I remind Senators that a Senator may speak only once on an amendment on Report Stage except the proposer of an amendment who may reply to the discussion on the amendment. Each amendment must be seconded.
Social Welfare and Pensions (No. 2) Bill 2013: Report and Final Stages
I move amendment No. 1:
In page 9, between lines 19 and 20, to insert the following:
“9. 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.”.”.
We tabled this amendment on Committee Stage. Again, we seek to impress upon the Minister the importance of ensuring that a solvent firm shall not be allowed to close a defined benefit pension scheme except where the scheme has reached a minimum 90% funding standard. Increasingly, solvent companies are refusing to put sufficient funds into their defined benefit pension schemes and, in many cases, they are walking away by paying out a reduced amount. The Waterford Crystal workers' case has been used continuously as an example, and we are still awaiting a High Court judgment on what will be the exact percentage. However, as I pointed out on Committee Stage, the UK precedent has been that they have paid 90%. On that basis, we believe it is vital that this amendment be accepted.
Amendments Nos. 1 and 7 are being discussed together.
We do not agree to that.
Is the Senator seconding the amendment?
I second the amendment. The amendment seeks to ensure that employers meet the commitments they have made to their employees. Where a person contributes to, and has an agreement with his or her employer for, a defined benefit scheme, the funding of that scheme should be proper and appropriate where the company has the financial capacity to do it. This amendment deals with that situation. It refers to a solvent firm and provides that it would not be allowed to close a defined benefit scheme until it has reached 90% funding. In other words, one would not have employers who have good financial capacity, are making a profit and giving a good dividend return to their shareholders deciding, perhaps in the interest of their balance sheets, not making their contributions to the defined benefit pension fund.
I understand why the changes are being made in respect of companies that do not have the capacity and which, if that were forced on them, could become insolvent as companies, with a consequent loss of employment. That would not make sense. However, I appeal to the Minister to come down on the side of hard-pressed workers. It is the employees of this country, particularly in the private sector, who have taken a huge hit in this recession. Many have been made redundant, while many of those in employment have either experienced no increase in salary or reduced salaries, or have been obliged to take part-time work. As the representatives of the people, we must take a stand to ensure fairness.
If the Minister disagrees with me, I ask her to point out where there is fairness in not obliging a company which is solvent and has the financial capacity to repair the deficit in the fund to at least bring it to 90%.
That does not prevent the scheme from being changed but if it is, at least the funding required from both the employees and the employer will be restored and repaired. That is a minimal step to support hard-pressed people who have been affected by the recession and who have secured little relief from the Government of which I was a member or this Government.
I second the amendment because it is not only solvent companies but also profitable companies that can use the current provisions to walk away from their obligations to pensioners. People are at a vulnerable time in their lives when they reach pension age. It is the one thing on which they always think they can rely. A classic example of the difficulties we are facing is the case of Waterford Wedgwood. The Waterford Crystal staff had a difficult time whereas the Wedgwood staff were looked after well because their company was based in the UK, even though it had merged with Waterford Crystal.
I have raised the question of the Irish airlines superannuation scheme, IASS, which employees were obliged to join when they reached the age of 20 if they were recruited before that age, on behalf of a number of those employees. I have correspondence from one individual which states, "Following actuarial reviews, the percentage contributions paid into this scheme increased seven times during my 45 years of contributing commencing at a combined employer-employee contribution of 10.25% in the early 1960s and rising over time to 18.75% of basic salary." That should have resulted in a pension of €45,000 per annum when this man retired but he received a pension of €30,000, which is sustainable but it is not enormous when one considers the salaries of people in certain sectors of society and the top-ups and so on.
The reason there is a difficulty in this regard is also interesting because over the years considerable reserves were built up in the IASS fund but they were diverted for different purposes such as funding financial incentives for early retirement, voluntary severance programmes and so on and this was combined with sponsoring employees accounting for the defined benefit scheme as a defined contribution scheme following the banking and financial crises in 2008. There was also the effect of financial markets and the banking crisis since 2008, the policies of central banks in Europe, minor changes to longevity tables and the use of annuity factor rates rather than corporate bond rates and so on, as they do in the UK to value pension liability. All this has had a negative effect on this fund. As late as 2008, the fund was in surplus but now it is not. This has been driven by these financial events.
I hope to be present to support amendment No. 3 tabled by Senator Barrett because this gets into the nitty-gritty of these issues and specifies provisions that are vague in the Government's Bill. I support the amendment.
The amendment broadly entails placing a debt on employers and we discussed this on Committee Stage. Defined benefit pension schemes are set up and maintained by employers on a voluntary basis. There has never been a statutory obligation on them under Irish law to contribute to their pension scheme, although scheme rules can place some level of obligation. However, a robust regulatory structure is now in place and that is set out in trust law and in the Pensions Acts.
As set out in previous discussions, many schemes are making great efforts to ensure their ongoing viability. The process is generally managed through dialogue between trustees, employers and members where efforts are made to reach agreement regarding 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.
It is important to recall that the biggest cause of the under-funding of Irish pension schemes has been, among other things, the change in population structure. Many of these schemes, including that referenced now by Senator Norris, were set up a long time ago when the expectation of the length of time that somebody would claim a pension subsequent to their retirement was a fraction of what it is now. The promises often made by good employers when such schemes were commenced and the structures were established were reflective of the life expectancy of the times and, therefore, what could be promised in good faith. The difficulty that has arisen is that longevity post-pension has changed beyond all recognition from what it once was. It has improved considerably, which is good news. The issue that now arises is how this enormously increased longevity is to be funded. These are funded pension schemes. Ultimately, all pension schemes are funded in one way or another.
What we are trying to do by way of this Bill is ensure fairness for current pensioners. In this regard we are introducing a number of rules, including protection for people whose pension is lower than €12,000, a contribution by people who pensions are between €12,000 and €60,000 and a higher contribution by those whose pensions are greater than €60,000. However, the longevity issue remains a problem for many schemes. As stated by different contributors to this debate, the international financial markets have been in turmoil and in many instances returns have collapsed. In many cases, according to reports by the Pensions Regulator, some of the investments made were the wrong type of investment at the wrong time. In some cases there was over-investment in equities and bonds, which investment strategies did not work to the collective advantage of the scheme.
As I stated, current and former pension members are collectively protected by a broad and detailed range of measures to safeguard their interests. The trustees of DB pension schemes have a fiduciary duty under trust law and the pensions Act to act in the best interests of all scheme members. There are further regulatory safeguards and oversights by the pensions board and scheme trustees have to apply to the pensions board before they can reduce benefits. Also, prior to trustees making an application to the board they must consult with the employer, the scheme member, pensioners and the authorised trade union representing scheme members. Trustees must also have undertaken a comprehensive review of the scheme with a view to its 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 and to take legal advice on their powers and duties and on the obligations on employers to contribute to the scheme.
I said previously that a great deal of consideration was given during the deliberative process to placing a statutory obligation on the employer to provide a base level of scheme funding which would secure a certain level of benefits in the event of a scheme wind-up or restructuring.
The advantage of placing a minimum obligation on the employer would be to reduce further the possible risk to the State. It would also protect the benefits of current and former scheme members. As has been said, it might also prevent the employers from walking away from defined benefit schemes. It would encourage them to ensure the scheme is well funded and managed. However, there are strong arguments against the introduction of an employer obligation. There is uncertainty about the overall impact of such a measure and the potential for it to have unintended consequences. One of the industry commentators, Deloitte, has argued that "if implemented, this "debt on employer" measure has the potential to effectively eradicate the provision of private DB pensions in Ireland". That is really the net point.
I understand what the Senators are trying to achieve in this amendment - their general intention or objective is to conserve and secure, in so far as is possible, direct benefit schemes to provide for the current and retired members of such schemes - but I am concerned that this amendment carries the risk of having the direct opposite effect. There is a danger that in order to avoid debt - a debt on the employer is proposed in the Fianna Fáil resolution - some employers with underfunded schemes would wind up those schemes in advance of the completion of the legislative process, which would be complex and would take some time to put in place. Experience in the UK has shown that complex anti-avoidance structures with the requisite resources and expertise were required to prevent employers from restructuring in order to avoid their obligations. This complexity includes application to single employers and multi-group schemes. Particularly in the case of Ireland, employers with multinational parent companies might well walk away to avoid a further debt on the employer, perhaps in the context of the group finances in a country like Ireland. That is a serious and present risk.
As I have said, most employers are good and honourable in relation to pensions. The problem is that the levels of promises given and the levels of funds entered into have not been sufficient to cope with the increased longevity of people claiming from the fund. The turmoil in the international financial markets happened after people made decisions on the basis of expensive actuarial and pension fund advice which often turned out to be wrong. I am reminded of the consequences for patients when doctors differ. Concerns have been expressed that debt on employer schemes may encourage imprudent investment behaviour by trustees as losses are seen to be backed by a kind of guarantee. In the current economic circumstances, in which many employers do not have the capacity to meet this extra cost, the imposition of additional costs on employers might have a counterproductive impact on the viability of businesses and the jobs of those employed. The imposition of a debt on the employer might threaten the company's financial stability. In some circumstances, depending on the particular circumstances of the case, it has the potential to render an employer insolvent. That, in turn, would have an impact on the company's creditors, who might take a view on the obligations imposed on the employer in the context of the debt on employer approach. That would affect company debt, investment and growth and the employer's ability to raise funds.
I understand that the Senators have tabled this proposal because they wish to protect the interests of existing pensioners, in particular. The problem is that they are advocating the use of a double-edged sword. If this approach results in an excessive debt the employer is not in a position to meet, or to fund through the markets, its ultimate consequence might be the closure of the scheme, which is most certainly not what the Senators intend.
Moreover, in some cases, it could lead, as a consequence, to the potential insolvency of the employer. Employer guarantees have been considered by the Pensions Board a number of times and it has recommended against such a measure. Again, I note the Pensions Board is comprised of a wide variety of people from different backgrounds. It includes people from both employer and trade union organisations, as well as representatives from the pensions industry who are experts in this regard. Given the complexity and the number of unknowns regarding the impact and the current time constraints, I do not propose to accept the amendment and intend to proceed with the measure.
The Minister's response is interesting. While she spoke a great deal about debt and insolvency, I remind her that the wording of the amendment under discussion pertains to a solvent firm not being permitted "to close a defined benefit pension scheme except where the scheme has reached a minimum 90 per cent funding standard". In other words, this amendment pertains to solvent companies. I appreciate the Minister's remarks on the collapse in the pensions industry from 2008 but it has recovered. I do not suggest it has recovered to the position it had reached in 2008 or 2009 but it certainly has recovered significantly from the depths and lows reached in 2009 and 2010. As for the current controversy surrounding the ESB pension dispute, I have read a variety of different pension experts state the return on the bonds in which the ESB has invested is high, that is, they have been as high as 17% or 18% over the past two years. Moreover, they stated there was no indication that this would reduce significantly and that the ESB pension fund actually is solvent and is able to meet its obligations. This is what is under discussion, namely, a company that has entered into a promise with its employees from the outset that it would provide for a defined benefit pension at the end of their term of employment. All the amendment seeks is that it would not be allowed to close without at least 90% of it; not that it would go into debt in any way. I reiterate, that as a solvent company such a scheme would not be allowed to close unless it was prepared to pay up to 90% of the minimum pension that is required. That is the argument I am putting forward. I am not necessarily talking about companies going further into debt but about solvent companies that have a capacity to pay in this context.
I will comment briefly by stating I understand the Senator's intentions. However, for a company in which a debt is placed on an employer, from a particular legal perspective this may have consequences for the employer in the sense there now is an enhanced obligation. This may well have consequences on the employer's overall balance sheet position, fund-raising capacity and debt capacity. On the other hand, the Government is trying to nurse schemes that are in difficulties back to a state of health. One measure that was launched successfully two years ago with the National Treasury Management Agency was a specific bond which has been subscribed to and which is based on a basket of securities offered by the NTMA and for those organisations that invested in this mechanism, it actually has resulted in highly attractive returns. I understand the ESB pension scheme was one scheme that took up that option.
However - this is the important issue - I refer to the difference between the United Kingdom and the United States on the one hand and Ireland on the other. In the case of the United Kingdom, the United States or individual states therein, one is talking about much greater population concentrations than is the case in the Republic of Ireland. When one has such a concentration of population, the level of risk can be spread much more widely. In the case of companies in Ireland, many companies here with defined benefit pension schemes are relatively small in financial terms.
Certainly by international comparison, those small companies may be heavily reliant on borrowing for capital purposes. I suggest that what the Senator is proposing may well have consequences for them because, of course, pension liabilities when crystallised, which is the way modern accounting standards tend to approach pension liabilities as opposed to their being dealt with over a very long period of time, can quite rapidly result in very heavy burdens on relatively small sized companies and can have consequences for their financial viability. I am afraid that is a fact of life. We have to balance this against what the Senator is saying.
Amendment put and declared lost.
I move amendment No. 2:
In page 9, between lines 19 and 20, to insert the following:
“9. 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.”.”.
President John F. Kennedy often used to quote George Bernard Shaw's saying: "Some people see things and say 'Why?' But I dream of things that never were and say 'Why not?'" The Minister is in real danger of falling into the former category. What we see here are the problems and why we cannot do something when, in fact, there are very good ways we could deal with this and there are many companies which we are now letting off the hook because of it.
I am aware that in respect of this amendment the Minister will also get notes from the civil servants who probably already advised her. The real problem is that people working as civil servants, people in politics and people in the public service enjoy Rolls Royce pension schemes that one could not buy in the private sector - I said that from the first day I came in here and saw what the schemes were. There are many people who work extremely hard in the private sector and who are left high and dry at the end of their careers without having pensions. This Government's policy, in particular, has been so counterintuitive against the incentivisation of people to participate and to have pension schemes that I find it appalling.
I would have thought this would have been recognised, particularly with a woman in this position, given very few women have pension schemes and those who have would have long gaps because of the period they are out of the workforce when having their children. This applies across the board. Women who follow careers in America spend an average of 11% of their work life outside of their employment category. We should ensure that those people are at least as well secured and looked after as those of us who are fortunate enough to work for the State.
In this amendment, we ask that "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." I see now that we should also have included the defined contribution schemes as well as the defined benefit schemes.
I and other people who are directors or shareholders in a company can build up our pension schemes and we can invest in our own private pensions, or we can invest in an ARF or AMRF. However, many people, as employees, are not allowed to do that and they have to purchase annuities. On Committee Stage the Minister's note, which may also be what is drafted for her today, concerned the sovereign annuities. I checked on sovereign annuities and found that while the return on them might be calculated slightly differently, because they are based on bonds and the investment might be more secure, nonetheless, the central point I was making is still the same.
Let us take a person on the cusp of retirement who has a serious illness and the prognosis might be that the person is not going to live for more than five or six years. That person is obliged to buy an annuity. Let us suppose there is €400,000 in the fund, and while I do not know precisely what current annuity rates are, they were 3% a few years ago and are probably 4% or 4.5% now. It means, in effect, that the most the person will get back from the capital sum is 20%.
Therefore, it makes no sense for them to put their money into an insurance scheme to give them an annuity when the profit and the majority of that scheme will accrue to the benefit of the insurance company.
Alternatively, they could go into an approved retirement fund, ARF, or approved minimum retirement fund, AMRF. Presumably it would be an ARF because an AMRF would be a smaller amount of money - only up to €12,000. If they were to go into an ARF, at least the residue of the amount after their death would actually accrue to their wife or family. We have no made the choice in respect of the first amendment that the companies which are profitable, which is what this is about, are more important than the poor single individual in the pension scheme who is waiting on their pension and finds that the pension is closed. This individual will be seriously disadvantaged. The pension will be cut.
Are we going to draft the legislation for the benefit of the insurance companies who pay the annuity, which is the way it works now? These companies obviously do it on an actuarial basis with a comfort zone built in for them. I have looked at some of these. It can take up to 25 or 30 years to get one's annuity back. This is just the capital sum without any return on the amount of money one is giving to people - they should be making a profit on it if they are in the business of managing funds. That is very unfair. People should have a choice. If they want to make that choice, they will have a guaranteed income for the rest of their lives however long they live. That is fine. They should have that choice. I am not trying to deprive them of it. The present situation is unsatisfactory.
I am seeking the sensible and reasonable option of allowing people the choice of keeping their capital sum and putting it into an ARF which will be managed for them and where that pot of money will be their own and form part of their estate when they die unless this Government and this Labour Party Minister feels that the priorities of the insurance companies and their profits are superior to those of the individual pensioner. I do not share that view and I hope the Minister does not share it either.
Who seconded the amendment?
I second the amendment.
I am not sure if I will bother voting on this amendment if it is called to a vote but I would like to make a few comments. I wish people would spell out what they mean by ARFs - whatever they are. I do not have the slightest idea what they are talking about.
I compliment the Minister. She comes into this House and presents very clear and cogent arguments. She often does so. I have watched her over the past half hour or so and she has clearly been on top of the brief. She spoke ex tempore for some time. Yes, she received some notes but I do not think it is courteous to refer to this. It is perfectly appropriate for a Minister to receive notes and get advice on figures or whatever the matter is. I have seen virtually every Minister in every Government availing of this. I welcome the fact that we have the expertise in the House to support the Minister in the arguments she makes. I think she makes cogent arguments even though I do not agree with them.
I will end on a further note of compliment which is completely inappropriate but I will make it anyway. I think this Minister is a very positive force and has a very difficult job. In particular, and she knows how I feel about this, she illustrates in her person the fact that Irish design is completely superb. I spoke to her a while ago about the very beautiful scarf she is wearing.
It is quite the best in the entire House. When I said it to her, I thought it came from Paris, Milan or Barcelona but it comes from Ireland.
Relevance?
We can be proud of this and Ministers who, even if we do not agree with them, are so confident, buy and show Irish and encourage Irish produce. I do not agree with everything the Minister always says but it would be a very dull world if we did. I thank the civil servants who are here for the work they do.
Given the complexity of this argument, I am sure that the levity in which Senator Norris has engaged has been welcomed by all sides. It has nothing whatsoever to do with the amendment.
I call the Minister.
I thank Senator Norris for his very nice comments and his taste. ARFs are approved retirement funds. All retirement products have taxation implications which can change the nature of the return. In a defined benefit contribution scheme, there is, as the Senator said, a requirement to invest in an annuity-type product. The reason for that is very simple if one thinks about it. In respect of people retiring at 65 and receiving the entire lump sum, there have been many rather unhappy examples over the past decade where people, many of them self-employed professionals in the medical and legal fields with very high incomes, in good faith chose to invest because the then Minister for Finance, Charlie McCreevy, introduced the capacity of individuals to manage their own pension fund. In some cases, about which we have not heard too much, that has possibly worked out superbly, but we are all familiar with people who decided to do something through various mechanisms which appeared to be both profitable and patriotic and put all their retirement nest egg, which was very considerable in some cases, into the shares of one or more Irish banks. The rest is very sad history for some of the individuals.
Exactly.
The question of what one does with somebody's lump sum on retirement is a very delicate and tricky investment strategy. In terms of regulation, a company director and experienced businessperson may be in a rather different place when it comes to managing their retirement fund than somebody whose practice has been in the medical or legal field and who is not used to managing investments. It is a big issue for defined contribution schemes, which are increasingly what we have nowadays. The practice has been to provide for a retirement annuity.
As the Senator conceded, since 2012, we have successfully introduced sovereign annuities because the previous annuity that was available was through and related to German bonds. Given what happened in the financial markets, because of their value and desirability, German bonds became extremely expensive and offered almost no return. We have developed an alternative product of sovereign annuities based on a mixed basket of annuities. If memory serves me correctly, since their establishment in 2012, there has been an investment of about €1.3 billion into sovereign annuities which, as the Senator noted earlier, have returned quite attractive yields. However, it is a basket of annuities rather than German annuities which have been considered the safest in the context of the eurozone.
Senator Walsh's proposal is to invest in an approved retirement fund. The problem is that depending on the level and the rate of distribution the fund may run out. In his example he said that with an annuity somebody who lives for a limited period of time will not have utilised his or her full capital. Equally in an approved retirement fund, at the other end of the scale if people live for an extended period of time, the time may come when that person has utilised the ARF. We are trying to balance risk and longevity, which is not fully known. We have simply taken the best advice available.
The Senator seemed to imply that people in a defined contribution scheme could not get involved in an ARF. My understanding is that they can get involved in an ARF. Perhaps I misunderstood what he said. In a defined pension scheme, because of how the schemes have been structured, it has taken the annuity route. Particularly since the development of the sovereign annuity we have taken into account the points he is making of the extraordinary expense with low level of return of the annuity. The modified sovereign annuity addresses some of the issues he has raised.
I understand the Senator's concerns but I do not propose to accept the amendment because I believe the arrangement around the annuity is such that while at particular times it can be difficult at other times it makes considerable sense and it provides for a lifetime, whereas the Senator's proposal has a risk that at a certain point the ARF will become exhausted.
Simply because I made no comment about the Minister's scarf, she should not take that as being in any way negative about the colours or anything like that; I just did not think it was relevant.
This debate is not about my scarf, but I am happy to take compliments for Irish workmanship.
It did not dawn on me that it was relevant to the debate.
It is compliments to the Irish craftspeople.
We heard the Minister's interview.
It was this time last year at the National Crafts and Design Fair.
I was not in any way decrying the sovereign annuity system from the point of view of returns, which I think is fine. I also accept that as we have read in newspaper reports and elsewhere, many people have built up tens of millions of euro in pension schemes. That has now been changed. From a tax point of view the Government has gone too far the other way. There needs to be an incentive to get people into pension funds and to provide for themselves. We will have a huge future liability in that regard.
However, people should have the option to buy annuities. There are certain safeguards in that people get a guaranteed income stream and are no longer carrying the risk; there are certain arguments in favour of that. People should be able to manage it through the approved retirement fund, ARF, and there are professional managers who will do that. There may well be issues about regulating those more strictly than we are doing and making them more accountable - I believe there are moves in that regard based on information from some people in the industry. Ultimately, where people have worked for their lifetime and have accrued a certain amount of money in their pension pot, both they and their families should be the beneficiaries of that rather than the pension scheme and that option should be available to them.
I fully accept that many people would not be able to make investment decisions.
However, those people already have the management of their funds within the schemes. As they are working, they are subscribing and the employers are subscribing, and those funds are being professionally managed. It should not be too difficult to extend that beyond the retirement date.
I am not surprised that the Minister will not accept the amendment, but it disappoints me because I believe the pension area needs to be looked at much more thoroughly. Not many politicians will say this to the Minister. I ask her to look at the public service defined-benefit scheme, which is a benefit to us, and consider changing it to a defined-contribution scheme. If she did that I believe within a week or two her officials would come up with ideas along the lines I am suggesting which would benefit people who are caught in this position now. They should not be disadvantaged just because they are in the private sector.
There is nothing to prevent the Minister putting a distribution cap on the funds. An argument used in the past was that people would dissipate the fund over a short number of years. Obviously it has been possible to apply a tax on an imputed distribution, which at 5% is far too high given that it is only a 20-year period. It exceeds the annuities and is unfair to people. I believe it was stitched in initially at 3% and was then raised to 5%. Once it goes over a certain level - it may be that €2 million is the right amount - it could be 6%. For those with small pots of money, as most of these schemes will have, based on the earlier discussions, it is not impossible and should not be beyond our wit to devise a scheme which would be in the interests of people who have these pensions.
We discussed mutual funds on Committee Stage. Where people can visualise the growth in the amount of money accruing in their pension pot, it incentivises them to contribute what they can because it is tax efficient - there is a deferred tax arrangement. It could be good from the point of view of getting people into the pension mode and providing for themselves. In 20 or 30 years when probably none of us will be in these Houses, the State may find it impossible to pay public service pensions and the State pension. In anticipation of that Mr. Charlie McCreevy started providing for that ten years ago. Unfortunately the pot of money was used to salvage the banking crisis. The concept is certainly as valid and probably more urgent than it was when he did it. If we do not open our minds to such things, we are losing an opportunity to structure for the future.
Amendment put:
The Seanad divided: Tá, 15; Níl, 27.
Tá
- Barrett, Sean D.
- Byrne, Thomas.
- Crown, John.
- Leyden, Terry.
- MacSharry, Marc.
- Mooney, Paschal.
- Mullen, Rónán.
- Ó Domhnaill, Brian.
- Ó Murchú, Labhrás.
- O'Brien, Darragh.
- O'Sullivan, Ned.
- Power, Averil.
- Quinn, Feargal.
- Walsh, Jim.
- Wilson, Diarmuid.
Níl
- Bacik, Ivana.
- Burke, Colm.
- Clune, Deirdre.
- Coghlan, Eamonn.
- Coghlan, Paul.
- Comiskey, Michael.
- Conway, Martin.
- Cummins, Maurice.
- D'Arcy, Jim.
- D'Arcy, Michael.
- Gilroy, John.
- Hayden, Aideen.
- Higgins, Lorraine.
- Keane, Cáit.
- Moloney, Marie.
- Moran, Mary.
- Mulcahy, Tony.
- Mullins, Michael.
- Naughton, Hildegarde.
- Noone, Catherine.
- Norris, David.
- O'Donnell, Marie-Louise.
- O'Keeffe, Susan.
- O'Neill, Pat.
- van Turnhout, Jillian.
- Whelan, John.
- Zappone, Katherine.
Tellers: Tá, Senators Ned O'Sullivan and Diarmuid Wilson; Níl, Senators Paul Coghlan and Aideen Hayden.
Amendment declared lost.
Amendments Nos. 3 to 6, inclusive, are related and may be discussed together by agreement. Is that agreed? Agreed.
I move amendment No. 3:
In page 14, between lines 16 and 17, to insert the following:
“(c) a statement of the reasons for the application to include administration costs, the award of added years to retirees, the extent of underestimated longevity, poor investment returns, failure to increase the retirement age and other reasons for the inability of the resources of the scheme to discharge its liabilities.”.
I welcome the Minister to the House following her weekend visit to Kerry.
On the purpose of these amendments, pension funds can go broke for a number of reasons. I did not want an open door to the Minister's Department or the Department of the Minister, Deputy Noonan, without putting some constraints upon it. That is the so-called moral hazard problem in that if people who make the wrong choices do not bear some of the consequences, they will continue to make the wrong choices. As the Minister knows because we have discussed it many times, Ireland has been more prone to that than virtually any country we can name. We have had a posse of people from the financial sector into the Department of Finance taking large amounts in supports and bailouts including insurance companies, which have been doing it since the mid-1980s, failed banks and credit unions, which is a recent development involving €52 million. We have had unreliable accounts forming the basis for Government acquisitions, and we find now that the deficit is far greater than we hoped, and badly-run pension funds might go broke because of many factors that we have mentioned.
There is a wish in society that we would no longer live in the unrealistic expectation that whatever mistakes one makes one will be bailed out by some fund or other, and that there is always somebody who will pay. It weakens the standing of financial services here to have a trail of mendicants going into the Minister's office and the office of the Minister for Finance, Deputy Noonan.
What the Bill requires of somebody seeking this assistance is that an actuary shall prepare a statement on the difference between the liabilities in respect of the benefits referred to and the resources of that scheme that are available to discharge these liabilities. Under subsection (2) that statement is then sent on by the trustees to the Pensions Board and a copy of the statement under subsection (1).
The amendment proposes to seek other types of information we believe should properly be part of the assessment of that request from the Irish financial sector for assistance. They include administration costs. Page 1 of the Department's 2012 document on pension charges states that if somebody aged 35 put €250 a month aside for 30 years there would be a fund of approximately €200,000, with a pension of about €10,000 per annum. If an average charge for administration of 2.18% per annum is applied, the final fund is reduced to €62,000, resulting in a lower pension of €6,900 per annum. That is a 2.1% decrease, and some funds in Ireland have a higher administration cost. That contrasts with the United Kingdom, which was aiming for a figure of 0.75%, and the Legal & General company, which we discussed on Committee Stage, which says it should be done at 0.5%.
If one of the reasons this fund is looking for assistance from the Minister, and a recommendation from the Minister for Finance, is that its administration costs are too high, I am trying to give the Minister the power to say we should emulate Legal & General or the UK system and have a 0.75% administration cost or, better still, an administration cost of 0.5%. If people have excessive administration costs, and the Minister's example shows how much that is reducing pensions already, can we put the grip on the pensions industry to ensure it does not get itself into trouble as a result of excessive administration costs? That is the purpose of the first amendment.
My second point is on the award of added years. That was a custom during the unrealistic era the Minister described recently. It is surely a measure of irresponsibility that people around a table decide to award themselves more money, bankrupt a fund and then confer that debt on the future members of society. The Minister should have an ability to say she does not think much of the awarding of additional years that got them into trouble. I presume the practice of awarding extra years has stopped. It was a form of insider dealing in pension funds in that the people in the room were very happy but they piled a huge bundle of debt either onto the Minister, the Minister for Finance, Deputy Noonan, or the other members of the scheme.
The Minister referred to the extent of underestimated longevity in the introduction. In response to that case being made by actuaries, we have the graph on that. The Department of Health and the Central Statistics Office have known for years that life expectancy was increasing. Why did it never dawn on those people running pension funds?
Hear, hear.
That is a level of incompetence. According to the one I downloaded from the Department of Health website last night, life expectancy in 1960 was 69.69. Happily, today is 80.50. That information is available as a public document. The actuaries do not even have to do anything. They can just Google the Central Statistics Office and get the information. I do not understand how people could say they got into trouble because they did not anticipate the increase in longevity. Senator Crown gave the example of Bismarck, on introducing the pension, saying he hoped to save a good deal of money because not many people would make it to age 65. Why is our pension industry-----
Particularly in Germany, with all the wars.
Why are the actuaries pleading as a factor to the Minister that they did not think people would live that long when it is hardly fresh news in society that that has been happening? It was well known that the people who retired in 1960, 53 yeas ago, would live longer.
We have a tradition of poor investment returns by insurance companies, banks, accountants and so on. Why is that always the role of the taxpayers or somebody else? I would have thought a good penalty for poor investment returns should be visited on the people who made the investments.
On the failure to increase the retirement age, that was a solution that has been mentioned many times, including in this House. With the support of every Member, the House agreed to Senator White's motion against compulsory retirement. One of the troika recommendations is to increase the retirement age but knowing that people were living longer and doing nothing about the retirement age while saying it is somebody else's fault, putting a levy on other insurance companies, asking to be bailed out again and giving other reasons for the inability of the resources of the scheme to discharge its liabilities, is wrong.
They would indicate there is a risk for the Minister that she would be bailing out incompetence. They should bear some of the liability if they have not performed up to the efficiency standard one would normally expect under the various headings.
I refer to amendment No. 4. In respect of an application under subsection (4), I want to add in the factors I have just considered. When the Minister gets an application, she should be able to see how much of it was caused by bad luck or events which were not foreseeable and how much was caused by the incompetent running of the fund. She should have a say on that.
Amendment No. 5 seeks to bring in the Minister for Finance and the Minister for Public Expenditure and Reform with the power to approve, which is in the Bill, but also to amend. Both Ministers come to the House quite frequently and I do not think they have ever been mistaken for a rubber-stamp. They may have thoughts they might wish to exchange on whether they should approve it. They might increase it but amendment No. 5 seeks to give them the power to amend. After all, if they are going to pay the bill, they should have some thoughts on it.
It should state the Minister for Finance shall, in consultation with the Minister for Public Expenditure and Reform, approve or amend the request made under subsection (5). We are trying to get them to engage in dialogue with the Minister as to whether they should approve it or whether they have any thoughts on it.
The last amendment seeks to provide that 12 months after the passing of the Social and Pensions (No. 2) Act 2013 and on each anniversary of such passing, a report should be prepared on the applications made under subsection (4). I would like the Minister's thoughts on the amended subsection (2). The review should cover the main reasons these claims are being made and how they have impacted on the operation of the Act. The principle of the annual review is extremely good and I wish more Ministers would carry one out but I think the Minister should be allowed to comment on the main reasons these reports are necessary and why pension funds got into trouble.
I thank the Minister for coming to the House and express the hope the taxpayer and the persons whose funds are being managed by the pension fund managers would be better protected if the amendments we propose were accepted.
I second the amendment. They say an actor should never follow children or animals on to the stage. I feel the same following Senator Barrett because he covers and explains everything so well that there is almost nothing more on which I can touch.
I have some knowledge of the administration costs. I refer to the list the Senator gave which should be included. The first is administration costs. There is little doubt that the figures are wild and can go anywhere. Senator Barrett spoke about 0.75% as against 0.25%. That makes a huge difference but that is only one instance. I will not repeat what Senator Barrett already said but the award of extra years to retirees, the extent of under-estimated longevity, the poor investment returns, the failure to increase the retirement age and other reasons for the inability of the resources of the scheme to discharge its liability just go on and not to include them seems wrong.
Senator Barrett made the point very clearly in regard to amendment No. 4. The Bill states that the Minister for Finance shall in consultation with the Minister for Public Expenditure and Reform approve the request made under subsection (5). It makes sense to state "approve or amend". It seems to such a minor point but why should he only have the right to approve but not to amend? The amendments make sense and I urge the Minister to consider them.
I support the amendment on the basis that it will give additional clarity, although I have an overall concern with the Bill. I know the Minister is grappling with a very difficult situation in pensions reform and I understand there will be more coming down the road from her Department. If one thinks about the area of added years to retirees, Senator Barrett will be aware that our universities are among the worst culprits of that in their pension schemes.
Absolutely.
The Committee of Public Accounts investigated that at the time. That was against Government advice and against an order given by the then Minister for Finance, the late Brian Lenihan. In that context, one can see the power trustees had to grant additional service without taking into account any additional cost to the rest of the scheme. I know Senator Barrett is aware of that and I want to let him know I am aware of it also.
This amendment makes a lot of sense in regard to providing additional information. I have a concerns about the change of priority orders in the Bill and with other aspects also. I worked in the industry for 15 years and saw some schemes where the trustees, as a separate legal entity to the company, made some sensible choices. I am concerned that this legislation may allow employers who would not have a conscience in regard to their pension scheme to use this avenue to simply extricate themselves from future liability. That is a major concern I have. I know of quite a large scheme in which I have a retained benefit where the trustees actually proposed the extension of retirement ages and a freeze in pensions in payment to get the scheme back on track. Every effort should be made to ensure they put forward those proposals to the Pensions Board. I know that had to be done earlier but many schemes clamoured to meet that deadline. I think the deadline was too tight and many of them left it until late in the day.
To get back to the amendment, I do not see any reason we could not be more prescriptive and accept what Senator Barrett proposed. If one looks at administration charges, fund charges, allocation rates within the scheme, commissions paid, renewal commissions and override commissions, in many instances all these things are actually far worse than in the report the Minister published. The problem goes back to the start, at which I know the Minister has been looking, which is disclosure at the very beginning. While the disclosure we have on pension products is well-meaning, a normal scheme member will not read it. If anything, there is too much detail. It comes as a big surprise to people as they approach retirement to find they have been paying into a scheme and that, in many instances, they have been charged way above the odds, where it looks as if everything is going grand and where they do not understand the 2% fund management charge which is significant because it is a compound charge on the fund.
While this is being done in the Social Welfare and Pensions (No. 2) Bill, the Minister knows a lot more needs to be done to bring it together. I have talked to former colleagues in the industry and if one looks at new investment in pensions - I am not talking about the large executive schemes but those for the normal worker - they are way down. In the industry, which is struggling, 10% of all business written is new business. The rest of it is business being passed from one investment house to another - existing schemes with retained benefits moving from one to the other. Our pension problem will get bigger.
If the Minister does not accept this amendment, how will she and her Department review legislation in the future? I know I am straying a little off the amendment. Investment conditions improve and scheme structures improve and, hopefully, fund managers and the risks and investment strategies they take will improve in the future. Some have done far better than others because they have taken a more prudent approach.
A pension should be a prudent long-term investment. Will the Minister consider this and other legislation that the Government is bringing forward to allow people to get out of defined benefit arrangements? I do not see anyone going back into defined benefits schemes because people have lost retained benefits, pensions and payments and have had entitlements reduced. I have an uneasy feeling that we are letting the employer, the fund manager and the trustee off the hook. The employer, the taxpayer and the Minister will in many instances be left carrying the can. When this legislation and other Bills are passed, we will be carrying the can for the mistakes that have been made, particularly in respect of priority orders and under-funded schemes because as things improve, no one will go back to the way they were. It is the person who has been prudent in trying to provide for his or her retirement who will be affected, not the fund manager, not the trustee and certainly not the employer.
The amendment is sensible. I would like to hear the Minister’s view of it because I and my colleagues will certainly support it. The amendment gives the Minister more information on the alternatives that a scheme trustee may or may not have tried. I have seen sensible arrangements for restructuring of schemes. They focus on the pensioner, the scheme member and those with retained benefits in funds that are fair. I am worried that many employers will see this as an opportunity to get out.
Are there any instances where the Minister would see this legislation impacting on the university schemes that were transferred to be managed by the National Treasury Management Agency, NTMA? How are they being managed? Are they managed as separate legal entities within the NTMA and does the Minister envisage any changes in those schemes based on this legislation?
We are very close to the end of this legislation. Is it possible for the Acting Chairman to contact the Leader of the House, Senator Cummins, or the Acting Leader, to extend the debate?
I am the Acting Leader. We have already had agreement from the Leader that if we need extra time we can extend the debate to 6 p.m. I propose that we extend to 6 p.m.
Is that agreed? Agreed.
I thank the Acting Leader.
The extension does not give us leeway to stay on the same amendment until 6 p.m. The object of the exercise is to finish the debate.
Of course not. I have some quick, and I hope reasonably succinct, points to make on this. I welcome the fact that we will be able to dispose of this. There are only a few Members here. May I gloat and say that the smallest group in the House, smaller even than the Taoiseach’s Independent nominees, has consistently had the greatest number of representatives here? We now have four, Fianna Fáil has three, the Labour Party, one, and Fine Gael, two.
I thought Senator Norris was going to speak on the amendment.
That is very important.
I hope the Minister will be able to accept this amendment. She will have some difficulty defending her position if she does not, in light of what she said earlier this afternoon. She pointed out the difficulties that pension schemes have got into because of people’s extended longevity. That is contained in this amendment. In the sections of the Bill, to which Senators Barrett and Quinn have referred in their excellent amendment, how much is gone? What is the difference? What will we have to fork out? It is much more important to understand why, instead of what and how much. Why did this happen? If we do not understand why it happens it is quite likely to happen again. For that reason I think this is an excellent amendment and the Minister has argued for it. I very much hope that she will be able to accept that.
I also feel strongly about amendment No. 5. I would not want to be the one trying to tie the hands of the Minister for Finance, Deputy Noonan. He is an old friend of mine but I would say that he could be pugnacious enough if he took the notion. The Bill states that the Minister for Finance shall in consultation approve the request but what if it is a rotten request? Why should he approve it? I cannot imagine any circumstance so nonsensical that somebody should be required by law to approve something. This is in legislation before anything has been produced. People do not sign blank cheques. Bertie Ahern’s day is long gone. Why should the Minister be expected to sign a blank cheque? I support these amendments.
Senator Darragh O’Brien recalled the time when the late Minister for Finance, Brian Lenihan, took a whole series of pension schemes along with their assets and liabilities, onto the State’s balance sheets. I think it was the first time I heard of the practice of giving people extended years, which seemed to be fairly common in universities, not in institutes of technology or the Dublin Institute of Technology, where I worked and never heard of it. There had been rumours about it but the Minister was not the only person to be surprised at how liberal that practice was. That had huge implications. In answer to Senator O’Brien’s direct question, they are in effect State schemes, taken over by the State. The Economic and Social Research Institute, ESRI, was also drawn in and the State took over its pension scheme.
In this case we are providing for a double insolvency, that is where the firm and the scheme are insolvent. We rather hope that will be a relatively rare occurrence as it has been in the past, the most notable example being Waterford Crystal. Since 2008 an EU pensions directive places certain obligations on the Irish Government. Waterford Crystal is involved in an ongoing legal case. The rules we are putting in place are to provide in future for the double insolvency. This means that the firm is insolvent.
In the legislation we are providing for the draw-down of the amount required to cover the shortfall in the resources of the scheme. The Minister for Finance, on behalf of all taxpayers, covers that shortfall on certain very clear conditions and application, via the Pensions Board and the Minister for Social Protection on application to the Minister for Finance. Sub-section 48(a) provides for: the certification of the shortfall in scheme resources by the scheme actuary in accordance with statutory guidance issued by the Pensions Board; application by the trustees of the pension scheme to the Pensions Board to certify the shortfall in scheme resources, in accordance with statutory guidance issued by the Pensions Board; and certification of the amount by the Pensions Board where the board is satisfied that the trustees of the scheme have complied with statutory guidance and with guidelines issued by the Minister.
Two requirements are being drawn up and will be published. That is where I believe the spirit of the amendment is important. The statutory guidance and the guidelines, which will be drawn up and issued by the Minister, are being worked on as we speak in regard to the application by the trustees of the scheme to the Minister for Social Protection to request the Minister for Finance to discharge the amount certified to the trustees of the pension scheme. It is an application process to ensure the interests, if one likes, of the pensioners, both active and deferred, are protected to a certain degree in the event of a double insolvency, which includes the insolvency of the company. I will make that request to the Minister for Finance where I am satisfied, as Minister, that the guidelines I have made in this regard and the statutory guidance issued by the Pensions Board have been complied with.
The statutory guidance is issued by the Pensions Board and will set out the technical details in regard to the certification of the shortfall in scheme resources and in regard to the form of the application required when applying to the board to certify the amount of the shortfall. That is being worked on and will only be finalised and published after this legislation has been passed. There are the guidelines issued by the Minister in regard to the certification of the shortfall by the Pensions Board. The statutory guidance and the guidelines are the detailed working operation of how this issue is to be dealt with in a double insolvency. The issues raised in the amendment go back into the history of the scheme and, in some ways, we could almost say it is a summary of what went wrong and what they were less than prudent about, and so, for historical reasons, we ought to be told about it. I would prefer to reflect that in the statutory guidance to the Pensions Board and in the guidelines for the reason that, because it is a double insolvency where the company itself is gone, it may be difficult in some cases to go back for the detailed information that is being talked about in the amendment.
I am happy to consider the points that have been made by the Senators and I take those points as being very well made. The purpose of what we are doing in the legislation, however, is to transpose the EU directive into Irish law to give the people in the pension scheme the protection of the directive. As has been said, it would be important that we would learn from what happens in these cases. In some ways, that is probably the purpose of the amendment, which deals with the issue of moral hazard. As with all these inquiries into what happened, there is probably a vicarious satisfaction in getting the information, and some of that may have other consequences. We also want the information to learn how to avoid this in future.
I understand the point the Senators who proposed the amendment are making. I will undertake to do that but I would prefer not to have it in the legislation because the legislation is to deal with the actual double insolvency. Given that double insolvency involves the insolvency of the company, to have a legal requirement to go back, as it were, almost to undo or to find out everything that happened could, in certain circumstances, be difficult, if not impossible. I will certainly undertake to seek to reflect what is being said by the Senators in the statutory guidance and the guidelines. That said, I would prefer not to take it into the legislation for the reasons I have outlined.
I thank the Minister for what she said about the statutory guidelines. As in many of these matters, we are trying to prevent recurrences and we are trying to run things better from this day forward. I believe that is the function of the Seanad and the Oireachtas, and that is what we have come into the Houses of the Oireachtas to do. I thank the Minister for her open-mindedness towards what we are saying. There may be other reasons that we, the Minister and her Department will think of as to why schemes crashed. I thank Senator Darragh O'Brien. Part of the reason I tabled the amendments is that I saw a scheme do this to itself. The Minister mentioned the research institutes and so on. Here were people, who were not short of giving all sorts of advice on how other people should run their affairs, behaving scandalously in the conduct of a pension fund. It is wrong that a group of people in a room decide to award themselves added years and then send it down to Busáras because there is a Minister for Social Protection there who they believe will bail them out.
On the costs, the industry has to be made competitive with the UK. The Minister said we have too many small schemes and that perhaps the investment opportunities are not big enough. This is an era of free trade. It is not a good excuse for pension fund people to tell the Minister they did not think they could invest as well as pension fund people from other countries. The high cost of sheltered sector services and the inefficiency of the financial sector are major reasons we are in this room now.
On the issue of longevity, I do not know what standards actuaries have that they did not use information which the Central Statistics Office, located in the Department of the Taoiseach, has been publishing since it was founded 70 or 80 years ago. It is no secret that people are living longer and it is no good having people feign surprise when they come to see the Minister. If there are any other reasons, I want to hear them.
The Minister did not refer, in particular, to the role of the Department of Finance but it would not be right if undue pressure were put on the Minister for Social Protection. The Minister for Finance, as the custodian of the public purse, should engage in some kind of dialogue rather than, as my colleagues have said, just giving approval. Again, our history of bailouts tends to be that line Departments get the pressure put on them. Nobody would wish to repeat the incorporeal Cabinet meetings dealing with large amounts of money. I do not know the definition of such a meeting but the Minister might consider some formal proceedings because, as we said earlier, the Minister for Finance's rubber stamp is not what we need.
The EU directive worries me. Sometimes, the Europeans tell us to do things which we know do not make sense. For example, we had the car insurance increase for women drivers under some kind of equality. Women got lower car insurance because they were better drivers and I did not see anything wrong with that.
Exactly.
We had a good debate with the Minister of State, Deputy Kathleen Lynch, when she was in the House and it probably went against her grain to bring in such legislation. The Europeans designed a currency which has caused us untold misery. Tugging the forelock to what is in a European directive is not necessary. If we could do it more sensibly, would the Minister not take a look at the measures we have to prevent pension funds taking a well-beaten track to the Department of Social Protection looking for bailouts?
I thank the Minister for addressing all the points my colleagues and I made and for bringing their spirit into the statutory regulations and statutory guidance. In her discussions with the Pensions Board, a harder line probably needs to be taken, as the regulators of credit unions, banks and accountants needed to take a harder line heretofore. Part of the recovery of the economy has to be a much better performing financial sector, rather than seeking a bailout when we are broke on the basis that money was given to the people who were there before, and this bailout given, as Senator Norris said, at the expense of funds that were run properly and which are paying a levy to the ones which were not.
We in Ireland have a long history of rescuing the wrong kinds of companies.
It is not a very good method of portfolio selection, that when people go broke they turn to the Exchequer.
I thank the Minister for taking those points on board. Perhaps when the Minister has the annual review, which is provided for at the end of the Bill, we could have a debate on these issues again on each anniversary of the passing of the Bill. The House will have to ensure that the performance of pension funds on all the grounds on which the Minister and Senator O'Brien have agreed must be better in future.
Is the amendment being pressed?
No, and I thank the Minister for giving us very good reasons not to press it.
Amendment, by leave, withdrawn.
Amendment No. 4 not moved.
I move amendment No. 5:
In page 15, line 3, after “approve” to insert “or amend”.
What is the role envisaged for the Minister for Finance?
Briefly, the role of the Minister for Finance is to pony up the money that has been extracted from taxpayers to meet this shortfall. Otherwise, the pensioners could be left completely bereft in a case of a double insolvency, the E double.
Double only in this instance.
The others are provided for in terms of scheme restructuring. This refers to a specific case, which has been a relatively rare event, but if it happens and people are left with nothing, the EU directive, which I believe was issued in 2008, comes into effect. This legislation gives effect to that.
Amendment, by leave, withdrawn.
Amendment No. 6 not moved.
I move amendment No. 7:
In page 15, between lines 39 and 40, to insert the following:
"11. Section 50 of the Principal Act shall be amended by inserting a new subsection (1A) as follows:
“(1A) The pensions board shall not direct the trustees of a pension scheme to reduce the benefits of current and former scheme members and/or post-retirement increases in benefits for pensioner members where a sponsoring company or its parent company have the financial capacity to meet the under-funding in the scheme.”.”.
With regard to the double insolvency, obviously the trustees are empowered to reduce the benefit of the current and former members. The Long Title has caused us a little confusion because it strongly emphasises the insolvent companies, but it deals with the single insolvency, which is the fund, just by restructuring. It is understandable and logical given what the Minister is endeavouring to do in this Bill that the trustees of the scheme would be in a position to reallocate the funds in accordance with the legislation in a double insolvency. However, in a single insolvency, which is where the fund is in trouble but the employer is doing fine, the same powers are given.
This comes down to a strong position on equity and fairness. I do not accept the Minister's response to amendment No. 1, that it would somehow disincentivise employers from taking the defined benefit route. There are probably no new defined benefit schemes being created at present by companies. If there are, they are minuscule. In fact, many defined benefit schemes are morphing into defined contribution schemes. There is nothing fundamentally wrong with defined contribution schemes, provided the employer makes a fair contribution, the employee does likewise and the fund is managed properly. In addition, crystallising the benefit to the employee will attract others to follow that course. I mentioned mutual funds on the last occasion we discussed this and the Minister acknowledged that they work very well in the United States. I recall meeting people who told me they had never appreciated that they would accumulate the amount of finance they had. They did it through mutual funds.
I believe that is a good concept. Indeed, some of these funds have acted to guarantee the money in the funds, for example. We talk about unit trusts and so forth, but the State is borrowing money all the time. It will borrow on the bond market. Perhaps there is a way the State can use some of the available funds for investment here, by guaranteeing an appropriate level of funding, which might be modest but would be commensurate with the low risk involved. There are real opportunities here to develop that.
To return to the amendment, if I am an employee of a company that is in financial difficulties and the pension fund is in difficulty, I must accept what is being prescribed in the legislation. If I am a current employee, it is a benefit to me and if I am retired, it will affect me because my pension will be cut. That is an entirely different situation from one where the defined benefit scheme in a company is under-funded, but the company is doing exceptionally well. Due to increasing profits, margins or whatever else, it decides, as many employers have, that there is risk attached to the defined benefit scheme and accordingly closes it down. There must be some protection for the employee in that regard, but there is none in this Bill.
The Minister is facilitating successful companies, perhaps even multinational corporations. I gave the Minister an example on the last occasion, the EMI scheme. It is a disgrace. I also asked the Minister to find out if there is a disparity between the law here and the law in Britain. A total of €200 million was injected into the pension fund in Britain and all the employees there were beneficiaries of that as their pensions are fully funded. The employees of the same company in Ireland, however, many of whom had long service, found their pension fund was not funded. There was no need for the company to put the money into it. It was a small amount of money. If memory serves, I think €12 million would have been sufficient, compared with the €200 million. It would be neglectful of the Minister, people working in that section and the Members of the Oireachtas to allow that situation to continue. It is unfair and wrong.
I intend to press this amendment. If the Minister refuses to accept it, I urge her to outline the logic for doing so. I do not accept the point the Minister made. Where companies are viable, as I said on Committee Stage, criteria could be laid down to determine what the financial profile of the company would be so it could meet this requirement. There must be some statutory obligation on such companies. We cannot permit a situation where unfortunate people who have served a company for 30 or 40 years are totally disadvantaged. I refer to a quotation which is on the back of my card. It has a great deal of resonance for me, as a member of Fianna Fáil, as I hope it would have for a member of the Labour Party and a Government Minister. The quotation, from Pedro Arrupe, is, "Let there be men and women who will bend their energies not to strengthen positions of privilege, but, to the best extent possible, reduce privilege in favour of the underprivileged".
That is a guiding principle we would do well to follow. I ask the Minister to think about that because we are disadvantaging employees and employers, some of whom are multinationals, such as the one I mentioned.
I would welcome an answer in respect of the EMI situation and the position regarding the laws in Britain as against the laws in Ireland which obviously worked against a number of employees here as a consequence of what happened within that company.
I formally second the amendment. I concur with what my colleague, Senator Jim Walsh, has said. This is the fundamental issue that my colleagues and I have with this Bill. The Long Title of the Bill is ambiguous because it highlights very clearly the double insolvency. It includes the additional wording at the end "to make additional provision for the restructuring of certain occupational pension schemes" etc. The issue is twofold. The Government has increased the pension levy to 0.75% from next year, which is a cash payment that schemes under pressure already have to pay. It has brought about a reduction in payment of schemes such as Tara Mines, Axa and various other pensions scheme because they have not had sufficient cash at hand and cannot realise assets to pay the pension levy. The increased levy which was to finish this year will now be 0.75% of the value of the fund and, apparently, will reduce further. This has resulted in Unilever pulling its whole pension fund out of Ireland from 1 January. I am sure those in the pensions unit of the Department have told the Minister that the fund which is in the region of €8 billion is made up of Irish and international assets. The fund had been managed here and is moving out of this country from 1 January and scheme members in Ireland have been advised accordingly. In the context of trying to assist schemes under pressure, what the Government is doing is increasing the charges on pension funds, full stop. The Minister for Finance, Deputy Michael Noonan, has imposed a significant change which is now 0.75%.
The nub of the issue is that we have a situation where public sector pensions, including my own, come from current expenditure where there is no fund and no real reduction in pensions given that the Minister for Finance tagged on an amendment to ensure there would be no major changes to such pensions. Effectively, what the Minister is saying is that for a person on €13,000 or €14,000 per year in a scheme where a solvent employer decides that as a party to the scheme the company will not inject any additional funds into a marginally under-funded scheme, it gives that employer a way out. The Minister will propose a 10% reduction in pension and payments in what is the most significant restructuring of private pensions that has taken place. I do not believe the public and, particularly, those pensioners who receive pension payments, understand what is being done here today and what the Social Welfare and Pensions (No. 2) Bill will do to their retirement pots, pensions and payments. If we allow this to go through without amendment a raft of schemes will seek to get out of their defined benefit arrangements and restructure the priority order but to reduce the pensions that are paid. I agree with the Minister that where schemes are under pressure and where a person who has got a year to go to retirement may have paid into the scheme for 30 years, that person will get a vastly reduced pension payment.
I wonder why in the Long Title of the Bill, particularly from line 12 onwards the Minister was not more prescriptive about saying that he would allow solvent employers with under-funded pension schemes to restructure their pension schemes for their benefit. I refer to the original point I made in regard to Senator Barrett's amendment, namely, that many of the charges, the fund performance and the mismanagement of schemes will be vested on those who have paid in for many years. Let us remember when we talk about priority orders, the reason they are in place is that those who are retired, generally speaking, do not have the ability to earn additional income. There could be people in their 70s and 80s who are receiving small pensions and on the basis of what is proposed, the Minister will be able to reduce those payments significantly and those people will not be able to earn any additional money. A raft of schemes will get out because all the major schemes are shutting down their defined benefit arrangements. This will lead to more schemes doing that and payments will be reduced further. The Minister does not have an easy job. I do not say there is a perfect solution but parameters should be set for a solvent employer. I wonder how the Department and the pensions board will look at this. I think they should be involved in the certification of such restructurings.
That annual amounts of between €12,000 and €60,000 can be reduced by up to 10% and annual amounts over €60,000 can be reduced by 20% is fine and well. I proposed to the previous Government in January 2009 that any future increments in the public and Civil Service should be on a defined contribution basis in order that a fund is built up for the vast bulk of the people, including ourselves, who work within the public and Civil Service. We cannot continue to have a situation whereby the measures are drastically changed for private pensions while doing very little with public sector pensions and continue not to fund them by way of a separate fund. That is an indictment of this and previous Governments because further disparity was created between gold-plated public sector pensions and now we are allowing people who have saved 50% or less for private pensions to effectively have their employers, by way of being scheme trustees, take the legs from under them and reduce the pensions they have paid into for many years. I do not want to detain the House too long because we want to push this amendment before 6 p.m. and there are two minutes remaining so I will conclude.
I would like to use one of those minutes, if I may. I am largely persuaded by the arguments of my Fianna Fáil colleagues and particularly the EMI case raised by Senator Jim Walsh. There is a clear injustice in that case and it appears to be virtually the same as the Waterford Wedgwood case. Perhaps Senator Walsh would graciously accept an amendment to his amendment because there is a grammatical inaccuracy, which is a blemish upon the amendment. It should read: "a sponsoring company or its parent company has [not have] the financial capacity to meet the under-funding in the scheme."
The origin of many of the difficulties lie in the financial collapse. I appreciate Fianna Fáil's very fine sentiments now but it is what happened in 2008 and the way in which funding in the country was structured-----
That is incorrect.
-----in relation to a large number of claims.
Most Irish pension funds were heavily invested abroad.
Sorry,
What percentage of Irish pensions were invested in Irish equities and banks?
The situation is that the country is in a slow recovery, with a slow recovery of employment.
That has nothing to do with it.
Among those institutions which are in difficulty as the Senator described at great length, are pension funds. The suspension of the funding standard in 2008, shortly after the bank guarantee, did not actually help the long-term sustainability of pension funds. The Government, of which the Senator was a member, decided to do that. I think it felt, like the bank guarantee and the First World War, it would be all over by Christmas. Unfortunately, it was not all over by Christmas. There was a rally of a week when it seemed like the cleverest thing in the world.
May I extend the debate for another 15 minutes to allow the Minister to respond?
I will not even need five minutes.
I propose to extend the debate by five minutes.
What time are we going to?
Ten past six.
What amount of time does the Minister need?
Five minutes.
I propose an extension of five minutes.
Sorry Minister, please excuse me for interrupting. It is important that there is a separate vote on amendment No. 7.
I propose to extend the time to 6.10 p.m.
Is that agreed? Agreed.
As I said, many of these difficulties have their origin in the peculiarities of the bank guarantee, the state of the economy and the suspension of the funding standard. I think people expected it would be all over by Christmas. Not only was it not over by Christmas, the situation continued for an extended period. What we are trying to do in the legislation is to allow schemes to restructure. There has been agreement on both sides of the House that if a scheme has an inherent viability, a restructuring plan would allow it to recover. We have examples of a great deal of work being done by trustees, by the members and representatives of trade unions and by employers in producing plans to restructure schemes in order that they become successful.
At the outset of the debate I said that 40% of schemes have been involved in a successful restructuring process but about 20% of schemes have a serious difficulty. As Senator Darragh O'Brien knows, some of those schemes are very small, whereas others are very large with hundreds, and in some cases thousands, of members. The objective is to try to get the schemes to the best place possible. That is the reason we are providing in the Long Title and in the details of the Bill an additional basis for restructuring. An example was given during the Second Stage debate of people ranging from 62 to 64 years, current active members still in employment or deferred members who had taken a redundancy deal and were now approaching retirement age who would be entitled to nothing without some kind of restructuring. The existing pensioners, including friends who had retired at age 65 a few years previously received all the benefits, while the active staff and those with deferred pensions would be entitled to nothing. There was wide agreement on Second Stage to see what could be done while achieving the maximum protection.
One thing that was not mentioned in the contribution is that we are protecting people with pensions of less than €12,000. All the information is that a significant proportion of the members, those still active in the workforce and those who have deferred entitlement in the various pension schemes, in particular some of the larger ones, are in that category. In addition, a significant number of the members of such schemes have access to the State retirement pension. That is worth roughly €12,000. If somebody has the State retirement pension, he or she is also protected in terms of their defined benefit pension up to €12,000. Many people in defined benefit schemes have entitlements significantly below €12,000. The combination of the State pension and defined benefit pension of €12,000 would give them a retirement pension of something around €24,000. As a proportion of the average industrial wage, which is somewhere in the region of €34,000 to €36,000, a retirement income of up to €24,000 would be deemed to be a significant provision. It may not be all that people want and we had an earlier discussion on the advisability of saving more in pension schemes. We are trying in this legislation to help the maximum number of pension schemes to meet a funding restructuring requirement that will give them sustainability that will cover the current active members in employment and those who have deferred entitlement. Many organisations have made changes in their pension schemes from defined benefit schemes to defined contribution schemes Younger people simply join defined contribution pension schemes.
I was asked about future pension regulation. What is happening in respect of defined contribution pensions will become an issue because of the difficulty of individuals managing their own pension fund. I commissioned and published a report on pensions which showed that charges for people in pension funds are very high. As has been said, the decisions are not easy. I have exhausted the time. I want members to understand that the purpose of the legislation, on which there has been significant consultation and debate, is to provide for sustainability for the maximum number of funds through restructuring, if necessary, and to provide specifically for the double insolvency situation in the context of the EU directive.
I am disappointed with the response. I understand what the Minister is trying to do in the Bill, but in effect, existing pensioners in schemes that are in difficulty will lose money, ranging from 10% to 20%, depending on where they are on the scale in most instances.
The majority of people have less that €12,000.
I find it very difficult to accept that. The Minister is talking about people who are working in manual employment. In my opinion very few would be at that low level. Having said that, there are many on the other side of €12,000 as well. Pensioners who are in receipt of a pension above €12,000 will find their pensions being cut. People who are coming up to retirement age will get a bit of a break. As my colleague has said, this is being funded primarily by other pensioners and other people's pension funds, including pension funds that are in deficit, on which there is a levy. There is no cohesive Government policy on pensions. Similar to what is happening in regard to health insurance, this is having the effect of discouraging people from providing for themselves, which is wrong. There needs to be a root and branch look at this. The Minister needs advice from the best experts and if this is not available internally, she should get external advice. This needs to be done.
The Minister is not accepting my amendment, which is trying to provide that pensioners, be they about to retire or retired, will not be disadvantaged if their company is profitable and able to meet the shortfall. The effect of what the Minister is doing is allowing profitable companies to close pension funds, which is to the disadvantage of the employees who will be affected. Accordingly, I am calling a vote on this amendment.
Amendment put:
The Seanad divided: Tá, 11; Níl, 26.
Tá
- Barrett, Sean D.
- Byrne, Thomas.
- Mooney, Paschal.
- Mullen, Rónán.
- Norris, David.
- Ó Domhnaill, Brian.
- Ó Murchú, Labhrás.
- O'Brien, Darragh.
- O'Sullivan, Ned.
- Walsh, Jim.
- Wilson, Diarmuid.
Níl
- Bacik, Ivana.
- Brennan, Terry.
- Burke, Colm.
- Clune, Deirdre.
- Coghlan, Eamonn.
- Coghlan, Paul.
- Comiskey, Michael.
- Conway, Martin.
- D'Arcy, Jim.
- D'Arcy, Michael.
- Gilroy, John.
- Hayden, Aideen.
- Henry, Imelda.
- Higgins, Lorraine.
- Keane, Cáit.
- Moloney, Marie.
- Moran, Mary.
- Mulcahy, Tony.
- Mullins, Michael.
- Naughton, Hildegarde.
- Noone, Catherine.
- O'Donnell, Marie-Louise.
- O'Keeffe, Susan.
- O'Neill, Pat.
- van Turnhout, Jillian.
- Zappone, Katherine.
Tellers: Tá, Senators Ned O'Sullivan and Diarmuid Wilson; Níl, Senators Paul Coghlan and Aideen Hayden.
Amendment declared lost.
As it is now after 6.10 p.m., I am required to put the following question in accordance with the Order of the Seanad of this day: "That the Bill is hereby received for final consideration and that the Bill is hereby passed."
Question put:
The Seanad divided: Tá, 29; Níl, 11.
Tá
- Bacik, Ivana.
- Brennan, Terry.
- Burke, Colm.
- Clune, Deirdre.
- Coghlan, Eamonn.
- Coghlan, Paul.
- Comiskey, Michael.
- Conway, Martin.
- Cullinane, David.
- D'Arcy, Jim.
- D'Arcy, Michael.
- Gilroy, John.
- Hayden, Aideen.
- Henry, Imelda.
- Higgins, Lorraine.
- Keane, Cáit.
- Moloney, Marie.
- Moran, Mary.
- Mulcahy, Tony.
- Mullins, Michael.
- Naughton, Hildegarde.
- Noone, Catherine.
- Ó Clochartaigh, Trevor.
- O'Donnell, Marie-Louise.
- O'Keeffe, Susan.
- O'Neill, Pat.
- Reilly, Kathryn.
- van Turnhout, Jillian.
- Zappone, Katherine.
Níl
- Barrett, Sean D.
- Byrne, Thomas.
- Mooney, Paschal.
- Mullen, Rónán.
- Norris, David.
- Ó Domhnaill, Brian.
- Ó Murchú, Labhrás.
- O'Brien, Darragh.
- O'Sullivan, Ned.
- Walsh, Jim.
- Wilson, Diarmuid.
Tellers: Tá, Senators Paul Coghlan and Aideen Hayden; Níl, Senators Ned O'Sullivan and Diarmuid Wilson..
Question declared carried.