between now and Report Stage, to examine what can be done. I would be very surprised if the concept and the principles I am proposing do not find favour with her thinking and analysis in this regard.

I apologise to the Minister for not having been in the House earlier and I am afraid I will have to leave but I will read her response. I know she will understand the situation because she is in a much more extreme situation than me. I am trying to juggle about nine things at the same time and I can only imagine what her life is like.

I wish to endorse a great deal of what my colleague, Senator Jim Walsh, has said. I listened to him with great interest. I am not as much of a fan of private enterprise as he is: I would be a little more to the left, which may or may not recommend itself to the Minister. I have particular concerns with regard to the fact that even after the Bill is enacted, companies can walk away from certain of their obligations. This is very regrettable. I know there are difficult situations and I know certain firms are in periods of tumult financially and may be going under and so on but it is indefensible that a company that is solvent, trading and making profits, should be allowed to deny previously made pension profits. In particular, I refer to the case of Aer Lingus which denies that it has any responsibility to meet some of its pension promises.

The retirees now have no access to the Labour Court or anywhere else and there is very little they can do. If inflation takes off again, there is no provision for any mechanism for increase. Therefore, the affected people are left stranded.

This part of my contribution is taken very largely from the substance of a letter I received just this morning. It puts a human face on the matter. The writer states Aer Lingus has a very good balance sheet, is solvent and has cash in hand. Furthermore, he states:

I can't stack this up at all with any sort of notion of "fairness". I did declare my interest - I am a pensioner member of that Scheme, and, Senator, I am worried. I saved and provided responsibly for my retirement and made a "life plan" accordingly. My "life plan" is in tatters. I regret I was prudent. I should have had a ball and left it to the State to provide for me in my dotage. A place in a 12-bed geriatric ward seems to be what I can look forward to now - maybe a corner bed near a window if I'm lucky!

That seems to me to indicate that values that are important to this country, such as prudence and making provision for old age, are being undermined.

Consider the circumstances of employees in the airline industry under the IASS proposals. With regard to Aer Lingus, the scheme is frozen and no additional funds will be paid into it. Outside the IASS, the current funds placed by Aer Lingus of €140 million are being allocated as follows: 2,570 current employees will share in a fund of €110 million, or approximately €92 million after productivity pledged on foot of cost stabilisation, but there are 3,687 - over 1,000 more - deferred pensioners who will share a fund of simply €30 million.

With regard to the proposed cuts, including the removal of statutory preservation, CPI, and a period of deferment, as provided for in the Pensions Act, this could equate to a 25% loss of real pension every ten years. There is to be an increase in the IASS pension age of 65 years to a State pension age of 66 from 2014, 67 from 2021 and 68 from 2028, except where there is more than 25 years service. Reference is made to a 12% straight cut and compulsory commutation of 25% of pensions.

The Minister will remember I spoke about deferred pension members on the last occasion. With regard to the combination of the aforesaid cuts, I must refer to the paper I have to hand. I try not to read. I am all right with words but when I get to numbers, I find the difference between 5 million and 500 million difficult to contemplate. My innumeracy is almost entirely due to some kind of genetic inadequacy or something. It means I do not really follow numbers so it is better if I read them from the document. I apologise to the House for doing so.

For deferred members, the combination of all the above cuts will equate to a loss of between 45% and 55% in their expected benefit. That is a hell of a lot. If one averages the figures, it amounts to half the expected pension. This makes the point that the gentleman made in his letter to me. The expected pension of a 55-year old individual who left in 2005 with 25 years' service and a final retiring salary of €40,655 will reduce from €23,608 to €9,925. That is a loss of 57.95%, which is vast. I wonder whether the Minister and her advisers will be able to state whether the figure is correct. Consider another listed example concerning an individual who left the workplace in 1998 with 27 years service on a final retiring salary of €34,523 and who is now aged 62.9 years. One can tell from this and the inclusion of percentage points that there has been an actuary involved who has calculated the worst possible case, but it is no harm to make that case. The expected pension for the individual will be reduced from €23,105 to €12,043. That is the minimum State pension and it represents a loss of 47.8%.

It is inaccurate, I think. The Senator might let us have a copy of the note later.

I will do so straight away.

There may be some slight misunderstanding.

The final example concerns someone who is now aged 61 and who left in 2013 with 40 years service and a final retiring salary of €81,160. The expected pension will be reduced from €57,353 to €31,000. One could probably live on that but it represents a loss of 44.4%. I apologise to the Minister for not presenting her with the details. Before I leave, I will ask my colleagues in the next office to photocopy the documentation and give her a copy.

There are just a couple of points I want to make. Senator Mooney referred to Waterford Glass. I understand the thinking behind the two amendments but one should bear in mind the position of Waterford Glass and what ultimately triggered the problems aside from the difficult trading results and trading conditions. The point at issue for the Government in the late 2000s was its guarantee and a request from the company of a bond of €40 million. That was not forthcoming and one of my predecessors, possibly Mary Hanafin, spoke about why it was inappropriate. It was a general bond; it was not specifically related to the pension fund and concerned the company's borrowings. It was finding it difficult to renew it. One of the problems is that we have been in a period of unprecedented difficulty. What one wants to try to do is to have maximum protection for the maximum number of defined benefit schemes and the maximum number of parties to such schemes. I include the pensioners, the already retired, those who have deferred their pensions and will not reach pension age for some time and the active members who are coming in. We spoke on the last occasion about the contrast between somebody who is 66 and on a pension and somebody who, at 62 or 63, is almost at pension age. Currently, without this legislation, the 66 year old could be quite highly protected and the person who is not yet at pension age could lose everything. The legislation seeks to offer protection in this case.

We examined the issue of employer risk extensively. What one opts for involves a balanced decision. In the Irish circumstances, however, one should bear in mind that we are just emerging from a unprecedented, difficult period. The history of pension funds shows that the major problem in Ireland has primarily been the promise made by good employers. Most employers establishing pension schemes intend to fulfil their promises. It is important to recognise and acknowledge that. Those employers are as distressed as many of the members of the schemes over the fact that the schemes have got into difficulty. The most difficult issue employers faced was the change in life expectancy, which has an effect on the period over which one can benefit from a scheme. I refer in particular to older schemes. When these schemes were set up, life expectancy after pension age was a fraction of what it has become. This means the original promise, perhaps based on an expected life expectancy of 15 years after reaching pension age, is harder to honour as the period for which one lives after reaching pension age has almost doubled. Therefore, it is almost inevitable that a scheme will be under-funded unless both the members and employer find a way of contributing or changing the promise to reflect the changes in the financial circumstances of the employer.

I agree with Senator Jim Walsh that mutuals in America have much to offer. The route for us, as I stated on the last occasion, is to look, as we have done - we have asked the OECD to comment on it - at the development of a further contributory pension aimed at those on low and middle incomes, either on a mandatory or - this may be more attractive in an Irish context - an auto-enrolment basis, the OECD's first and second preferences, respectively. We should try to move in that direction, sooner rather than later, particularly for the current generation of new workers coming through who, in many cases, will be relying on the State pension only. As Senator Jim Walsh stated, the advantage in the case of mutuals is that they could then join in a general fund, whereas the Senator and I, or other individuals, particularly somebody in his or her 20s, are trying to make decisions about in what exactly one invests in a defined contribution scheme as an individual, which is a fairly tough call. It is a fairly tough call for young people in their 20s and 30s and practically everybody else, unless one has considerable financial acumen as compared, as the Senator said, with the advantage enjoyed by the mutual. That is one point. That is not included in the Bill, but it is something I certainly hope to advance. The OECD's recommendation in the report published in April is positive in that context. The issue is whether an obligation, if we were to place it on the employer, would make more employers want to walk away and whether it would disadvantage the good employer who had made pension provision and was committed to it, as opposed to the employer who had never made any provision? As I stated, pension schemes are based on trust law. They are based on the employer's promise, but if the employer's financial position is precarious, putting an additional obligation on him or her might make what is already precarious far worse. That really is the fine balance one must manage.

In the United States and the United Kingdom, far bigger economies than this one, owing to the population to be covered, the risk can be spread, whereas here, because the population is so small, it is much more difficult to spread the risk among a much wider population of employers. We do not have the capacity to the same extent as they do in the United States and the United Kingdom. In the long run, in 30 or 40 years time, one might say the way to do it would be to have some level of risk coverage in the European Union or like-minded countries in it. Seeing that we are still sorting out the issues of the ECB and the euro, that matter is a long way down the road. For that reason, I am not inclined to accept what is a thoughtful amendment, one which has been debated and discussed. On balance, it would not be appropriate to place an obligation on the employer, the administration of which might be difficult and advantageous to employers which did not have pension obligations and relied only on the State pension.

On Senator David Norris's point, I would like to see the paper from which he has read as I did not catch all of the figures. He mentioned the value of pensions falling below €12,000. The purpose of the Bill is to protect pensioners up to a figure of €12,000. Much has been much written about this. There are those in the pensions sector who have advocated a protection level of €6,000; perhaps some of the examples might be based on that figure, I simply do not know. In the Bill we are addressing a protection level of €12,000. As I stated, if there is a protection level of €12,000 and if, as in the case of defined benefit schemes, the majority also have access to the State contributory pension, one is talking about a further €12,000, bringing the total of €24,000. I will certainly take the figures the Senator has put forward and ask the staff of the Department to have a look at them.

For the reasons I have set out, I do not propose to accept the amendments, although I understand the spirit behind them. It really is a finely drawn decision. The real difficulty is the position the economy is in. It would be risky to place an additional significant burden on employers and it might result in more schemes than the Senators might have anticipated deciding to close. What we want to do is keep as many schemes as possible open and to get them to a better place, even if that means restructuring and amending the promises made in order to conserve the maximum pension for pensioners, current active members and retired members. I would also be wary because of the financial position of placing additional burdens on the balance sheets of employers, some of whom, although it is improving, are still in a precarious position.

I thank the Minister for her comprehensive response to the amendments which they warranted.

To deal with the obligation on employers first, the requirement is that it would only apply to companies which had the financial capacity to deal with the shortfall and deficit, around which one would have to develop a model. I am not talking about companies which are on the cusp of viability or marginally profitable with few reserves. One does not want to affect employment in these companies. I share the Minister's concern that anything we do must not drive employers out of the scene. I am referring to the many companies which are very profitable, have good reserves and could make a contribution to meet the deficit in a situation where it would have no adverse effects on their viability, although it might have an impact in the short term on the distribution of dividends or shareholders' funds.

When I was in business, I attended seminars at which people talked about the stakeholders in a business and shareholders ranked highly because they were the ones who had invested their money. However, there are other stakeholders who equally need to be considered. Among them, one of the priority groups would be the employees who, in many instances, give their lives' work to a company. There are also a company's suppliers and customers, all of whom must be taken into account because one does not have a viable business without customers. All stakeholders must be considered in the running of the business and the decisions taken by management and the board. In this instance, the legislation is coming down heavily on one stakeholder group - the employees.

I ask the Minister to look at the amendments and the manner in which we are putting them forward to see whether something could be done in companies that have cash flow, as that would remove the risk. The Minister would have to develop a model of thresholds above which the reserves and profit levels would have to be maintained, but that could be worked out economically and from an accounting point of view. It might take a little work by officials in the Department and the Pensions Board, but it would not be impossible to develop such a model. It would carry no risk for such employers. Like the Minister, I applaud those employers with private pension funds.

When I was the chief executive of a company many years ago, I always resisted granting unnecessary wage increases. This was because they posed a risk to jobs, particularly in the competitive arena in which the business was operating. I recall trying to encourage the employees in the company, particularly the general operatives, to focus on establishing a pension scheme. Many companies have pension schemes for administrative and clerical staff but such schemes do not always apply to general operatives and other non-skilled and semi-skilled employees. I recall persuading the union involved that it should have been pursuing the setting up of a pension scheme rather than pay increases. A scheme was eventually put in place. I was glad, some time later, that when private insurance companies tried to encourage the employees at the company to join their pension schemes, these companies actually informed them that they were very fortunate to have access to the type of scheme we had put in place and that it was one of the better ones.

I fully agree with the Minister's assertion that we do not want to frighten companies of this type away. There are many companies which do not have pension schemes which should have them. I request that the Minister reconsider the position on this matter. I discussed with Senator Paschal Mooney, my party's spokesperson on social welfare in the Seanad, the question of what we should do in respect of this matter and we decided that we should probably withdraw the amendment with leave to re-enter it on Report Stage. I genuinely hope that in the interim the Minister will give genuine consideration to whether there is any way we can facilitate what, I am sure she will agree, is a good aspiration without incurring a risk.

Will the Minister examine the general matter I raised in respect of EMI? I understand legislation in place in Britain obliged EMI to fill the deficit in its pension fund. As a consequence, those employees now have access to a fully paid up scheme and will be able to enjoy the pensions to which they have been making contributions. However, their colleagues in Ireland who have worked for the company for as long, if not longer, have been placed at a complete disadvantage. What happened in this instance seems to highlight a deficiency in our laws. Will the Minister see if she can identify whether the latter is actually the case and, if so, consider what action she might be able to take?

I feel strongly about another matter, in respect of which we have not tabled an amendment but which certainly should be considered in the context of the Bill. There is nothing to prevent the Minister from drafting an amendment on it. I refer to the issue of annuities. I am a member of a defined benefit scheme and at one point the annuity relating to it stood at 3%. In other words, if one had €100,000 in the scheme, one would get back €3,000 per year. I worked out at the time that it would take 25 or 30 years to recoup on the basis of the annuity the capital sum which the insurance company was going to get from day one. As a result, one would have to live well into ones 90s in order to recoup all of one's money. I think the annuity has increased and currently stands at 4% or 5%. There should be no requirement on individuals, be they members of defined pension or defined contribution schemes, to go the route of annuity. I understand, however, that they must do so under the law. That is wrong because it creates a windfall profit scenario for insurance companies. We should allow everyone to convert his or her pension entitlements into ARFs or AMRFs. If we were to do so, people would have the benefit of having their own pension pots and would be able to garner the proceeds from their investments in this regard. There is a need for regulation in this area. No one should be required to go the annuity route, regardless of his or her position. My information may be a few years out of date, but I recall that one was obliged to have more than 5% of the shareholding in a company in order to be able to convert one's entitlements. If one was under the figure of 5%, one was obliged to go the annuity route. I ask that the Minister give consideration to this issue.

As stated, since I became Minister the National Treasury Management Agency, NTMA, has created a sovereign annuity on the basis of which a number of insurance companies have developed products. It is quite interesting that the NTMA has indicated a continuous demand, with a financial value amount to €1.377 billion, for the amortising bonds used to underwrite sovereign annuities. The data from the industry indicate that the figure for total bulk sales for sovereign and conventional annuities to the end of quarter three of 2013 is three times that achieved in the 12 months of 2012. As the Senator is aware, if one transfers one's pension entitlements to an annuity, one will, as it were, be out of the fund and, generally, receiving a fixed income for the remainder of one's life. Obviously, how much one benefits depends on how long one lives. The difficulty for us is that the annuities were based on German sovereign bond rates which, in the context of the economic crash, became stratospheric in terms of cost. Essentially, people were paying to hold German bonds but were receiving hardly any interest in return.

When the NTMA issued its product, the rates were much more attractive, hence the level of take-up. In the current year sovereign annuity sales account for 75% of all annuity sales for defined benefit schemes. In monetary value, some €400 million of the €540 million in bulk annuity sales to the end of quarter three of this year was accounted for by sovereign annuities. These annuities were initially launched in 2012 and the trustees have tended towards the purchase of hybrid or basket products. Such products involved a mix of a conventional annuity for a portion of the pension and a sovereign annuity above a certain amount. However, it is generally full sovereign annuities which are being purchased. Information from the three providers currently in the market - Irish Life, Zurich Life and New Ireland - indicates that some 1,500 pensioners have received sovereign annuities to date. When the comparable cost of traditional annuities is taken into consideration, it is estimated that schemes have saved €70 million. Again, all of this is in the context of the financial crisis, what has happened to sovereign bonds and the comparison between the cost of Ireland's sovereign bonds and those of Germany. The German bond price tends to be the one which people take as the benchmark.

I will certainly obtain further information on the position with regard to EMI and return to the matter at a later date, perhaps even briefly on Report Stage. Senators Maurice Cummins and Marie Moloney asked a number of important questions about Waterford Glass. Again, I propose to come back to the House with information on exactly where matters stand in that regard at a later date. On balance and for the reasons set out, we are not providing for an employer obligation.

Amendment, by leave, withdrawn.

I move amendment No. 10:

In page 4, between lines 8 and 9, to insert the following:

“5. Section 48 of the Principal Act is amended by inserting the following after subsection (1A):

“(1AA) No member of a defined benefit scheme shall be obliged to purchase annuities where he or she opts for an ARF or an AMRF or both.”.”.

This amendment relates to the same matter as amendment No. 9. Annuities represent poor value.

The Senator anticipated this amendment in his previous contribution and I have already provided a reply on how sovereign annuities have developed in Ireland. To date, the amount spent on them since they were launched in 2012 is €1.377 billion.

Is the amendment being withdrawn?

I will withdraw it in a moment. I am not aware of the latest position regarding the sovereign annuity but I have made a note to check it. If, as is usually the case, it is based on a percentage return, what is the percentage return in this case? It seems that for the vast majority of people, placing their pension pot on deposit would deliver greater value, even if at the current low interest rates, than having it invested and administered by a pensions company. Even if the person dies in the next 20 or 30 years, someone will still benefit from the money paid into the pension.

This is a tricky issue as it involves having to balance the relative certainty provided by an annuity product, which, while very expensive in the current market, will provide a fixed level of income, as opposed to taking the risk of the investment market. The standard advice is that as people get older, the value of certainty and lower risk increases. The median pension amount is approximately €11,000 per annum, which is not a high figure. The funds are, therefore, not large, and the conventional advice, which I suspect is correct, is to move closer to cash or its equivalent. One of the current difficulties, however, is that interest rates are extremely low. While low interest rates are good for the investing side of business, they are difficult for savers and pensioners. As the organisations which lobby on behalf of pensioners correctly remind us, pensioners are on fixed incomes. If the fixed income is interest-based and one is purchasing an interest-based product, it is difficult to obtain an appropriate return. The interest rates available from the European Central Bank and the Federal Reserve in the United States are close to zero. I wish the ECB would take greater cognisance of the fact that inflation is not an issue. The annuity approach may be safer, even if the returns can be unsatisfactory, as choosing the investment route for a small fund could have high risks attached.

Amendment, by leave, withdrawn.
SECTION 5
Government amendment No. 11:
In page 4, line 10, to delete “Principal Act” and substitute “Act of 1990”.
Amendment agreed to.

Amendments No. 12 and 13 are out of order.

On a point of order, why has amendment No. 12 been ruled out of order?

It creates a potential charge on the Revenue.

As a former Member of the Opposition, the Cathaoirleach will be aware that Opposition Members read legislation and make various suggestions to improve it. My understanding is that the shortfalls in pension funds will not raise a charge.

I have made my ruling. The Senator may raise the matter when we discuss the section.

Amendments Nos. 12 and 13 not moved.

Amendments Nos. 14 and 17 are related and may be discussed together by agreement.

Government amendment No. 14:
In page 7, line 29, to delete “provide such moneys as are” and substitute “pay the amount certified under section 48A that is”.

Amendment No. 14 is a technical amendment introduced as a consequence of the introduction of a new section 48A in the Pensions Act, as provided for in amendment No. 17. The amendment arises from the provisions in subsection (1D) of section 5 of the Bill, as published, which provides that in the event of the wind-up of a pension scheme, where the employer is insolvent and there are not sufficient funds in the scheme to meet 50% of the liabilities of the scheme in respect of all scheme members of up to €12,000 of pensioner liabilities, the Minister for Finance will provide moneys to cover the shortfall in scheme resources to secure that level of benefits.

The amendment inserts a new section 48A into the Pensions Act to provide for the drawdown of the amount required to cover the shortfall in the resources of the scheme. The amendment will require the trustees of the scheme to submit an application to the Pensions Board to certify the amount of the shortfall in scheme resources. This application will be accompanied by a statement completed by the scheme actuary setting out the amount of the shortfall in scheme resources. The application and statement must comply with statutory guidance issued by the board. When the Pensions Board has certified this amount the trustees will apply to the Minister for Social Protection to request the Minister for Finance to pay the certified amount out of the Central Fund to the trustees of the pensions scheme. The trustees will be required to use this amount for the purposes of the discharging of the liabilities of the scheme.

The amendment allows the Minister for Social Protection to make guidelines in respect of the certification by the Pensions Board of the shortfall in the scheme resources. As a consequence of this amendment, I propose replacing the following text, "provide such moneys as are" in page 7, line 29, with the words "pay the amount certified under section 48A that is", to ensure consistency in the language between the new subsection 48A and the new section 48(1D), as set out in the Bill as published.

I thank the Minister. The way in which the trustees make the request to the Minister is the kernel of the issue. The new section inserted by amendment No. 17 states: "the Minister shall request the Minister for Finance to pay out of the Central Fund to the trustees of the relevant scheme, an amount equal to the certified amount for the purpose of the discharge, by the trustees of that relevant scheme, of the liabilities of that scheme in respect of the benefits referred to in section 48(1D)."

I was pleased to learn that 40% of the schemes are fine and that problems arise in only 20% of them, as I had heard that up to 80% of the schemes were in trouble. The Minister informed the House that the position is more optimistic than we expected, which is good. I commend her interest in this area. Arising from the annual addresses she gave to my students each year after the budget, I am aware that she has the business and accounting background to tackle this problem, which has been around for much too long, and I support her in that regard.

The problem of moral hazard arises. How will we be certain of the reasons the schemes that apply to the Minister to request that the Minister for Finance make a payout have got into trouble? The Minister may have learned today that Legal & General in the United Kingdom has found that older schemes have an administration charge of 2%. The British Government is considering imposing a cap of 0.75% on administration fees, but this one company believes it can do it for 0.5%. That is an important development. I do not know if we have a figure that is comparable for Ireland, but in the United Kingdom, each 1% charge costs £170,000 where a saver pays £1,200 per annum for 46 years. Are excessive administrative costs one of the reasons pension schemes get into trouble? I pose this question because we have had a succession of bankers, accountants, fund managers, credit unions and others seeking to have moneys paid to them from the public purse, in many cases as a result of their own inefficiencies.

We spoke yesterday to the Minister of State, Deputy Sherlock, about the need to have much stricter regulation of all financial services because €64 billion in debt was incurred by the State as a result of one sector behaving in an incompetent manner and visiting the entire burden on the Exchequer and citizens.

Take, for example, the role of trustees as expressed in the 2010 publication of the Pensions Board. Did they always act prudently and diligently in the interests of beneficiaries or were they incompetent? The Minister referred to longevity. One can argue, to the contrary, that the studies showing we are living longer have been around for a long time. Should the Exchequer be bailing out incompetents who did not do their life expectancy sums properly? A girl born today can expect to live for close to 100 years. Did the trustees and actuaries keep up with the research? Has the industry been keeping an eye on costs? Why does Legal and General state in the report it has published today that costs are too high? Rather than shift the burden to the Minister, Deputy Joan Burton, or the Minister for Finance, Deputy Michael Noonan, there has to be some penalty for people who invest poorly. Were too many years added in?

My fears increased when I read in The Irish Times on Monday that pension scheme members in County Clare planned to sue their trustees for €50 million. Will an amendment be needed on Report Stage to provide for strict controls ovn who can qualify or will we be bailing out the funds because of the problems to which I have referred? If we were to bail them out, why would pension funds ever take steps to reduce their costs and fees? They could make themselves popular by awarding added years or not doing their actuarial sums properly and then transfer the ensuing problems to Leinster House. I appreciate the reason for intervening in the current context. That need has decreased with the good news that 40% of schemes are now fully funded. Given what has happened in related financial sectors such as €52 million for a credit union and the uncertain cost of banking and accounting schemes, do we need stricter controls on fund managers? When people are incompetent or excessively generous, should they not bear some of the burden? Can the Exchequer be protected in a way that did not happen in 2008 when the financial sector dumped its financial problems on its doorstep?

The issue of pension charges is, as Senator Sean D. Barrett suggests, extremely important. The amendment will give clarity to the procedures involved. It has been argued that 50% is not adequate and people have asked why, for example, the State cannot cover 90% or 100%. After a period of serious economic difficulty, we are finally getting back on our feet. Employment figures are moving in a positive direction, but we are not out of the woods by a long chalk and have a huge legacy of debts owed to international creditors, led by the troika. The question arises of how we would fund a significantly higher burden on the State than the EU directive proposes in the context of the pressure put on citizens of the State to meet the costs of the bank collapse and the troika obligations entered into in 2010.

When I came into office, I approached the issue of pension reform in a systematic way by bringing forward a number of changes, getting the sovereign bond off the ground via the NTMA in 2012 and commissioning reports on pension charges and the structure of pension governance and a report from the OECD on how we might develop a better structure. The report on pension charges which I commissioned shortly after I came into office was undertaken by the Department of Social Protection, the Central Bank and the Pensions Board, with support from PwC. After we published the report, we opened it to consultation by inviting the industry and other interested parties to respond. The level of response was rather low. Essentially, smaller schemes in Ireland pay more. It is a problem for a country such as Ireland, with a small population base and a relatively small number of employers, that we have a lot of smaller schemes. The cost can be significant. The deregulation introduced at the height of the boom in the late 1990s and early 2000s allowed individuals to manage their own pension schemes. In many cases, these were educated and successful business people. They were assisted in managing their schemes by significant tax breaks for self-employed persons. The report on pension charges showed that people in that situation could have paid up to one third of the total fund in charges. I created a number of structures to approach the complexity of pensions. I have committed to changing the governance structure for pensions and when the Bill has been enacted, I will establish a pensions council which will represent consumer interests.

As Senator Sean D. Barrett noted in respect of students, it is important to develop an understanding of this area. One of the reasons pensions policy has been the responsibility of the Department of Social Protection rather than the Financial Regulator is my Department can make the advocacy case on the importance of pensions to people who are in their 20s and 30s. This is a period of life when people often have more on their minds than providing for pensions. That is why I welcome the proposal in the OECD's report of having an additional pension provision to that of the State pension on either a mandatory or an auto-enrolment basis. It will be essential to develop such a system in the Irish case.

The amendment sets out exactly what is to happen. In this case, it will involve the general body of taxpayers, some of whom may not have pensions other than their general retirement pension based on their PRSI contributions. However, the Minister for Finance made provision in budget 2014 for an extra levy of 0.15% to meet obligations arising from this legislation. These would include obligations in respect of Waterford Glass.

The arrangements are to take the certified amounts from the Central Fund.

My understanding from reading the legislation is that once the figures for existing pensioners are reduced and those remaining are paid up to 50%, the pension levy taken from other private pensions will be used to meet any shortfall in schemes and that there will be no charge to the Exchequer. The charge will be on the moneys taken via the pension levy which it seems under this legislation will continue, despite the commitments of the Minister for Finance and the Government.

The pension levy now has two parts. The original pension levy of 0.6%, the proceedings from which have been applied to the job creation fund of 2011, is due to end in 2014. In providing for the budget for 2014 the Minister for Finance proposed and introduced an additional levy of 0.15% and indicated this would will meet the obligations which would fall on the State. In this instance, the arrangement is to provide funding from the Central Fund for the trustees. It means that the State is creating a legal obligation to fund the shortfall, as required in the legislation. This is good and it is up to the levels indicated by the EU directive at 50%. The 0.6% levy the Minister instituted will end next year and the 0.15% levy has been introduced. I do not believe the Minister has made any specific comment on its expected duration.

The manner in which this is structured would not give confidence to anybody. It is another broken promise that the pension levy would terminate in 2014. The gang of four do the finances and impose all of this on the Minister and the Minister for Health and it will come back to haunt the Government when health cuts are made in the middle of next year. Leaving that aside, next year the pension levy will be 0.75%. Given the broken promises, it seems inevitable that the levy of 0.15% will continue the following year and I reckon it will be increased to meet any requirement or shortfall. That seems to be the logical structure of the legislation and it is my opinion that this is exactly what the Government will do. What we need in this area is a degree of certainty. There is too much sophistry with regard to these policies. It would be far better to state where we were going. The one thing which destabilises the markets and undermines consumer confidence is uncertainty. People must be able to rely on what is being said. It was very clearly stated this was a four year levy, but that is no longer the case, which is unfortunate. I invite the Minister to say what I am stating is true and that this is what will happen, or that it is not true and will not happen. Too much uncertainty is being created and it is deterring people from making their own private pension arrangements, which is very sad. There is no cohesion between Government policies. The Government's policy on health insurance is disastrous and the health insurance industry is haemorrhaging policyholders. It is extraordinary.

We are not discussing the issue of private health insurance.

I am just making the point that the Government is so askew on issues which should be coherent in order that is confidence is restored. We need confidence among consumers and citizens at large in order that when politicians say something, people can believe us. This means standing over what we say. It is my impression from the Bill that the levy will continue and be increased. The reason it will be increased is to meet shortfalls in this area and there is no doubt that there will be shortfalls.

One can find fault with a number of aspects with regard to the Government but not in this case. The Minister for Finance and the programme for Government set out very clearly that the proceeds from the pension levy would be adopted as a jobs fund. I have listened to Members on both sides of the House commend the 9% VAT rate for the hospitality sector which is funded from the same levy. The Minister announced in the budget that it would last until 2014, as was set out in the programme for Government and the jobs programme in May 2011 shortly after the Government was formed. That is exactly what the Government is doing.

Several days ago the CSO published figures bringing the very welcome news that 58,000 more people were at work. If we are to stabilise the economy and put it on a sustainable footing, it is about getting people back to work and paying their contributions and taxes. This year, as a result of getting more people back to work, the Department had a reduction of €150 million in spending in certain areas of social welfare with reference to jobseekers. In turn, we have been able to contribute to the overall settlement required in the budget this year. The Government indicated very clearly what the jobs fund would be used for and when it would end.

With regard to the 0.15% levy, the Minister made an announcement at budget time. Perhaps when he next visits the House, the Senator can question him in detail on his future plans, although as it would relate to future budgets, I am not quite sure whether he would share his thinking in detail. The levy proceeds will be used to make funding available in the context of the European court's decision which came through in April this year on the State's obligations under the EU directive. I do not like going back in time too much, but as I recall the directive dates from 2008 when there was still quite an amount of money in the country. The previous Government did not rush to implement the EU pensions directive for reasons we understand. We are now trying to get things together and put the country back on a sustainable and sensible footing with modest prosperity and a recovery now in train. The initiative on job creation and the increase of 58,000 people in work this year, of whom 54,000 are in full-time employment, are among the most positive news stories anyone looking at the economy would take into account. Since 2008 we have lost 250,000 jobs, one of the biggest numbers of jobs lost in any country as a consequence of the bank and construction failure.

Amendment agreed to.

I move amendment No. 15:

In page 7, between lines 31 and 32, to insert the following:

"(1E) An appeals mechanism for pensioners shall be put in place where trustees have decided upon reduced benefits for members, and such appeals mechanism shall ensure that such pensioners have not been unfairly treated in any restructuring arrangement.",".

I am relying on the Irish Senior Citizens Parliament which has expressed serious concerns about the lack of access. It states the pension, as indicated, will deal with the priority order for defined benefit schemes in the event of a wind-up. If one examines the detail, it will do much more than this, as it will give additional powers to trustees and nothing to pensioners. The Irish Senior Citizens Parliament and its members are concerned that, once again, the issue of the right of audience for pensioners is not being dealt with in the Bill.

It is worth reiterating that pensioners are former workers who are now in receipt of benefits for which they and their employers paid during their working lives. Until the 1970s, pensioners had a right of audience in the industrial relations machinery of the State. When this matter was raised by the Irish Senior Citizens' Parliament, ISCP, with the Government, the response was that, since pensions in payment could not be reduced, there was no need for such access. The CEO of the ISCP, Ms Mairead Hayes, stated that this reason was no longer valid because the position had changed dramatically in that pensions in payment had been reduced because of the imposition of the stamp duty pension levy. If the Bill is passed without amendment, the vista facing many pensioners may be bleak and their pensions will be reduced further.

According to the ISCP, if the Government is serious about fairness and intergenerational equality, it must start by giving pensioners a right of audience. In many schemes, pensioners or their associations are denied access to scheme trustees and sponsoring employers. This is regrettable at a time when the power of trustees is being rapidly increased. The ISCP is concerned that the option to restructure a scheme outside the double and single insolvency process might confer powers on trustees to act in a manner that might not be open and transparent to all of the stakeholders in a scheme. The ISCP wants the Bill to ensure that pensioners are recognised as active participants in any and all processes that impinge on their schemes, up to and including access to the State's industrial relations machinery.

I thank the Senator. Significant efforts have been made to identify an approach that strikes a reasonable balance between the interests of pensioners and the active and deferred members of scheme portfolios and scheme structures. To ensure that the broadest range of views and expertise was considered, the consultation process during the review of these provisions included a stakeholder consultation forum in late 2012 for those representing older people and pensioners, the pensions industry, employers, trade unions, older representatives attending the ISCP, Age Action Ireland and the National Federation of Pensioners' Associations. Written submissions were also sought from the groups and informed the review process when received. The Department engaged external technical and actuarial specialists to undertake modelling exercises that assisted in the review process.

It should be noted that current and former members of pension schemes are collectively protected by a broad and detailed range of measures. The trustees of defined benefit pension schemes have a fiduciary duty under trust law and the Pensions Act to act in the best interests of all scheme members. If they do not, how they carry out their duties may be contested. It is an onerous responsibility under trust law.

The Pensions Board provides further regulatory safeguards and oversight, some of which I have already mentioned. Scheme trustees must apply to the Pensions Board before it can reduce benefits. Before trustees make their application, they must consult the employer, the scheme members, any person receiving benefits from the scheme and the authorised trade union representing scheme members. Trustees must also undertake a comprehensive review of the scheme with a view to its long-term stability and sustainability. The review must cover the benefits payable under the scheme, the options available for reductions in benefits and their impact on the different categories of members and other people, the contributions required, the options for increasing those contributions, the employer's attitude to any request for increased contributions, and the long-term investment strategy, including the future risks for the scheme, the possibility that the scheme will prove more expensive than anticipated - whether this is due to underperforming investments, increased longevity or anything else - and what measures could be available to the trustees in these circumstances, such as contribution increases or changes to discretionary benefits. The trustees must have requested from the employer contributions sufficient to ensure long-term stability and application and the employer must have declined to pay those contributions. Trustees are required to take legal advice on their powers and duties and on the obligations on employers to contribute to the scheme. The trustees must notify in writing all of the members of the scheme and any other person in receipt of benefits. They must also advise in writing authorised trade unions and give them the details of the context in which the potential changes arise.

Revising a scheme is a fairly exhaustive and technically difficult process. Unfortunately, sacrifices have been made in scheme restructuring to ensure those schemes' sustainability. Discussions between the parties to pension schemes is intense, but what has been provided for is appropriate. Therefore, I am not in a position to accept the amendment.

I am grateful to the Minister for her response, but it is obvious that the ISCP does not share her view. It is quite assertive in its opinion that many pensioners and their associations are denied access to scheme trustees and sponsoring employers. It believes that the Bill should ensure recognition for pensioners as active participants in any and all of the processes involved. I am not sure that the Minister's response will go any way towards allaying the ISCP's fears in this regard.

Amendment put:
The Committee divided: Tá, 12; Níl, 27.

  • Barrett, Sean D.
  • Cullinane, David.
  • Daly, Mark.
  • MacSharry, Marc.
  • Mooney, Paschal.
  • Mullen, Rónán.
  • Ó Clochartaigh, Trevor.
  • Ó Domhnaill, Brian.
  • O'Donovan, Denis.
  • Reilly, Kathryn.
  • Walsh, Jim.
  • Wilson, Diarmuid.

Níl

  • Bacik, Ivana.
  • Brennan, Terry.
  • Burke, Colm.
  • Clune, Deirdre.
  • Coghlan, Eamonn.
  • Coghlan, Paul.
  • Comiskey, Michael.
  • Conway, Martin.
  • Cummins, Maurice.
  • D'Arcy, Jim.
  • D'Arcy, Michael.
  • Gilroy, John.
  • Hayden, Aideen.
  • Henry, Imelda.
  • Higgins, Lorraine.
  • Keane, Cáit.
  • Mac Conghail, Fiach.
  • Moloney, Marie.
  • Mulcahy, Tony.
  • Mullins, Michael.
  • Naughton, Hildegarde.
  • O'Donnell, Marie-Louise.
  • O'Keeffe, Susan.
  • O'Neill, Pat.
  • Sheahan, Tom.
  • van Turnhout, Jillian.
  • Zappone, Katherine.
Tellers: Tá, Senators Paschal Mooney and Diarmuid Wilson; Níl, Senators Paul Coghlan and Aideen Hayden.
Amendment declared lost.

I move amendment No. 16:

In page 7, between lines 31 and 32, to insert the following:

“(1F) The Pensions Board shall update its statutory guidance on the Principal Act for trustees upon the enactment of this Act.”,”.

This amendment is self-explanatory, asking that the Pensions Board commit to urgently updated statutory guidance on aspects of the Pensions Act for trustees following the introduction of the Bill.

When a sector is experiencing the problems detailed by the Minister before the vote, is there a question of a need to update the guidelines for trustees? The sector is in trouble and the version in the 2010 Pensions Board document has provision for pension scheme trustees. Does this need to be made more radical? For example, should we firmly shut the door on what I regarded at the time as irresponsible early retirement schemes? Were people too flaithiúlach with the funds and hence they are coming to the Minister now to look for a bailout? There is a principle raised in the amendment. When any sector gets into trouble - there have been three or four examples of this in the financial services sector - should we consider the guidance given to trustees rather than ending up in today's position, with a bailout being requested?

I do not propose to accept the amendment. All statutory guidance issued by the Pensions Board is updated as required, and there is very extensive and timely updating. Updates to existing guidance are actively being considered currently in the context of the changes I am introducing in the Bill. With regard to Senator Barrett's point about trustee training, there is a significant amount of this online. I do not know about courses such as the Trinity business degree and particularly whether there are options regarding the study of pensions. It is a very specialised area and the online training available for trustees is very structured and informative. It is a big obligation for anybody to take on the job of being a trustee.

I share Senator Barrett's concerns, but one needs trustees to represent ordinary members, as sometimes they spot issues that others would not. That is in addition to experts such as lawyers and actuaries. There is a small but very significant number of pension lawyers and actuaries. The Society of Actuaries and the Association of Pension Lawyers in Ireland have been very active in this debate, as well as fund managers and others who have long experience of a series of different parts of the pensions industry.

Amendment, by leave, withdrawn.
Section 5, as amended, agreed to.
NEW SECTION
Government amendment No. 17:
In page 8, between lines 19 and 20, to insert the following:
“Insertion into Act of 1990 of new section 48A
6. The Act of 1990 is amended by inserting the following new section after section 48:
“Payment of certain amounts by Minister for Finance where resources of relevant scheme are not sufficient to discharge liabilities in respect of benefits referred to in section 48(1D).
48A. (1) Where the resources of a relevant scheme referred to in section 48(1D) are not sufficient to discharge the liabilities, referred to in section 48(1D), of that scheme in respect of the benefits referred to in section 48(1D)—
(a) the trustees of that scheme shall direct the actuary appointed to that scheme to prepare a statement of the difference between those liabilities in respect of the benefits referred to in section 48(1D) and the resources of that scheme that are available to discharge those liabilities in respect of those benefits, and
(b) the statement referred to in paragraph (a) shall—
(2) The trustees referred to in subsection (1) shall—
(a) apply to the Board to certify the relevant amount concerned, and
(b) submit a copy of the statement referred to in subsection (1) with that application.
(3) Where the Board is satisfied that—
(a) the statement referred to in subsection (1) has been prepared in accordance with guidelines and guidance notes prescribed in regulations made by the Minister under subsection (11), and
(b) the relevant amount has been calculated in accordance with those guidelines and guidance notes,
the Board shall certify the relevant amount as being the amount required for the discharge of the liabilities of the relevant scheme concerned in respect of the benefits referred to in section 48(1D) and shall, when certifying the relevant amount, have regard to the guidelines made by the Minister under subsection (10)(b).
(4) Where the Board has certified a relevant amount under subsection (3) (in this section referred to as the 'certified amount'), the trustees shall—
(a) apply to the Minister to request the payment by the Minister for Finance of an amount equal to the certified amount for the purpose of the discharge by the trustees of the liabilities of the relevant scheme in respect of the benefits referred to in section 48(1D), and
(b) include in such application the statement referred to in subsection (1).
(5) Where, in respect of an application under subsection (4), the Minister is satisfied that the certified amount has been certified in accordance with subsection (3), the Minister shall request the Minister for Finance to pay out of the Central Fund to the trustees of the relevant scheme concerned, an amount equal to the certified amount for the purpose of the discharge, by the trustees of that relevant scheme, of the liabilities of that scheme in respect of the benefits referred to in section 48(1D).
(6) The Minister for Finance shall, in consultation with the Minister for Public Expenditure and Reform, approve the request made under subsection (5).
(7) Where a request has been approved under subsection (6), the Minister for Finance shall pay out of the Central Fund to the trustees of the relevant scheme concerned an amount equal to the certified amount for the purpose of the discharge, by the trustees of that scheme, of the liabilities of that scheme in respect of the benefits referred to in section 48(1D).
(8) Where the Minister for Finance pays an amount to the trustees of a relevant scheme under subsection (7), the trustees of that scheme shall use that amount for the purpose of discharging the liabilities of the relevant scheme for the benefits referred to in section 48(1D).
(9) The amount referred to in subsection (7) that is required by the Minister for Finance for the making of a payment under that subsection shall be paid out of the Central Fund or the growing product thereof.
(10) The Minister shall—
(a) make, in consultation with the Board, guidelines in respect of the preparation of the statement referred to in subsection (1) and an application under subsection (2), and
(b) make guidelines in respect of the certification by the Board of a relevant amount under subsection (3).
(11) The Minister may make regulations requiring the trustees of a relevant scheme to comply with—
(a) guidelines or guidance notes issued by the Board under section 10, and
(b) guidelines made by the Minister under subsection (10)(a), in respect of the preparation of the statement referred to in subsection (1) and an application by the trustees under subsection (2).
(12) The Minister shall, 12 months after the passing of the Social Welfare and Pensions (No. 2) Act 2013 and on each anniversary of such passing, prepare a report on the applications made under subsection (4), the requests made by the Minister to the Minister for Finance under subsection (5) and the amounts paid out of the Central Fund under subsection (7) during the preceding 12 months and shall, as soon as practicable, after the preparation of the report, cause a copy of the report to be laid before each House of the Oireachtas.”.”.
Amendment agreed to.
Amendment No. 18 not moved.
SECTION 6
Government amendment No. 19:
In page 8, line 21, to delete “Principal Act” and substitute “Act of 1990”.
Amendment agreed to.

Amendment No. 20 has been ruled out of order.

Amendment No. 20 not moved.
Section 6, as amended, agreed to.
SECTION 7
Government amendment No. 21:
In page 10, line 9, to delete “Principal Act” and substitute “Act of 1990”.
Amendment agreed to.
Section 7, as amended, agreed to.
SECTION 8
Government amendment No. 22:
In page 10, line 17, to delete “Principal Act” and substitute “Act of 1990”.
Amendment agreed to.
Section 8, as amended, agreed to.
SECTION 9
Government amendment No. 23:
In page 10, line 20, to delete “Principal Act” and substitute “Act of 1990”.
Amendment agreed to.
Section 9, as amended, agreed to.
Schedule agreed to.
Title agreed to.
Bill reported with amendments.

When is it proposed to take Report Stage?

Report Stage ordered for Tuesday, 3 December 2013.

When is it proposed to sit again?

Next Tuesday at 2.30 p.m.

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