I welcome the Minister for Finance, Deputy McCreevy, and his officials to the meeting. We will now proceed to consideration of the Bill.
National Pensions Reserve Fund Bill, 2000: Committee Stage.
It would be appropriate at this stage to make a point on your ruling that my amendment No. 21 is out of order. I am at a loss to understand how this can be. The amendment seeks to allow the Minister discretion to reduce the annual payment into the fund from 1% of GNP to 0.75% of GNP. I do not understand how that involves a charge, or even a potential charge, on the Revenue. It is obviously quite a substantive amendment and really goes to the heart of the Bill in some ways. Deputy Noonan has tabled a similar amendment and it would be very important that we get the opportunity to discuss those.
The ruling is based on the following. The amendment reads "in any year, up to one-quarter of the amount paid into the Fund in respect of that year may be paid by the Commission from the Fund to the Exchequer at the request of the Minister in respect of services other than social welfare pensions and public service pensions". Payment of fund moneys to the Exchequer for non-pension purposes would result in a shortfall in pension funding in the future of an amount equivalent to the investment return on the money originally paid. As this shortfall would have to be recouped by the Exchequer, the amendment involves a potential charge on the Revenue and, therefore, must be disallowed.
The ingenuity of that is remarkable.
What that says is that if we legislate to have one set of provisions in relation to the pension fund, there will be a charge on the Exchequer because the Minister will go ahead and do what he wants to do anyway despite the amendment to the Bill. That is nonsense.
That is the ruling. The Deputy can debate the amendment and maybe introduce a further amendment on Report Stage.
We will need to consult with you and your advisers on this because if the Opposition is to be prevented from looking to amend the level of contribution into the fund, that substantially curtails the debate and hampers us in discussing the matter fully.
The debate will be allowed and the Deputy can reintroduce the amendment on Report Stage.
I take it the Minister will be prohibited from accepting our amendments because they are out of order.
Will the Chairman explain how Deputy McDowell's amendment, which has been ruled out of order on Committee Stage, will be in order on Report Stage? Is he giving him a gracious offer that he can move it on Report Stage?
The ruling advises me that amendments Nos. 15 and 16 provide that between 0.5% and 1.5% of GNP, as the Minister may determine each year, shall be paid into the fund from the central fund up to 2055. Under the provisions of the Bill, the Minister is only required to pay 1% of GNP annually. Therefore, the amendments involve a potential charge on the Revenue and must be disallowed in accordance with Standing Order 142(3).
The Minister's 1% is not the law of the land, it is only a proposal in a Bill before the House for consideration. The Minister says 1% and I am saying 0.5% to 1.5%. There is no charge on the Exchequer, so I am not varying the charge upwards. The charge is not on the Exchequer until the Bill passes all Stages.
Under Standing Order 142(3), it is deemed to be a potential charge on the Exchequer.
This is very unsatisfactory because the amendments in Deputy McDowell's name and in my name go to the heart of the Bill. To be quite frank the other amendments I have tabled are for debating purposes and are really of no consequence. This is the heart of the Bill and if the Opposition cannot speak on amendments to change the contribution, something verypeculiar is happening.
I would take the point that if the Bill went through last year and there was a contribution of 1% enshrined in law and we tried to increase that to 1.5% in a Finance Bill, it would be a potential charge on the Exchequer and would properly be ruled out of order. However, because there is no legislative provision to pay any contribution into any pension fund at present, there is no potential charge on the Exchequer by the Opposition proposing a different percentage.
Given the fundamental nature of these amendments and if the Chairman feels he has to adhere to his advice, it might be more appropriate to clarify that advice rather than waste time by meeting.
The matters can be discussed and debated but the amendments are not acceptable according to advice that has been provided.
I know the Chairman is easy to deal with and will allow us to discuss these matters. It is not the opportunity to debate the issue that bothers me, it is the precedent that is being established. This type of ruling really handcuffs the Opposition. If any Bill in the future involves a payment, whatever the Minister puts into the Bill in the first instance cannot be varied in an upward direction by Opposition amendments. There is no law at the moment, this is just the Committee Stage of a Bill proposing a charge.
The Minister, if facilitated, might even be prepared to take the amendments on board.
We can deal with that when we come to the amendments.
Who makes the ruling?
I make the ruling on the advice provided to me by the officials and that is, that the amendments are not in order. I am abiding by that ruling.
I understood your ruling on my amendment to suggest that the charge on the Revenue might arise sometime after the year 2025. It strikes me at best——
That is incorrect.
Perhaps you could read theruling out again.
Amendment No. 21 in the name of Deputy McDowell provides that in any year, up to one quarter of the amount paid into the fund in respect of that year may be paid by the commission from the fund to the Exchequer at the request of the Minister in respect of services other than social welfare pensions and public service pensions. Payment of fund moneys to the Exchequer for non pension purposes would result in a shortfall in pension funding in the future of an amount equivalent to the investment return on the money originally paid. As this shortfall would have to be recouped by the Exchequer, the amendment involves a potential charge on the Revenue and must be disallowed.
After the moneys became payable, in other words, sometime after 2025, there might be a charge on the revenue.
That is right.
To prohibit debate on that basis is bizarre and it seriously shackles our capacity to deal with this issue. I have to ask the Chairman to reconsider his ruling on these two amendments. I am happy to facilitate the rest of the Bill now but there is a precedent here. It is quite a serious issue and we should convene again tomorrow to discuss the Chairman's ruling.Perhaps he could have his legal advice available to him.
Having considered the Deputy's proposition, I am sorry I cannot accept it. We should proceed with the Bill.
The Chairman is making it very difficult for us. We do not want to leave the pitch but the Chairman is painting us into a corner.
We can debate the issue. I have notes prepared to debate it.
The Chairman is prepared to facilitate us with a debate but what worries me is that we are establishing a precedent here which will restrict the potential of Opposition Deputies in committees to an unacceptable degree.
It is a matter for the Chairman and, I assume, the Clerk of the Dáil. We have no hand, act or part in it. We have nothing to do with it. I assume the debate revolves around the fact that only the Government may put a charge on the people. I assume that is the underlying principle.
Yes, but I am looking to potentially reduce the level of contribution into the fund and the ruling is that that, therefore, may involve additional pension payments from 2025 onwards.
When I was Opposition spokesperson on Finance it was never too clear why some amendments were ruled out on the basis that we were trying to give a relief to people. That was always ruled out also because it was deemed to impose a charge on the people. I never fully understood it.
The practice always was that if a member of the Opposition was proposing a reduction in taxation, without any other charge arising to achieve that reduction, that amendment was in order.
Some of them have been ruled out.
Yes, because you would be using a mechanism which may give rise to a cost elsewhere.
Having considered the matter, my view is that if we proceeded to not go ahead with the meeting, we would be setting a precedent that any rulings made by the Chair which are not acceptable to the Opposition would lead to the business not being carried out. On that ground, we should proceed.
I am suggesting that we should deal with the remaining amendments. I would appeal to the Government's members of the committee, who I am sure will see that there is some merit in the argument we are making and that we are not making it purely for the sake of making Opposition points, which genuinely is not the point, to facilitate us in getting clarification tomorrow when the meeting resumes.
As I said earlier, I will allow a discussion on the amendments and the Deputies can re-table them for Report Stage when they will be reconsidered by the appropriate authority on whether they are in order. That will provide an opportunity for a review of my decision. The appropriate authority who made the ruling will be in a position to review the amendments before Report Stage.
I have a problem with this, Chairman. First, the office put a great deal of pressure on me yesterday, when I was extremely busy, to submit amendments by 11 o'clock. The first I heard of this ruling was when an envelope was given to me when I arrived here. There must be give and take in these matters and it is not there. I recognise your difficulty, Chairman, but we have a difficulty too. A precedent is being established here and a commitment to reconsider them for Report Stage is no good because the advice will be reconfirmed and the Report Stage amendments will be ruled out of order also. I will have to deal with this with the parliamentary elbow room available to me but what was to be apleasant debate will no longer be one.
There is no problem in discussing them but if the Deputy is afraid that they will be ruled out of order for Report Stage also, why not go ahead and debate them?
Due to the fact that a precedent is being established which goes beyond the ruling. We are most familiar with this arising on Committee Stage of Finance Bills. The case is clear-cut in Finance Bills. One cannot table an amendment from the Opposition benches which puts a charge on the Exchequer but I contend that neither of these amendments puts a charge nor a potential charge on the Exchequer. If this kind of amendment is to be ruled out of order, in the future in any legislation where any contribution is being made on any issue, such a ruling will have to be accepted on the dictate of the Minister. I thought the ruling in the first instance was that one could not increase the 1% because there would be a potential charge on the Exchequer but Deputy McDowell is trying to reduce it and he gets hammered also.
The Deputy can discuss that in detail with the Minister when we reach those amendments.
Yes, but we cannot put the issue.
Not on the advice of the officials who deal with the Bills. The amendments seek to impose a potential charge on the Exchequer and, therefore, are not admissible.
Is it an open-ended debate tonight?
Deputies McDowell and Noonan in order to facilitate this fundamental point asked that we leave aside these amendments and seek advice.
That would be creating a precedent——
It would not.
——that would cause chaos in future. That is not acceptable.
Our difficulty is simply this, Chairman, that, if I may be frank, you are not in a position to defend the ruling you have made or even to explain it in any reasonable terms. I think the ruling is wrong. I am not just saying that for the sake of opposing it. I believe the ruling is fundamentally wrong as well as shackling debate. With due respect to you, Chairman, you are not in a position to defend it and I am not even sure that you agree with the ruling you have just made. This puts us all in enormous difficulty. If we are setting the precedent of having rulings explained, then perhaps that is not too bad a precedent to set anyway.
The explanations have been read out. Therefore, we will proceed to consider the Bill.
I oppose section 1.
There will be votes now on every section.
It will be one of those evenings.
I do not have to give an explanation, no more than the Chairman does when he rules my amendments out of order. I want the question put to a vote, Chairman.
- Ahern, Michael.
- Browne, John (Wexford).
- Cullen, Martin.
- Dennehy, John.
- Fleming, Seán.
- Healy-Rae, Jackie.
- Lawlor, Liam.
- O’Flynn, Noel.
- Belton, Louis.
- Burke, Ulick.
- Deenihan, Jimmy.
- McDowell, Derek.
- Noonan, Michael.
- Ryan, Seán.
I move amendment No. 1:
In page 6, subsection (1), line 14, after "published" to insert "by the Minister".
This is a technical amendment.
I accept the amendment. The interpretation section, which includes the varying terms used in the Act, states that gross national product is gross domestic product plus net receipts from outside the State, with GDP defined according to the EU system of national accounts. The definition states that, for the purpose of determining the annual 1% of GNP payment to the fund, the estimate of GNP for the year in which the payment into the fund is made as published for the budget of that year is used. The amendment seeks to clarify that the GNP figure used for the purpose of calculating 1% of GNP is that estimate as published by the Minister in the budget.
I find the way the Bill is structured very peculiar. It is like the Mexican army in the 19th century. There is a commission and its chairman. Then there is the manager, the NTMA, custodians and the role of the Minister. There is an enormous superstructure constructed around this. Why did the Minister not simply empower the NTMA to manage the fund and put reporting systems in place to allow it to report to him in the first instance and to the Dáil by way of annual or periodic reports and to allow a committee such as this to scrutinise the reports and bring in the officials of the NTMA? Why the rigmarole? Why this commission? Someone really had a rush of blood to the head when he or she said members of the commission will have to be known as commissioners. Will the Minister give them uniforms with braid like the admiral in front of the Gresham Hotel long ago? There is a whole construction here which is ridiculous and I do not see how it is justified.
I believe the Deputy made a similar point on Second Stage which effectively asked why the running of the entire fund was not given to the NTMA. I do not accept that the structure proposed is very complicated. It is simple in essence. Money is given to the fund of which the commissioners and the chairman are in charge. The first manager will be the National Treasury Management Agency and it will be the manager for the first ten years. After that, the NTMA is not precluded from being the next manager but it may not necessarily be.
As the NTMA is set up under the National Treasury Management Agency Act, 1990, it is effectively the alter ego of the Minister for Finance of the day and acts in his or her place as regards the national debt. The chief executive reports directly to the Minister and not to the Department of Finance. The reason for so doing is because the agency manages the national debt which is incurred in the name of the State and the Minister for Finance. Therefore, we took the management of the national debt out of the remit of the Minister for Finance and transferred it to his new persona known as the NTMA.
The funds I intend to put in the national pension reserve fund are different. Through legislation I am putting aside funds which belong to the people away from the control of the Minister for Finance and setting them up under the trust of the commissioners of the fund. The manager of the fund for the first ten years will be the National Treasury Management Agency. As I explained on Second Stage, I do not want the Minister for Finance to be directly involved in the management of this pension fund. If anything sums up the difference, it is that net point.
I strongly believe that this pension fund should be regarded in the same light as a person's private pension fund or the pension funds of a company such as the ESB. It should be outside the day to day control of the Minister for Finance who would have an interest in it. That is the reason for having a fund with a commission and chairman who have charge of it. The management and day to day operation of the fund resides for the first ten years with the NTMA.
The drafting of the Bill is such that I find it confusing as to whose role it is to do what. As I read it, it is the role of the commission, one of whom is the chief executive of the NTMA, to set aside certain amounts of money for a certain manager. It can farm them out to a private sector manager if it wants to, or is that the role of the NTMA?
No, the role of the commissioners will be to decide the general policy for the operation of the fund. The first manager will be the NTMA.
The Bill uses the phrase"acting through the manager".
It is the manager, the NTMA, who will decide. If there were £5 billion in the fund, it would hold competitions or whatever to decide which fund managers get a slice of the action. I suspect it will devolve the work to a number of fund managers rather than giving it all to one. As someone else described it, the NTMA will be the ringmaster in the management of these funds and the commissioners will set the overall policy and ensure the manager, the NTMA, operates by the rules they set. The commissioners and the chief executive will go before the Dáil or a relevant committee of the Dáil and report in that fashion.
The Minister's image of the NTMA being the ringmaster is good because that makes the commission the circus. The commission is not needed. Why could the Minister not have vested the power to manage the fund in the NTMA, have it acting independently of the Minister in carrying out its functions and put reporting and accountability mechanisms in place?
I do not want the Minister for Finance involved in or having anything to do with the operation of this pension fund.
I know. The Minister already explained that, but that is not what I am saying.
I would prefer to transfer this money to a body and have no more say in it. However, it is the people's money - Exchequer money - which belongs in theory to the Minister for Finance acting on behalf of the Government. Therefore, the system I have put in place is a compromise between not having any reporting mechanisms and what the Deputy has mentioned. If I transferred the money to the NTMA, it would end up with the Minister for Finance being involved in the operation of the fund and I do not want that.
That is not the point I am making. I do not have a difference of opinion with the Minister in the manner in which he has laid out his objectives. Since the debt problem has come under control, the NTMA has a great deal of expertise which is not used to its full capacity at present. Many of us say the NTMA could carry out this function because it is not as busy as it was and it employs people we would like to keep within the public service. When the Minister constructed the arrangement for the NTMA to handle claims against the State, he did not put a commission in place in between. The NTMA, as constructed to handle the debt, has a particular relationship with the Minister for Finance, but if one gives the NTMA responsibility for the pension fund, it will be independent of the Minister for Finance and its obligations will be reporting and accountability, probably to the Committee of Public Accounts.
I acknowledge the Deputy's point. The logical argument, which was an option, would have been to set up a totally new structure for this body in the form of an independent agency and not to have the NTMA involved. However, as the Deputy outlined, there is a great deal of expertise in the NTMA. It has been dealing with the liability aspect of the balance sheet and such expertise would be easily transferable between the assets and liabilities columns. I was anxious to involve the NTMA in the operation of the national pension reserve fund because it has expertise and for many other reasons. However, at the same time I was not anxious that the reserve fund would be dealt with through a relationship similar to that which exists between the Minister for Finance and the NTMA.
The NTMA must carry out directions on behalf of the Minister for Finance. It is similar to the Minister for Finance dressed up as the NTMA. I had the option of not involving the NTMA in this and setting up a totally independent agency which did not have a relationship with the NTMA. For the reasons alluded to by the Deputy, the NTMA has expertise which can be brought to bear and this is the method upon which I decided. The money is deposited in the National Pension Reserve Fund through the commissioners. The commissioners operate the fund and report to the Oireachtas. The Oireachtas must have a role in those because it involves public moneys.
That is fair enough. I refer to the definition of "beneficiary" in section 2. It states: "in respect of a social welfare pension it means the person entitled to or in receipt of such pension". Does it extend to dependant allowances under the social welfare code? It appears to be confined to the person who has a legal entitlement to the primary pension.
Section 2 is the interpretation section. It states: " 'Social welfare pensions' means any person referred to in section 30 or section 108 of the Social Welfare (Consolidation) Act, 1993, in so far as it is payable to or in respect of the beneficiary".
I want to revisit the structural arguments later under a number of sections. The definition of "fund investment policy" refers to section 19, which is brief in so far as it does not define the policy. It states: "Moneys standing to the credit of the Fund shall . . . be . . . invested for the benefit of the Fund by the Commission. . . so as to secure the optimal financialreturn". Is that the sum total of fund investment policy?
Does that constrain——
The Deputy has tabled a strong amendment regarding the investment policy of the fund to which both he and Deputy Noonan alluded on Second Stage. We will debate it later. I was unable to be present for most of Deputy McDowell's contribution.
It did not stop the Minister going on radio yesterday to attack it.
I did not go on radio. I was asked questions in Europe about the publication of the Deputy's document last weekend as it related to the pension investment fund. The sole criterion for investment policy is maximum or optimal return.
Does that constrain the commissioners in terms of setting any other fund investment policy?
It does because their job is to maximise the return but, as I pointed out in my reply on Second Stage, a reporting mechanism has been established. An annual report must be published. The chairman and chief executive of the commission are obliged to appear before an Oireachtas committee. That openness and transparency will be sufficient to bring any "funny" investments that fund manager or commissioners adopted in the previous year to light. They will be obliged in the annual report to list all the investments their fund managers have made.
If there are ten fund managers of the £5 billion the annual report would have to outline the identity of the managers, the investments they made and the return. When the chairman and chief executive appear before the relevant Oireachtas committee the Deputy and his successors will ask pertinent questions as to why they invested in a particular company given that they knew the company was a, b, c or d.
I examined this issue thoroughly and there was a great deal of discussion within the Department and outside. I decided against going any route other than that of maximum investment return and the answer was to provide for openness in terms of reportage, etc. I recognised through a later amendment what the Deputy is trying to achieve and that other Members would make a similar point but I concluded if I went down the route of trying to limit and define in legislation what the commission could do, it would be a recipe for disaster. The commissioners and the NTMA would be tied up, particularly in regard to links between companies. A multinational company might own 400 other companies throughout the world and one would always have difficulties.
The answer is to make the reportage mechanism so open in the annual report that these issues will come to light. There would be detailed scrutiny and public odium if the investment managers did something which people found obnoxious. That is the route I decide to take. I readily accept that it is a major source of debate but it was my decision in the end to proceed this way.
Is the Minister satisfied that the definition of "public service pensions" includes widows' and orphans' benefits?
Yes, the definition states: "to or in respect of persons on resignation". I am satisfied.
I move amendment No. 3:
In page 7, before section 3, to insert thefollowing new section:
"3.-The establishment day for the purposes of this Act shall be 1 March, 2001.".
When the establishment date is left totally at the discretion of the Minister it is not even in the interest of the Minister because such matters tend to drift. This is important legislation and I want to set down an end date against which everybody assisting the Minister on this project will work towards or meet. Whether it is 1 March 2001 or the Minister needs more time I want to set down a definite establishment date because it is better practice than allowing the Minister to set down a date when everything is ready. It will happen more quickly my way.
I acknowledge the Deputy's point and I may revisit this matter on Report Stage. I prefer not to specify 1 March 2001 because that removes the possibility of establishing the fund at an earlier date. That is my main reason for not accepting the amendment. If I accept it I cannot set up the fund until 1 March 2001. The Deputy wants to ensure the date does not drift.
I will accept "not later than".
If the amendment stated that the establishment day for the purposes of the Act "shall be not later than 1 March 2001", I could move before that date, as is my intention. At the end of the year there will be over £4.8 billion in the fund, which is a huge amount of money, and it is in everybody's interest to get things up and running as soon as possible. That is why I am so anxious about the Bill.
I recognise that if the fund had been in place some months ago and had been invested in the stock market, the first report would have been negative. It is an inordinate amount of money and we are losing considerably by allowing it lie in the NTMA. Interest is accruing on the money, but the rate is very small. I am willing to look at this again for Report Stage. The only reason I was not going to accept the amendment was that it precluded me from setting up the structure at an earlier date. However, if the wording is changed to "not later than 1 March 2001", that would not prohibit me from setting it up earlier, and I would reconsider the amendment.
As the Deputy said, whatever his reservations are about how the pensions reserve fund should operate, both of us are interested in moving as soon as possible.
Could the Minister talk us through the mechanism of establishment? Other than appointing the commissioners what has to be done?
Many things will have to be done on the establishment day. The section enables the Minister for Finance to make an order fixing the establishment day for the purposes of the Act. Much will happen on this day. The national pensions reserve fund and the national pensions reserve fund commission will come into operation on that day. It will also be the day of the first meeting of the seven commissioners and the day on which the commission will appoint the NTMA as manager of the fund. It also provides that as soon as may be after the establishment day all moneys in the temporary holding fund - over £4.8 billion - will be transferred to the national pensions reserve fund.
If we pass the Bill in this session I would hope to have the establishment day as soon as possible thereafter, certainly not later than 1 March. If we do not have a date, all kinds of problems could arise which would put it off. In this context I understand Deputy Noonan's amendment, in that if the date is included in the Bill then a definite establishment day is set. However, DeputyNoonan's amendment confines me to 1 March.
I will withdraw the amendment and resubmit it on foot of what the Minister has said.
If the establishment date is 1 March will the full 1% of GNP for next year be included?
The 1% of GNP relates to a separate section and will be added to every year. Even if it was not operational until 31 December next year, the figure would still be 1%.
Will the payments be quarterly?
I would like to hear the Minister's notes on the section. I am not clear about the cut-off point between expenses which will be incurred by the Minister and paid out by moneys provided by the Oireachtas and expenses which may be incurred by the commission. From where will these latter expenses be paid? Will they be paid from the fund, or will there be an ongoing administrative liability for the Exchequer? For example, there is a provision that the Minister may decide to pay some level of remuneration to the commissioners. That obviously falls within section 4.
However, there are a number of options available to the commission. It can delegate much responsibility to the manager, but I could name some chairmen of State boards from the past who had a Napoleon complex and were not great at delegating. If the commission decides that rather than delegating it wants a hands on arrangement, a lot of expenses would accrue. Even if delegation takes place, I presume the commission will have a secretarial staff. Certainly, there is more involved in being a member of the commission than turning up for a monthly meeting. It seems there will be administrative expenses and I do not see where the cut-off point is between the Minister's and the commission's liabilities and what moneys will pay for the administrative costs incurred by the commission.
This section concerns the expenses incurred by the Minister. The expenses of the commission are dealt with under section 17. Section 23 states that the expenses of the NTMA shall be charged to and paid from the central fund. Therefore, there are three different sections dealing with expenses.
Section 4 states that the expenses incurred by the Minister in the administration of the Act shall be paid out of moneys provided by the Oireachtas. If memory serves me correctly, this is normal for all legislation. As the Minister will have no direct role in the administration of the day to day operation of the fund, such expenses are likely to be relatively insignificant. Off the top of my head I cannot think what expenses will be incurred by the Minister once the Bill is passed. The main expenses are likely to be the cost of departmental staff dealing with the fund. Expenses might also arise under section 27(4) which enables the Minister from time to time to appoint a person or persons to carry out an examination of any or all aspects of the operation of the fund.
The expenses of the new body are dealt with in section 17, while section 23 deals with the expenses of the NTMA.
I notice under section 17 that the fees payable to a commissioner will be charged to the fund.
Even though the Minister will decide what that charge may be.
I will be deciding this under another section and will be giving the Minister powers to set the fees of commissioners, which is normal. An amendment has been tabled on this issue. Under normal pension funds the expenses of managers and others are charged to the fund. The intention is to make the fund as normal as those which exist in ordinary commercial life.
Amendment No. 27 is consequential on amendment No. 3 and they may be discussed together by agreement.
I move amendment No. 3:
In page 7, subsection (1), line 11, after "as" to insert "Coimisiún an Chúlchiste Náisiúnta Pinsean or in the English language".
I am sure the Minister recognises the author of some of these technical amendments whose ingenious work keeps us both entertained and occupied. This is simply to provide for the Irish title of the fund.
I have no problem in principle with the aim of the proposed amendments. However, there are some issues of detail which need to be considered further. First, the national pension reserve fund commission will operate internationally and it is important that the name of the commission be easily recognised. For that reason, it might be more appropriate to place the English version of the name first and then provide for an Irish translation. I understand this approach has been adopted in relation to other bodies which operate internationally. Also, I have some questions as to whether it is appropriate to amend the Long Title to the Act as provided for by amendment No. 27. Therefore, I ask the Deputy to withdraw the amendments on the basis that my Department will consult with the Office of the Parliamentary Counsel with a view to bringing forward a suitable amendment on Report Stage.
I am appalled that the Minister is suggesting that "Coimisiún an Chúlchiste Náisiúnta Pinsean" might create some difficulties on an international level in terms of recognition. Nonetheless, I take his point.
I do not know how proficient Deputy McDowell is in the Irish language but I am sure his Irish is better than mine which is very poor. Deputy Noonan is very proficient so perhaps he could give his views on these matters. I will return to this matter on Report Stage.
I want to return to the issue of the commission's structure with which I am still having some difficulty. Many of the commission's functions such as monitoring and reviewing implementation of investment strategy, keeping accounts, contracting options etc. as set out in section 6, will clearly be dealt with on a day to day basis by the manager, which effectively is the NTMA. I believe the phrase is used that the commission "acts through" the NTMA. Functions are being ascribed to the commission when, in effect, the manager carries them out. I understand the commission retains legal responsibility.
Yes, the commission is legally responsible to the Oireachtas.
Section 6 outlines a long list of the commission's functions and roles but it is quite clear that the commission, as such, will not carry out these functions on a day to day basis.
The NTMA will be themanager for the first ten years.
I may have misunderstood the Minister earlier. Section 6 (e) states that one of the commission’s functions shall be to appoint investment managers to invest and manage portions of the fund. Will that effectively be done by the NTMA?
The manager will be the commission's executive arm. Section 6 (5) provides that the commission shall perform its functions through the manager and section 6 (6) enables the commission to delegate to the manager such functions as it deems appropriate, subject to the commission retaining overall responsibility for such functions. It is necessary to distinguish clearly between the execution of functions through the manager which relate to the implementation of the commission's decisions and the delegation of functions to the manager which provide for the granting of discretionary authority to the manager to undertake certain functions on behalf of the commission. The degree to which the commission will delegate functions to the manager will be a matter for the commission.
The commission arrangement is analogous in terms of corporate governance to pension fund trustees in the private sector. As it stands, the NTMA does not have a board but reports directly to the Minister for Finance. It is not appropriate that the reporting line to the Minister apply to the fund, according to commission arrangements proposed on the matter of good corporate governance. We had this debate earlier.
I would like to return to our earlier debate. As one reads the section, it appears that the chairman and his fellow commissioners will adopt a hands-on role. Their functions include the control, management and investment of the fund's assets, authorisation of payments from the fund etc. These are all very weighty responsibilities which would seem to involve something more than the State company part-time board with which we are familiar. These would appear to be full-time appointees.
The Deputy is correct; the commission is a long way from being a part-time board but neither is it a full-time one.
The Minister has structured the commission as if it were a part-time board in other parts of the Bill where remuneration is to be decided by the Minister, an honorarium type provision. There may even be a necessity to pay salaries. When one first reads the Bill, one sees an enormous superstructure being put in place in the form of the commission which is subsequently taken away. The end of the section is seriously ambiguous. Section 6 (5) states that the commission shall perform all its functions through the manager with two exceptions. I accept the Minister's point in regard to the commission's trustee role and legal obligation and that executive action will be taken by the manager but the difficulty is that the subsection is couched in mandatory terms.
Section 6 (6) states that the commission, without prejudice to its responsibilities for functions conferred on it, may delegate any of its functions to the manager. What will it delegate when section 6 (5) makes it mandatory that all functions shall be performed through the manager? Where is the room for delegation if the manager is going to do everything anyway?
We are setting up a commission which must be given powers to do certain things and not others. The core of section 6 relates to conferring functions on the commission, otherwise it could not operate. The establishment of a commission is not the same as the appointment of a board of directors. When a company is established under the terms of the Companies Act, its articles and memorandum outline what it can and cannot do. The purpose of a company's memorandum is to confer certain powers on the company. Companies sometimes enter into areas which areultra vires. I read an interesting newspaper report recently about a case in which a judge ruled on an action taken by certain company executives. The defence advanced was that the company was not entitled to enter into such activities in the first instance.
Company memoranda list myriad permissible functions. Let me make an analogy between this and the commission. The legislation must outline what functions the commission can carry out and that is done in section 6. One of the commission's powers is the power to devolve its functions to the manager as it sees fit. Section 6 (5) states that the commission shall perform all its functions through the manager except the appointment of the manager under section 21 and the engagement of auditors to audit the manager under section 22 (6). Section 6 (6) states that without prejudice to the responsibility of the commission for the functions conferred on it under this Act, the commission may delegate to the manager any of its functions as it considers appropriate or expedient for the purposes of this Act. We are setting up a commission and giving it powers, one of which is the power to delegate its functions to the first manager which, in this instance, is the NTMA.
There is an apparent contradiction between section 6 (5) and section 6 (6). If it is mandatory for the commission to perform all its functions through the manager under subsection (5), no functions remain to be delegated under the provisions of subsection (6). What are the areas not covered in section 6 (5) which section 6 (6) is intended to cover?
In order to involve the NTMA in the management of the national pensions reserve fund, I decided it should be the first manager of the fund. I was asked earlier why I did not confer entire responsibility for the fund on the NTMA and I outlined the reasons for that. This section confers functions on the commission which, in turn, shall be conferred on the first manager, namely the NTMA. The only functions which cannot be performed through the manager are the exceptions outlined in section 6 (5), namely the appointment of the first manager and the engagement of auditors.
A reasonably basic definition of function is what a legal body is required to do. What this particular legal body is required to do is listed down to subsection (4). The functions of the commission must be performed through the manager. Draftsmen do not include redundant subsections, therefore, they must have been advised by the Department that there was some area of activity which was not fully covered by subsection (5) and which needed to be reinforced in subsection (6). What is this aspect?
I made the decision that the NTMA would be involved. Other structures could have been put forward that would not have involved the NTMA but I wished to involve it. Subsection (5) states that the commission shall perform all its functions through the manager. The manager is defined as the NTMA for the first ten years. That was the underlying intention.
The Minister is not addressing my point. Under subsection (5), if all the functions of the commission must be carried out through the manager, what functions remain to be delegated under subsection (6) at the discretion of the commission? On the face of it there are none, therefore, why is subsection (6) included?
Is the Deputy saying that subsection (6) is superfluous?
I would not be so bold as to make that point. However, this seems to be the case in the absence of the information I am seeking. What is the function of subsection (6) if subsection (5) mandates the commission to do everything through the manager? How can the onedelegate if there is nothing to delegate?
I take the Deputy's point. The commission can perform its functions by diktat under subsection (5) or by delegation under subsection (6). Under subsection (5) the commission takes the decisions and executes them through the manager. Subsection (6) allows the commission to delegate certain decision-making to the agency. This is the reason it is included.
I can see the fine distinction which is being made but that would be more easily made if "function" was not the key word in both sections. It seems that if the commission is obliged to perform all its functions through the manager, and then talk about the delegation of residual functions, it does not carry through the intent of the distinction which the Minister's advice suggests.
I will look at the issue again.
In relation to the appointment of investment managers, is it suggested that the commission may delegate to the NTMA the power to decide who the investment manager will be or is it suggested they can retain that power if they wish?
Yes. The commissioners are given the power to do this.
Do they have discretion to either decide themselves or ask the NTMA to make the decision?
They can effectively do either. The power rests with the commissioners.
That must be made clear.
If the decision is put to the commissioner that four investment managers will be appointed, and he looks at the Act to see what is the legal advice under subsection (5), while they must perform all their functions through the manager, the director, as one of the commissioners, must consider the matter because they are obliged under the Act to do so. What is the difference in saying the NTMA has to do this under subsection (5) and that we must take a decision to delegate the function to the NTMA? I am suggesting that if there is a delegation process, the NTMA can appoint a fund manager without further reference to the commission. It can take total responsibility for every decision and there is no reporting back.
As I said earlier, the NTMA will be the first manager, effectively the executive arm of the commission. The NTMA will take instructions from the commissioners. When the board of a company is dealing with the chief executive of the company, they can overrule him and appoint someone else. It will be one of the early duties of the commission to prepare a clear statement of the duties they will require the manager to undertake on their behalf and the limits that will apply to the manager in this regard. The belt and braces approach which has been adopted relates to the fact that I have decided to involve the NTMA as the first investment manager, while at the same time giving the function to the commission to keep it away from the Minister for Finance.
That is not clear from subsections (5) and (6). Paragraph (e) provides for the appointment of investment managers. Taken in conjunction with subsection (5), which reads that the commission shall perform its functions through the manager, it seems to be saying that the manager appoints the investment managers.
I understand the point being made by the Deputies in relation to subsection (6).
I do not think the NTMA will be too unhappy with that. I would have thought we should have tried to retain the discretion, if they wish to use it.
I will look at that aspect.
The Minister has convinced me that at a policy level there was an intent to distinguish between functions which the NTMA would carry out as a matter of routine and the distinctions being drawn between the functions which the commission would formally delegate to the NTMA. However, he has not convinced me that the draft carries forward the distinction which is made in policy terms. I would like the Minister to look again at this aspect.
I understand the Deputy's point which I will consider for Report Stage.
Subsection (2) (a) refers to investment options the commission may choose to utilise. It reads, "contract options and other derivative financial instruments for the Fund". This goes to the heart of what the manager may do, what sort of investment policy we would have and whether it would be active or passive. I said on Second Stage that they might be party to financing PPPs. It is not envisaged from the way the Act is framed - I know it does not exclude the possibility of other types of investment - that they would be enabled, for example, to buy land and then dispose of it, and get involved in the financing of PPPs. I am seeking clarification from the Minister in this regard, because he suggested during Second Stage that they would have this power of investment discretion.
The section does not preclude them——
I appreciate it is not exclusive. However, it is clear that the nature of the options are pretty conventional investment options. They are not the more creative type options. Anything that holds the capital of the fund in tact should be acceptable. I would not have a difficulty if they wanted to part fund a by-pass, get income from it and sell it off in 20 years' time. Would that option be available to the commissioners in the way the Bill is structured?
It is not precluded. However, this fund should operate as any other commercial fund would. It has been my experience that pension fund managers are relatively conservative in their investment decisions. Because they are dealing with other people's money they take a long-term view. There is nothing to preclude the pension fund from investing in such projects. I see this fund operating on the same basis as any normal pension fund. My experience is that such funds think long and hard before investing in ventures such as Deputy McDowell speaks of. If an investment offers a good enough return and the investment managers decide it is a good one, there is no reason the fund should not invest in it. It would not be normal in commercial activity.
It would not be, for the essential reason that there would normally be an ongoing drawdown from most pension funds. This is unusual in that there will be no drawdown for 25 years. The commission could, therefore, consider investment options of that kind which had a defined period of, for example, 20 years or PPPs which might have a return over a 20 year period with a capital sum refunded after that time. Can the Minister assure me that it is not precluded by the Bill?
It is not precluded. However, subsection (4) states:
The Commission shall at all times exercise due care, skill, prudence and diligence, acting in the utmost good faith, in the discharge of its functions under this Act.
As long as the commission comply with that requirement and act in good faith they would not be precluded from doing what the Deputy suggests. One cannot guarantee a return on any investment. Generally, commissioners take a very prudent view of these things. Taking the long-term view they might see attractive investments and there is nothing to preclude them from taking advantage of them.
I move amendment No. 4:
In page 8, before section 7, to insert thefollowing new section:
"7.-The Freedom of Information Act, 1997, shall apply to the Commission.".
I routinely propose this measure every time a new body is established which is, effectively, a State body. I appreciate that much of the information which the fund managers would typically deal with would be commercially sensitive and I presume the Minister will give that response.
That, of course, is allowed for under the Act. I appreciate that the scope and application of the Act to the fund managers' or commissioners' activities would be limited. Nonetheless, it is a matter of principle that bodies of this kind should be exposed to the Freedom of Information Act.
The Freedom of Information Act, 1997, commenced for central Government and related bodies on 21 April 1998. It was extended to health boards and local authorities six months later and to voluntary hospitals and certain publicly funded voluntary bodies which bring services to people with intellectual disabilities in October 1999. In December last year the Government decided to extend the Act incrementally, between May 2000 and not later than July 2001, to a range of other bodies in the enterprise and electricity, telecommunications regulation, cultural and broadcasting, universities, health service, environment and social services sectors. The Freedom of Information Act will be extended incrementally across the wider public service as experience is gained in its application. Its application to the commission will be decided in the context of the Act generally.
When drafting this Bill room was made for the possible application of the Freedom of Information Act at a later date. I refer, specifically, to section 13 which prohibits disclosure of confidential information on the fund by a commissioner, member of the staff of the manager, member of the committee, investment manager, custodian or consultant or adviser engaged by the commission, except where such disclosure is authorised by the commission or where the disclosure is otherwise provided for by law. This latter exception caters,inter alia, for the requirement to disclose information in a court of law or where the disclosure is required under some other statute, for example, the Freedom of Information Act.
In any event, the Bill contains significant provisions relating to transparency and accountability. These include section 25 which requires the chairperson of the commission to appear before the Committee of Public Accounts; section 26(3) which provides for the preparation of annual accounts, for the audit of the accounts by the Comptroller and Auditor General and for the laying of such audited accounts before the Houses of the Oireachtas; section 26(4), which requires the chief executive of the agency, as accounting officer for the fund, to appear before the Committee of Public Accounts to give evidence on matters relating to the accounts and the appropriation of moneys in respect of the fund; section 27(1), which requires the commission to make an annual report to the Minister of its activities, after which the report will be laid before the Houses of the Oireachtas; and section 27(4), which allows the Minister for Finance from time to time to have an examination carried out of the various aspects of the operation of the fund. These provisions will ensure that detailed information regarding the management of the fund will be in the public arena.
The question of making the commission subject to the provisions of the Freedom of Information Act will be considered at a later date in the context of the general extension of that Act. Therefore, I will not accept the amendment.
I move amendment No. 5:
In page 8, before section 7, to insert thefollowing new section:
"7.-The Ombudsman Act, 1980, shall apply to the Commission.".
I propose this amendment in an attempt to find out the status of the proposed amendment to the Ombudsman Act which is coming through the Department. It has been on the list of promised legislation for some time.
It is on the list published by the Whip at the start of this Dáil session and is fairly well advanced. I can give the Deputy no more information than that.
I understand the legislation is intended to extend the remit of the Ombudman's office. It has been promised for quite some time.
It is on the list but I do not have the information required by the Deputy.
I would be obliged if the Minister could find out for me.
This amendment was merely a mechanism to find out that information.
I move amendment No. 6:
In page 8, subsection (3), line 44, after "Minister" to insert "following consultation with such committee of either or both Houses of the Oireachtas as may be appointed in that behalf by resolution of either or both such Houses".
I compliment the Minister on setting out, in a way which is not usual, criteria which the commissioners must meet on being appointed. They are required to have certain qualifications or interests in certain activities. That is a significant step forward. The Minister has had experience in the very recent past of the difficulty which can arise from the way we have made appointments of this kind. This amendment gives us an opportunity to debate how we would like to see these things done.
The amendment seeks to oblige the Minister to consult this or another committee in relation to the appointment of the commissioners. I envisage the names being placed before the committee and not a substantive discussion. The names should be put into the public arena in that fashion. The committee could, if it wished, debate the merits or demerits of particular candidates. This is a fail safe mechanism. I do not foresee hearings being held as occurs in the United States, for example. This amendment would make it less likely that people who are manifestly not qualified would be proposed for nomination by the Minister. That is the purpose of the amendment.
The amendment appears to contain wider issues which should be considered in the context of ministerial appointments generally. I am very conscious of the recent past.
The main functions of the National Pensions Reserve Fund Commission are to control, manage and invest the assets of the fund. In vesting the control and management of the fund in the commission, the Bill gives the commission full independence and responsibility for the investment, management and operational decisions in connection with the fund.
In view of the continuing discretionary authority and responsibility to be given to the commission, it is important to ensure that persons selected to serve as commissioners have the capability, judgment and stature to make a constructive contribution to the work of the commission. Accordingly, section 7(4) of the Bill requires the Minister to appoint persons on the basis of their experience and expertise at senior level in specified areas such as investment management, actuarial practice, the pensions industry and so on. Thus, the Bill as it stands contains measures which will go a long way towards ensuring that only persons of the highest calibre may be appointed commissioners.
This amendment appears to contain wider issues which need to be considered in the context of ministerial appointments generally. Accepting the principle that the Minister for Finance would consult an Oireachtas committee with regard to the appointment of this commission raises the issue of whether Ministers should consult the Oireachtas before making appointments to boards, committees and bodies generally. This issue would need to be considered on its own merits. If the Oireachtas were to imply that a Minister should consult it before making appointments generally, I would not object to this requirement applying in respect of appointments to the National Pensions Reserve Fund Commission. However, I have difficulty with such a requirement being applied to the appointment of a commission which could be interpreted as setting a precedent with regard to other ministerial appointments. Therefore, I must reject the amendment.
The Minister seems to be suggesting he would not have a difficulty with it but he does not want to do it because it might set a precedent. Of course it would, that is the whole point.
As the Deputy well knows there are proposals put about advising different parties on how appointments should be made in future. If the Government and the Oireachtas were to decide that the appointment of Ministers was to be considered by committees or other bodies that would have to apply to the National Pensions Reserve Fund commissioners as well. I will not begin by taking powers under this Bill to consult an Oireachtas committee regarding appointments but I would have no difficulty if, in months or years to come, the Oireachtas were to make a decision on how to deal with these issues. I have gone further than any other Minister in specifying under the Bill what kind of person can be appointed to this body.
Can we encourage the Minister to go further along the path of innovation and give us his view on the involvement of Oireachtas committees and the laying of names beforethem?
I would prefer to give my views to Cabinet first.
I support Deputy McDowell. The system of appointments to both the Bench and State boards must change. It will be increasingly difficult to get good candidates to serve in the future. I have a different slant on this because a person of expertise and high reputation in civil society who would have time to serve on a board would be reluctant to do so in case it became a political football. The advantage of putting a name before a committee is that when it is passed by the committee the person is no longer the Minister's appointee but has been endorsed by the Houses of the Oireachtas on an all party basis and is not subject to charges of partiality, being in the pocket of a particular Minister or being a party appointee. There is much merit in moving it along the lines suggested by Deputy McDowell.
When there is a change of Government and Ministers must work with boards appointed by their predecessors it would be helpful if a committee such as this had endorsed the appointments. To an extent, the Opposition would have underwritten the appointment of certain individuals. While there might be reluctance on thepart of nominees regarding laying their names before a committee there are benefits down the line.
Earlier the Deputy referred to having names before an Oireachtas committee bandied about in the public domain. I have considered this matter, not in the context of Deputy McDowell's amendment but in the wider context, in light of recent events. While there are undoubtedly merits in going down the road of Oireachtas committees or some other forum considering the names there are considerable downsides. If, as Deputy Noonan said, people of stature thought they would have to go through such a process where their names would be bandied about we would have difficulty getting anyone to serve.
The Deputy mentioned the appointment of judges. Like him, I was a member of the Cabinet at the time when we had the old system and the new Judicial Appointments Board. I do not know what it was like during his time but when that board was up and running it introduced considerable difficulties to the system that were not there in the past. People may say there were many disadvantages under the old system but, as far as I can see, the new system has led to an intense amount of lobbying and the added difficulty of trying to get good people to put their names forward. It was never the intention for that to happen. There are wider issues to be considered and I do not intend to set a precedent in the case of the National Pensions Reserve Fund commissioners.
This is the era of openness, transparency and accountability. As people well know, I am one of its greatest advocates. As regards appointments to State boards and other bodies, there are many issues to be considered and I do not intend to set a precedent under this Bill.
Would it not be poetic justice if the Minister were the person to make the break? Would it not be like Barbarossa publicly recanting and doing penance for the sins of the past? It would show the Deputy had reformed and would approach matters in a new way in the future.
As I have told the Deputy on numerous occasions in the House I decided a long time ago that I am much too old to be reformed and have no intention of being reformed.
We should parcel that comment.
We will revisit this issue many times in the future.
Amendment No. 7 is consequential on amendment No. 9 and both may be discussed together by agreement.
I move amendment No. 7:
In page 9, subsection (4), line 1, to delete "The" and substitute "Subject to subsection (5), the ".
This section deals with the appointment and terms of office of the members of the commission. It provides that the commission shall consist of a chairperson and six ordinary members who shall be appointed by the Minister for Finance. As I pointed out on amendment No. 6, it is important, in view of the considerable discretionary authority and responsibility being given to the commission, to ensure that persons selected to serve as commissioners have the capability, judgment and stature to make a constructive contribution to the work of the commission. Accordingly, section 7(4) requires the Minister to appoint persons on the basis of their experience and expertise at senior level and specifies the areas such as investment management, finance or economics, actuarial practice, etc. One of the specified areas of expertise is the Civil Service. My intention is to make former rather than serving civil servants a category from which commissioners may be chosen. It is intended to exclude serving civil servants to emphasise the independence of the commission from the Government. While the Bill as drafted does not exclude serving civil servants the amendment to section 7 provides for this exclusion.
That is consistent with what the Minister is saying about the commission being independent. If one of the Minister's senior civil servants is serving on the board it may not be seen to be independent.
As well as being independent it must be seen to be independent.
Yes and in this instance that is very important.
l: What is the difference between the Civil Service of the Government and the Civil Service of the State?
Civil servants in the Department of Finance are civil servants of the Government and civil servants of the Oireachtas are civil servants of the State. I do not know how that came about.
There is also the reportingsystem. There is a distinction.
I move amendment No. 8:
In page 9, subsection (4), between lines 12 and 13, to insert the following:
"(i) organisations dedicated to the protection of consumer rights.”.
For the first time a Minister has introduced statutory guidelines on the qualifications of appointees for office.
Perhaps someone to represent the PRSI or pension contributor, maybe from one of the consumer organisations, should be included. If it is constructed as a board of experts there is always room for Joe Soap, the non-expert with wide experience. The intention is good but the caveat that was entered has weakened the section. If we look at the categories deemed to be appropriate to serve as commissioners, if one had experience, either nationally or internationally, in investment or business management, finance or economics that would be appropriate. Lawyers, actuaries and accountants are catered for and that is fine as there is a direct relationship with the functions prescribed and the expertise which such professions will have.
Taking account of the Minister's amendment, retired or former civil servants can be considered for appointment as commissioners. There is no argument to advance that a member of a trade union has any particular expertise to act as a commissioner but it has become the practice to reward social partners and one way of doing so is to ensure they are on State boards. I do not mean to be critical of leading trade unionists but they are not part of the set or even a subset. It can be argued they would have the interests of their members at heart and that they would expect to draw pensions and so on but basically it is to maintain the grace and favour element of ministerial appointments and to ensure there is a leading trade unionist on the board. It weakens the intention of the section.
The section is further weakened by the phrase: "the Minister shall only appoint persons to be commissioners who have, in his or her opinion, acquired substantial expertise and experience at a senior level . . ." This is not justifiable. The Minister could argue that Bob the robber has a particular expertise in financial management and could appoint him to the board. No one could challenge it. That phrase should be removed from the section. It should be possible to appoint people who, by objective standards, have the expertise and experience at senior level in the areas specified.
Who if not the Minister, would decide that?
If "in his or her opinion" were removed there would be a possibility that the appointment of a particular person could form the basis of an objection that would be adjudicated on in the courts.
That is why I would not——
I know why the Minister has included it but we are talking about people's money, potentially billions of pounds - it is almost £5 billion now. I accept the Minister's bona fides. It is a big advance. He is prescribing that those who should be appointed, unlike some appointments to other boards, should be people who, objectively, have the expertise to handle it. That is a good idea. Good and bad appointments have been made to boards but the section would be substantially stronger if the Minister deleted the words "in his or her opinion" and let the appointment be tested on the objective criteria he has stated.
If the Minister appoints the Head of Economics in Trinity College he will be able to stand over it and if he appoints a leading senior counsel that cannot be challenged. If he appoints a senior banker or investment manager he will be protected by the person's curriculum vitae. I am not just talking about this Minister.
I know that.
It is a major advance and should be in the strongest possible form. The section is weakened to the point where it does not constrain any of his successors in appointing people outside the criteria specified and justifying the appointment by saying he or she knows the person well and that they have great ideas.
The amendment relates to organisations dedicated to the protection of consumers' rights. I oppose the amendment. I readily accept the importance of ensuring that persons selected to serve as commissioners have the capability, judgment and stature to make a constructive contribution to the work of the commission. Therefore, it is my intention to ensure that persons are appointed on the basis of their experience and expertise at senior level in specified areas such as investment management, actuarial practice, the pension industry, etc. I do not believe the appointment of a representative of any consumer protection rights organisation would be appropriate in this context. I do not see how the expertise such a person might have would be relevant to management of the fund. As the appointment of the commission will be based on appropriate expertise and as it is not designed as a representative body, I will not accept the amendment.
That is fair enough.
I see the point the Deputy is making. We are all politicians at the end of the day. I have taken a particular interest in this area and one of the matters I set down at an early stage with my officials is that you could not appoint your best friend or someone you met who may have good ideas as such people could be open to the charge that they were appointed because they were a friend of the Minister. The intention under the Bill is to remove it as far away as constitutionally possible from Ministers and Governments. There will be people who will say why not give some out to the Minister and Government of the day but that is my view. In line with that theory, those appointed must be from a particular category. When the appointments are made no one will have any doubts about them. In line with my thinking that they should be people of particular standing I will consider the suggestion Deputy Noonan made regarding the deletion of the words "in his or her opinion". There is merit in that suggestion as it would remove all doubt and I will consider the matter for Report Stage. It would strengthen the subsection.
I thank the Minister.
The Deputy mentioned representatives from a particular organisation. It refers to trade union representation but not representatives from an employers' organisation. The appointment of persons in recent years has always included trade union representatives. The section states they will have "acquired substantial expertise and experience at a senior level in any of the following areas". Trade union representation is one of those. The person would be at a high level in trade union affairs. However, I take the general point the Deputy makes. I do not want the commissioners to be a representative organisation such as we have in other areas. I intend to appoint persons to the commission with a particular expertise.
The amendment, as drafted, does not fully communicate what I have in mind. It is badly drafted. What I am trying to get at is that there is room on the commission for a non-expert with a common sense approach whose primary function would not be to use his or her expertise to enable the commission to make appropriate decisions, but to bear in mind at all times the primacy of the beneficiaries of either pension fund. I would not have included it if the Minister had not included a trade union representative who is not in sequence with the others.
I accept that.
There is a way around this problem. We all know the leading trade unionists fairly well. I could name one who is one of the better economists in the country and who has academic qualifications as an economist. Will the Minister consider disentangling the subsection while providing for the concept of a trade union representative as well as a general consumers' representative, although not necessarily from a consumers' organisation, who would represent non-expert civilians?
Would that not leave me open to the temptation to appoint a friend?
The Minister could, but if he was to break up the subsection and make the appointment of the trade union representative and the consumers' representative, for the want of a better phrase, conditional on their expertise in the other areas, it would be consistent. There would be a constraint on the Minister and his successors when selecting the particular trade union representative——
But how would I appoint the ordinary person about whom the Deputy is talking? How should the subsection be phrased to get the point across?
The amendment is badly drafted, but it would not be impossible to phrase it. If the Minister was to agree to appoint a consumers' representative as well as a trade union representative, their appointment would be subject to objective criteria of expertise.
The subsection reads, "the Minister shall only appoint persons to be commissioners who have, in his or her opinion, acquired substantial expertise and experience at a senior level in any of the following areas . . ." This does not mean that I will appoint somebody from all these areas because the number of commissioners——
There will be six plus the chairman.
The Minister will not appoint somebody from each area.
It does not mean that. That being the case, I can give the Deputy's proposal some further consideration. It would not mean I would have to appoint somebody from that area; I could appoint two persons from the area of the law.
I will return to the matter on Report Stage with a different amendment.
If memory serves me correctly, a provision of this kind was accepted, I think, by the Minister of State at the Minister's Department when we debated the matter with him in relation to the Investment Compensation Board. If memory serves me correctly, it was agreed that there should be more than one representative of consumer interests on the board.
This is somewhat different in the sense that persons can be appointed from the various areas.
I appreciate there is a difference, but it is in the same territory.
I do not want to extend it to such an extent that I could appoint anybody in the country.
I appreciate that it will be based on expertise rather than representation.
I accept that Deputy Noonan has been logical in the way he has developed the argument. If I had left out paragraph (g)——
I had no case.
——Deputy Noonan would have had no case. By including paragraph (g) he can develop the argument he has made. It has not been included to appoint a particular person.
I will return to the matter on Report Stage.
I move amendment No. 9:
In page 9, between lines 12 and 13, to insert the following subsection:
"(5) The Minister shall not appoint a person, who holds a position in the Civil Service of the Government or the Civil Service of the State, as a commissioner.".
I move amendment No. 10:
In page 9, lines 30 to 32, to delete subsection (10).
I tabled an amendment to delete this subsection because I was afraid I would pass it by inadvertently on Committee Stage. I want to hear the Minister's view on the matter. Are we talking about an honorarium or salaries?
Can the Minister give us any indication of what he has in mind? Will commissioners be given £40,000? Will the chairman be given £80,000 or £10,000 and overnight expenses when in Dublin? At what category of animal are we looking?
This will not be a part-time commission; as can be seen from their expertise, commissioners will have a considerable amount of work to do. I have already highlighted the importance of ensuring persons selected to serve as commissioners have the capability, judgment and stature to make a substantial contribution to the work of the commission. Section 7 details that any prospective commissioner must have substantial experience at a senior level in relevant fields. I expect commissioners to be leaders in their field. The extensive functions and responsibilities of the commission are set out in section 6. Suffice to it say that it has much work to do.
It is normal practice for members of semi-State boards, committees and commissions to be paid fees and expenses. Section 7(10) makes it possible for such remuneration to be provided for commissioners. Accepting the amendment would impose monetary costs on commissioners for a time-consuming and important job which they will be performing in the service of the State, a job which should be rewarded. Therefore, I will not be accepting the amendment. Deleting the entire subsection would mean that neither an honorarium nor expenses could be paid. However, I understand the purpose for which it was tabled.
The levels of fees paid to directors of semi-State companies are very low, even at the very highest categories. It has been proposed for some time that the structure should be changed in order to pay reasonable fees. The matter has been considered by the Government and may be considered in the future. The Buckley report, No. 35 - I recently received report No. 37 and there was an interim one in between - recommended in the area of corporate government that directors of semi-State companies should be paid more reasonable fees. While the commission will not be at the upper end of the scale as mentioned by Deputy Noonan, neither do I intend that commissioners will be paid sums of £3,000, £4,000 or £5,000 paid to the directors of some semi-State boards. Commissioners, who will have a considerable amount of work to do, will be chosen from the areas to which I referred. There should be a reasonable level of recompense for the time involved.
While I appreciate the Minister cannot indicate a range of figures, does he envisage that the individuals appointed will act as non-executive directors of publicly quoted companies or does he envisage them acting more as persons who will dedicate a portion of their working week to the service of the fund and be recompensed in accordance with that commitment?
The latter, although some non-executive directors in public companies who have a fair degree of responsibility are adequately recompensed. The practice has been to ask individuals of stature to serve on commercial State-sponsored bodies more or less for the honour rather than for the money. I hope there will be a wider debate on the matter. Commissioners will have to devote part of their working week to the work of the commission. They may be people who will have a certain amount of expertise and who will have to give up some of their time to devote to this commission, and they should be reasonably recompensed. I do not intend to consider colossal figures but my intention is that they will not be at the lower end of the scale. There may be some people whom we invite to be commissioners who may not take any money, as is the case with some semi-State bodies.
On the question of the remuneration of these commissioners, why are we paying them this reasonable amount if all the functions of the commission are to be performed by the managers? What will they have to do?
The managers will be the executive arm of the commission but the commissioners will be involved in that. It is set out clearly in the Bill and I intend to have a fair role in it. It may be that in five or six years' time people will look at this differently but if they are doing the job correctly, they will be cracking the whip.
On the section, something struck me when I read about the manner of appointment and the type of persons that should be appointed. Will the Minister consider introducing an amendment on Report Stage to give him statutory power to appoint people from outside the State to serve as commissioners? I know he has the power anyway but when——
My thinking is that I will be asking people from outside the State because it will bring in expertise.
I thought the Minister might do that.
By the way, I have not asked anybody.
I know but, for example, somebody who served on the Norwegian oil fund would have gone through this kind of process previously and might be appropriate. I thought the Minister might give that answer but so that there is not too much of an element of surprise when such an appointment is made, would it not be a good idea to introduce an amendment to subsection (4) on Report Stage to the effect that the Minister shall only appoint persons from inside or outside the State to be commissioners? The Minister should signal that in the Bill.
It is my intention, and I do not have a particular person in mind, that there will be some persons from outside the State appointed who would have relevant expertise. The Deputy mentioned one particular company; there are others as well. In the wider financial world there are people who have a good connection with Ireland, and who think highly of Ireland, who might be willing to give of their time to serve as commissioners. Some of them may not take up the offer but it would be my intention to get at least one on this commission. Perhaps we should signal that well in advance, as the Deputy pointed out.
Senator George Mitchell would have all the financial expertise necessary for this job. Following on from that, when it comes to the appointment of investment managers, again the Minister should signal that he will not benecessarily confined.
Yes. The Bill does not confine me but the Deputy is saying we should——
The expectation will confine the Minister so now is the time to send out the signals.
When I was asked questions by people in the industry at dinners and other functions, I said clearly that I envisage this will not all be managed by investment fund managers within the Irish state.
We may also signal that in the Bill.
This is another one of these examples where we designate ourselves as a low cast profession because we have to be statutorily excluded from service on boards such as this while in the case of the higher professions like accountants, actuaries and legal people, we are inserting provisions to the effect that persons of such high quality will be appointed.
I want to refer in particular to section 11(3) which states that a person who is a member of a local authority, the board of a health board or the Eastern Regional Health Authority should be disqualified from becoming a commissioner. That goes a bit far because the tradition has been to exclude elected representatives, either at local or national level, but there are quite a number of people who serve on health boards, particularly in the Eastern Regional Health Authority, who are not elected members, so the exclusion should be confined to elected members. I do not know who serves on the Eastern Regional Health Authority currently but when the acting regional authority was set up, when I was Minister for Health, doctors, financial people and a lawyer were members of it.
Is Deputy Noonan suggesting wording to the effect that if the person becamean elected member, he or she would be disqualified?
Yes. There are people serving on health boards, for example, who are actually trade union representatives.
That is true.
They may not be the trade union representative who will serve as a commissioner but there is a certain internal logic here that the exclusion should be elected members and not non-elected members of these authorities.
I can see the point the Deputy is making. I will deal with that on Report Stage.
Many members of health boards are elected by their profession so I do not think that is the right word to use. Public representatives would be more appropriate.
Public representatives is what I mean.
We will consider an appro-priate amendment on Report Stage which will cover that point.
Amendment No. 11 is in the name of the Minister. Amendment No. 12 is related and so we will discuss amendments Nos. 11 and 12 together, by agreement.
I move amendment No. 11:
In page 12, subsection (1), line 26, after "Manager" to insert "or a member of a committee".
Section 12 imposes certain obligations on members of the commission and the staff of the manager in relation to the disclosure of interests and involves them in the consideration of matters where a possible conflict of interest arises. It also provides for sanctions, including the removal from office in the case of failure to disclose interest. The commission will require that there are open and published guidelines on what constitutes a material interest for the purpose of this section.
Section 14 enables the commission to establish committees to assist and advise in relation to the reforms of any of its functions. Persons who are not members of the commission or the staff of the manager may be appointed to a committee. As section 12 stands, however, such persons are not covered by the disclosure of interest provisions.
The purpose of amendment No. 11 is to ensure that the disclosure of interest provisions apply to those committee members who are neither commissioners nor staff of the manager. Amendment No. 12 enables the commission to remove a member of a committee who fails to disclose a pecuniary interest from the committee. It is analogous to section 12 (4) which enables the Minister to remove a commissioner from office who fails to disclose such an interest.
I agree with the section and the amendments. Will the Minister consider an amendment to section 12(2) where the interest is disclosed pursuant to the section? It states that the disclosure shall, where relevant, be recorded in the minutes of the meeting of the commission or the committee concerned, or otherwise duly recorded. In certain cases it will be appropriate if the declaration of interest was also indicated in the annual report for the protection of the person who has the interest.
Something to the effect that the declaration will be duly recorded and may, at the discretion of the chair, be referred to in the annual report.
Perhaps we could say "at the discretion of the chair".
I do not want everything included either, but the Minister knows what I am talking about.
If there is a major declaration of interest which will leave a commissioner vulnerable, and even though it is recorded in the minutes, that may become a public story two or three years later. Would it not be better to have the visibility in a formal way?
The Deputy is right. Some of these people were referred to earlier as the type of persons who might be appointed to this commission. They might be people of considerable financial standing and they may have had connections with some financial institutions in the past. It might be someone from outside the State and it may be that some of the investment fund managers investing in some of the funds may inadvertently invest in a company with which some of these people have an association. It would be better for everybody if at least that was notified by the chairman and, at the chairman's discretion, included in the annual report. We will devise a suitable amendment to address that point.
I move amendment No. 12:
In page 13, between lines 14 and 15, to insert the following subsection:
"(6) Where the Commission is satisfied that a member of a committee has contravenedsubsection (1), the Commission may, if it thinks fit, remove that member from the committee.”.
The penalties are low. While the confidential information about which we are talking would be price sensitive, it might also have a commercial value. The penalties appear minor in a case where a representative of the pension fund buys a large tranche of shares on the Irish stock market, which would affect the price, and a member of the commission or a member of the staff discloses that information and is rewarded for it, which would enable another person to buy into that market and make a large capital gain.
Yes, I understand what Deputy Noonan is saying. The penalties are only £1,500 on summary conviction or a fine not exceeding £20,000 on conviction on indictment. I will have to consult the Attorney General's office as to the maximum fine that can be inserted for summary conviction. Deputy McDowell may know that figure. There may be a limit to the maximum penalty that can be imposed on summary conviction. I am not sure there is a maximum penalty, although I do not have expertise in this area. Given the sums that may be involved and the benefit that could accrue to a person, I agree with the Deputy that fines of £1,500 or £20,000 are peanuts.
Has the Minister got those figures?
I should have, as it was intended to insert them.
I note the penalty is confined only to fines.
I will examine that and the figures before Report Stage. A term of imprisonment was meant to be included. I accept that I missed out on that. I will examine this for Report Stage with a view to striking the right balance.
Why did the Minister consider it necessary to prescribe a committee structure?
This took a good deal of time and was tied up with the debate on the role of the NTMA. The debate revolved around whether any or plenty of advice should be given to the NTMA and how this would work. I decided we would establish committees to assist and advice on the performance of any of the commission's functions We are setting up the commission and this allows it powers to set up committees to assist and advise it.
I know the Minister is thinking his way through this. It is a new concept and a new fund.
Yes. The NTMA has an advisory committee of seven members, which is unusual. The same representatives will not be members of such committees. The concept of an advisory committee exists regarding the NTMA.
From a quick reading of the Bill, and not having the knowledge of the Minister's advisers who have teased out this matter over a long time, I note it is proposed to establish committees rather than subcommittees, which is interesting.
That relates to the commission.
There is provision to establish committees. Subsection (5) states a committee may include persons who are not members of the commission or staff of the manager. A route is provided for outside expertise to become members of the committees.
That is interesting. I would like to hear more of the Minister's thinking on this. Subsection (8) states the commission may appoint a person to be chairperson of a committee. There is no requirement on the commission to appoint a commissioner, a member of the staff or a member of the manager's staff to chair the committee. Not only is it envisaged to bring in outside expertise to act in whatever capacity may be thought appropriate, the section also allows the commission to appoint outside chairpersons.
I would like the Minister to talk us through that.
This section allows the manager and the commission to bring in expertise which would not all be confined to the NTMA, to allow the commission to set up committees and appoint persons who would have other expertise. That would be available to the first manager, the NTMA. The trustees of pension funds, particularly the trustees of large pension funds, operate through various committees, for example, an investment policy committee. This section provides for bringing commercial thinking into doing that. I have not acted as the trustee of a pension fund, but I understand from those in this area that is how they operate. This will also allow the manager and commissioners to avail of outside expertise, rather than have it confined to one body of expertise.
It is wise to have stand alone committees where there is not a link back to the commission through the chairperson or to the manager or staff?
The commission can establish these committees to assist and advise it. It is up to the commissioners to draw up the rules governing them.
It is an interesting time in terms of the performance of the functions of the commission. That is specified as something that will be done by the manager, yet the commission can establish committees to assist it on the performance of its functions, which is something that will be done by the manager.
That relates to subsections (5) and (6).
There is something wrong with them.
I had better take the blame for that. There is a blurring of the areas between the role of the NTMA and the role of the commissioners and I decided to give the first operational job as manager to the NTMA.
We all know the NTMA has always jealously guarded its direct route back to the Minister.
It has sought to operate through his Department on occasion, something to the great chagrin of some of his officials.
That is a fair point, as it is accurate.
Does the Minister envisage these committees effectively will work through the NTMA?
No, this is a mechanism to allow the committees to operate.
It is a means of allowing the commission to second-guess the manager?
It will assist and advise the commission but it does not have to take that advice. The Minister views the NTMA as the first manager. It did not appear to me to be sound if all the expertise and advice were to be given via the NTMA, as there may be other expertise available that is not in the NTMA. The commission can set up these committees to advise it. That was my thinking on it and this provision is an attempt to ensure other expertise outside the NTMA can be availed of. As Deputy McDowell has probably guessed, there was a debate on this issue and he referred to some of the relevant items.
The committees could provide policy advice to the commission rather than directly to the manager. Having listened to the debate, I get the impression that subsection (5) provides that the implementation of the functions would be carried out by the manager.
He is the executive.
We use the word "perform" but the implementation of the functions is carried out by the manager whereas the other functions are more related to policy. That is the major difference between subsections (5) and (6). Subsection (5) is about implementation of functions whereas subsection (6) can include the broader policy and appointing a committee for policy advice. The committee is not implementing anything but possibly giving advice to the commission. Ultimately, if it is decided to implement it, it will be implemented by the manager. That is my interpretation.
Deputy Fleming has probably also realised, as have Deputies Noonan and McDowell, that over the past 18 months, since the report was published in July 1999 and the Government made its decision, there has been a vigorous debate in the Department with the NTMA on all these areas. I had strong views on this before I started and I wanted to see them implemented. There were other issues to be considered as well. Not all the Bills in the Department of Finance cause as vigorous a debate. This certainly did because of my own interest in this area.
I do not accept the distinction Deputy Fleming draws between subsection (5) referring to the functions carried out by the manager and subsection (6) dealing with policy. Subsection (6) refers to those areas which the commission may delegate to the manager and, whatever else it delegates, it cannot delegate policy. It must hold responsibility for policy. That is not the distinction.
We can come back to it later.
Section 15(1) is designed to ensure that the fund does not end up with a controlling interest in any company. Section 15(2) defines control of a company as meaning that the affairs of the company are conducted in accordance with the wishes of the person holding control. Given the need for asset holdings to be suitably diversified as part of the risk management strategy of the fund, it is unlikely the fund will hold a substantial percentage of the share capital of any one company. In so far as the companies are listed on the major world indices, such as the FTSE 100, the percentage holding in any one company is likely to be small, probably less than 1%.
Nevertheless, section 15 is considered desirable to ensure the fund does not hold a controlling interest in any company or hold such a percentage of the voting interest in anycompany that would require it to seek a controlling interest. Under the Irish Stock Exchange rules, for example, a person with over 29% of the shareholding of a company is required to bid for the remaining shares of the company.
When the legislation was being prepared, consideration was given to fixing an upper limit on shareholdings of the fund in any one company. Norway's petroleum funds have set a maximum shareholding of 1% in any one company for the purposes of diversifying the fund's equity portfolio. Such a limit, however, could be seen as somewhat restrictive in the Irish and UK pensions industry where holdings of up to 5% might be justified in some situations. For example, if a very small proportion of the asset fund were to be devoted to investing in a niche such as start up technology companies with potentially high returns, a limit of 5% might be unduly restrictive. I, therefore, decided not to include a limit in the Bill on the basis that it might be unduly restrictive and would not allow for flexibility in different market situations. If particular limits are required, these can be best determined by the commission as part of the risk parameters adopted by it for the fund.
What does the Minister mean by voting rights? Does he mean the right torepresentation on the board?
I was using the normal term. The voting rights of a company are determined by the memorandum and the controlling interest is defined there.
What I mean is that any shareholder has the right to be represented at the general meeting and has voting rights at that. Is that what the Minister is referring to?
I mean hold such a percentage of the voting rights as to control the company. If the Deputy held more than a certain percentage of the company, he can control the operation of that company.
The phrase ". . . that would require it to seek control . . ." is used. Is that9%?
In the Irish and UK stock markets if one takes up 29%, one is obliged to make a bid for the block.
Is the Minister saying that the delicious circular movement of capital that involves selling Eircom, putting the money into the fund and buying back a significant part of Eircom with the money at a lower price is not available to us?
It could be done as long as the percentage one required would not control the company.
Amendment No. 13 is consequential on amendment No. 14. Amendments Nos. 13 and 14 may be discussed together.
I move amendment No. 13:
In page 14, subsection (1), line 29, to delete "subsection (2)" and substitute "this section".
This section requires the Minister for Finance to consult the chairperson of the commission on any appointment of a new chief executive of the National Treasury Management Agency. The requirement does not apply to the reappointment of the chief executive.
The reason for the requirement is that under the National Treasury Management Agency Act, 1990, the Minister appoints a chief executive of the agency who reports and is accountable to the Minister. Under this Bill, the agency would be the manager of the fund on behalf of the commission for the first ten years at least and the chief executive of the agency will report and be accountable to the commission in so far as his or her function as chief executive or manager of the fund is concerned. It is, accordingly, desirable for the Minister to consult the chairperson of the commission in deciding on any new chief executive of the agency.
Obviously, this provision becomes redundant if, in the future, the commission appoints a body other than the NTMA as manager of the fund. Amendment No. 14 removes the requirement on the Minister to consult the chairperson of the commission when appointing a new chief executive of the NTMA in those circumstances.
That is fair enough.
I move amendment No. 14:
In page 14, between lines 34 and 35, to insert the following subsection:
"(3) Subsection (1) does not apply where the Agency is not the Manager of the Fund.".
Members have to vote in the House. What time will the committee resume itsdeliberations?
I have a difficulty later. It would be preferable to adjourn until tomorrow.
I cannot be here tomorrow.
There is also a Bill in the House tomorrow.
That is the ICC Bank Bill. It will be taken by the Minister of State because I am meeting groups for their pre-budget submissions tomorrow and Friday. That will take up most of both days.
That being so, I will have to soldier on. However, I will have to leave at 9.45 p.m.
I appreciate that.
Amendments Nos. 15 and 16 are ruled out of order as they are deemed to involve a potential charge on the Revenue.
This section deals with the core funding mechanism of the pensions fund. The Minister will be required under law to pay 1% of GNP into the fund from the year of establishment up to 2055. I thank the Minister for sending me the demographic projections which were drawn up for his Department. Many of the assumptions which underpin the figures have changed, although there is still some merit in them. It is difficult to project the proportion of people who will be in their retirement years in 2025 and from then to 2055. It is easy to do an exercise which will give the actual number of people who will be more than 65 years of age in the future because it is just a matter of counting the number now, allowing for a death rate and then adding on. However, since the argument is based on the dependency ratio or that portion of the dependency ratio which is due to persons on a pension, it is not an exact science.
I do not want to make too much of it if the Minister puts in more money than is required when we are running surpluses. It is as well off in the pensions fund as anywhere else. There are only four choices with what to do with the funds now accruing to the Exchequer. The Minister can spend them, give them back in taxation cuts, reduce the national debt or find another purpose for them, which he seems to be doing by putting them into a pensions fund. There are not any other alternatives.
George Bush, who looks likely to become the President of the United States, said in the last week of his campaign when he was defending his commitment to reduce taxes that the fact the state is taking in more money than it needs to run it and there are surpluses is proof that taxes are too high.
Politicians would have said that recently as well.
I do not fully agree with that theory but there is something suspect about unplanned surpluses. I support an argument that we should run surpluses for the foreseeable future. However, when the surplus is increasing by the month and is far in excess of what the Department of Finance and the Minister estimated it to be on budget day, the role of surpluses in demand management or as an instrument of policy becomes suspect. If the Minister is running a surplus which is nearly twice what he thought it might be six months ago, it is not an exact instrument of policy. Perhaps we should reduce taxes. Perhaps we should not agonise too much about what we should do with surpluses because we should not run such huge unplanned surpluses. There might be a better way of doing it, such as spending money on public services.
The dependency ratio or that portion of it to which the major contributor is the elderly on pensions will reach a point where of all the priorities for expenditure this will become thesine qua non. It kicks in in 25 years’ time and we are here today talking about a priority of policy. Of all the options for dealing with surplus funds, we are taking 1% out. We are doing that when the theory of surplus budgeting, as defined in Ireland, is inexact as an instrument of policy. If we allow for the merits of the demographic projections which the Minister commissioned and forwarded to us and for the fact it is a professionally produced document, there is still serious doubt about what will happen in future.
The purpose of the amendments which were ruled out of order was to agree the principle the Minister is putting before us to set money aside for certain future needs but also to allow the Minister of the day some discretion in changing circumstances, demographic projections and needs to move up and down the scale of what would be put in. If the Minister decided this year, for example, to put 2% of GNP into the pensions fund, he could do so because it would be used to reduce the debt. It does not matter if he reduces the debt or puts it in the pensions fund because while they are not back to back, the pensions fund is like having a deposit account in the same bank as a deficit account. The fact that pensions will be partially funded into the future improves the national balance sheet. While it is not the same as reducing the national debt, it probably has the same effect in terms of the country'scredit rating.
The Minister could afford to go above the 1% this year, next year and the year after. There might be merit in doing so because while there is a lot of loose money around, people will find ways to spend it and the quality of the spend may not be scrutinised. We must spend more on essential public services but the quality of the spend is as important as the amount of the spend. The failure of the Minister's colleagues to move resources to alleviate the problems manifest in the country shows that when they are given money, the quality of the spend is not good. The Minister knows what I am talking about. It is unwise for the Minister to handcuff himself and his successors for such a long time. I would prefer a mechanism where 1.5%, 2% or 3% could be put in if things are going well and if things are going badly it could be pulled back down.
There is no exact science about the business cycle. However, in theory we should be running high surpluses when we are at one point in the business cycle and the budget should balance over the cycle. If we are running surpluses at one point in the cycle, we should be running deficits at the other point. Everyone will agree, within general fiscal theory, that that is the way it should pan out. However, we are now legislating to ensure that even at the downside of the business cycle, when the Minister or his successors will be budgeting for a deficit at some time in the future, there will be a mandatory requirement to put in 1%.
The last time I was in Government times were very good because we were at the start of this phase of economic development and being in Cabinet was not as anguishing an experience as it was in the 1980s. With public pay out of control, the national debt trebled between 1977 and 1981 and international interest rates started to rise to astronomical levels. In 1981 inflation was running at 24%. People fought about £200,000 or £300,000 in an Estimate. Barrington's Hospital in Limerick was shut down to save £2.5 million.
When the Minister's predecessor, Ray MacSharry took over, we, on the other side of the House, decided that the situation was so bad that the game playing and role playing had to stop, and the general policy was supported by what became known as the "Tallaght strategy". I was my party's spokesman on finance at that time. Every week I met Ray MacSharry over a cup of coffee to try to iron out parts of the embarrassments of the expenditure. Items costing £100,000 or £200,000 were matters of great public and political consequence. We tried, in an informal way, to take the sting out of certain decisions.
We have forgotten all that, although it was very recent. We are now talking about putting just short of £700 million into a fund and letting the commissioners run it for the next 25 years, and it could go for 55 years. I know why the Minister is doing it. He is saying that there are spenders around and if they get access to this money they will blow it. However, I do not think that is right. My experience, especially with Ministers for Finance, regardless of party background, is that they are very prudent people. I have not seen anyone selling the family silver for a long time. Discretion should be given to the Minister of the day to vary the amount which is to be invested. I know the Minister has a different view on that and the reasons for that view.
If we concede the case that it is necessary to do this the way the Minister says, by putting in the 1% and then empowering the Oireachtas to vote the proceeds of privatisations and other moneys into the fund, I would like him to explain why he thinks it is necessary to continue to pay into the fund after 2025. He is providing a fund on which the Exchequer can draw when it becomes, as expected, fiscally very difficult to fund social welfare pensions and public service pensions. We will be moving from a small percentage of total spend to a very large percentage of total spend on pensions. The Minister is proposing that when we draw out of the fund because we cannot fund pensions out of taxation, we will simultaneously put in 1% of GNP. At the start, we will probably be drawing out less than we put in. The Minister said the draw-down will have to continue until 2055.
There is a problem there which the Minister has not addressed up to now. If we concede everything up to 2025 and agree with the Minister's arguments, how can there be an arrangement where, for reasons of inadequate fiscal resources, the Minister of the day will draw on the fund, with a simultaneous requirement to invest 1% of GNP? That makes some sense but it does not make complete sense.
Another difficulty arises from the manner in which the draw down will be made. While the movement of Exchequer funds into the account is absolutely transparent - it is 1% of GNP - the take out is not transparent. All the Minister's fears about raids on the fund will become real fears between 2025 and 2055. There is nothing to stop the Minister of the day completely funding social welfare pensions and public service pensions out of the fund, as long as he leaves a residual amount in the fund in any one year. I see the Minister nodding, but we will come to that later.
While there is a theoretic constraint in the draw on the fund, in that it has to be applied to pensions, if the portion of the funding of pensions one would normally expect the Exchequer to undertake is funded by withdrawals from the fund, the veering of the resource then will allow for very strong spending elsewhere by the use of Exchequer money. While the Minister has thought out the game plan as far as 2025 very carefully, I do not think he has thought out the game plan after that. He is givingcarte blanche to Ministers after that, in effect, because anything they do after that date can be done by order. There are statutory spancels up to 2025 but then Ministers will have the power to order what they like. There is a genuine problem there.
Subsection (5) states "the Minister shall pay into the Fund from the Central Fund or the growing produce thereof, such sums additional to the sum referred to in subsection (2)". The Minister is making provision for the Oireachtas to vote funds in excess of the 1% of GNP into the fund. He is not tying that into receipts from the sale of assets, as he did in his original policy statement. Under this subsection, there is nothing to stop the Minister next year or the year after putting 1% in and going back to the Oireachtas to say we are running a large surplus and putting in another 2%. Is that the Minister's intent?
The blunt question is whether it is the Minister's intent that the additional funds will be like the funds that arose from the sale of Eircom, which allowed him to establish the fund in the first instance. Does he envisage a percentage of GNP in excess of 1% being voted separately by the Oireachtas into the fund on a year by year basis and that the 1% is only for openers? Was that the Minister's intent or is it just the way it is drafted? Is it a policy or an inexactitude in drafting?
Thank you, chairman, for allowing me make those points. I know the Minister has a diametrically opposed view to the policy I have enunciated in the amendment. However, I would like him to discuss the other issues I raised because there are difficulties.
Deputy Noonan has raised a number of questions to which I would like to respond.
I do not want to repeat what Deputy Noonan said, but I want to raise a few issues on the same general theme. Perhaps I could raise them before the Minister responds.
Will I remember them all?
They are along the same lines. We teased out some of this when we set up the temporary fund last year and, for that matter, on Second Stage. I share Deputy Noonan's concerns about the unpredictability of this whole business. I read the long-term issues group's paper which the Department produced only two years ago. Undertaking this sort of work is good and I am glad the Department did it, looking way into the future. It is fascinating to note that even a couple of years later some of the presumptions were wrong. We were talking about an average growth of 6% from 1998 to 2000, whereas it has been about 50% higher than that. Within a short time-frame we have had pretty clear evidence of the unreliability of forecasting. As the Minister knows only too well, the Department's record - along with the records of most people in the private sector, for that matter - in forecasting what has been happening for the past two or three years has not been all that great. There is an unreliability there, but Deputy Noonan has already mentioned that point and I will notlabour it.
Quite apart from the economic aspect, there is also an unpredictability in demographics which four or five years ago we might not have expected, in so far as we now have many people coming back into the country and our dependency ratio has changed because of that. Goodness knows what will happen over the next ten years as regards, for example, immigrant workers. That is a subject about which we can only guess, at this stage. Purely from the point of view of demographics there is a lack of predictability. The one thing we can say, I suppose, is that we are far better off than most other European countries. The ratios are far more favourable to us, and our dependency ratio is far better than virtually all the other European Union countries.
We have to satisfy ourselves about a number of things, including whether this is the most economically sensible use of money. The question that arises is whether we would not be better paying off the national debt, rather than investing money. At its crudest level, we should be looking at the rate of return and interest we pay on the debt. In his response to the Second Stage debate, the Minister gave some indication on that but I would like him to tease it out for me a bit more. If we do not expect to get a better return from investing the money than the interest we pay on the national debt, then perhaps we should do it the other way around by paying off the debt, purely on economic grounds.
Although I hope it will not happen for quite some time, if at all, if, at some stage in the future, we were to get back into deficit again, where we have to borrow for current purposes, I wonder if it would make sense to borrow to invest money in the fund? Surely, we should provide a mechanism whereby the Minister could shelve or reduce payments into the fund for a couple of years. That is the essence of Deputy Noonan's amendment and it is also what I was attempting to address in my amendment.
I am not sure the words in the amendment that appears in my name captures what I intended, which is my fault obviously. I had intended that the contribution could vary between 0.5% and 1%, with the view that over time it would average out as a minimum of 0.75%, but I do not think the way it was phrased captures that intent. The essence is the same as Deputy Noonan's point, namely that there should be a flexibility within certain parameters over the course of time, to allow the Minister to address completely different circumstances to the ones in which we currently find ourselves. To be slightly political about it, for the record I see that we can easily afford to contribute 1% this year and next year. If I were in the Minister's position I would do it. Suggestions from sources that we would not do so are wrong. I simply want to provide a mechanism whereby in more difficult times there would be a capacity to ratchet it down a bit, subject to an overall average.
A wide variety of questions have been raised, with which I hope to deal. I referred to this matter on Second Stage when I said the section pertaining to the 1% of moneys being paid in future represents a very important aspect. I consider that this is the minimum that should be put in and that it has to be enshrined in legislation. Yesterday, at the ECOFIN council we had a debate about the ageing population in Europe. Over the past year or so, I have referred in various contributions to the fact that we would use some of our surplus for the national pension reserve fund. A number of times I have indicated that we should undertake a study on this in Europe. I like to think we have played some small part in getting this up and running. The final decision was that we would publish the report on the Commission's Internet website. It should be on it in the next day or so, if it is not there already. We will be able to supply Deputies with copies of it, anyhow. It provides information on what will happen in Europe in future. For example, by 2050 the overall population of Europe will decline by something of the order of 3%. Interestingly enough, the number of people aged over 65 in proportion to the working population will go from 27% to 53% over 20 years. The number of persons over 85 will increase at a greater rate, proportionally.
The demographics in Ireland are totally different to that because no matter what projections one takes over the next ten years, the population here will increase. The next census is scheduled for April 2001 and it will show a fairly substantial increase on the 1996 census. I saw estimates provided recently by the Central Statistics Office and by Dr. FitzGerald in some newspaper article, which estimates the present population figure at just short of 3.8 million. We are, therefore, out of kilter with the rest of Europe but we will fall into the same situation as Europe in time to come.
We should budget for a known liability. I do not see the difference in saying that we will not always have budget surpluses, and if some of the demands being made by some pressure groups were all to be met over the next few years we would have a budget deficit very shortly. I am taking into account even what Deputy McDowell said in his recent policy document about current expenditure. However, given some of the demands being made, it would not be long before we would be back into having an overall budget deficit. That being the case, we know we are incurring a liability in this regard. I want it to become part of a normal Estimates arithmetic. If it is taken out of the centre, it will be above the line and it will not be an Estimate for a specific Department. It is a known liability, however, and we should provide for it.
Interestingly enough, during the debate yesterday on the report, one of my colleagues in Europe made the point to which Deputy Noonan referred, that countries should get credit for doing something in this regard. It should be regarded as something in their balance sheet. He might have been referring to how it would be termed in terms of national debt. Maybe he is talking about the 3% excessive debt procedure, more or less building up the same case, that it should be taken into account. Under current EU accounting principles, one does not get any credit for this at all.
About a year ago in one of my contributions, I suggested that there is no point in encouraging countries to do something about it if, at the same time, they will not be recognised for it when they are assessed for stability. Yesterday, one of my colleagues made a similar point along those lines at the ECOFIN meeting.
Deputy Noonan made the point that this is not an exact science. Certainly, looking ahead over 20 or 25 years one has to make reasonable "guestimations". Looking ahead 50 years, however, is more prone to error. In actuarial terms in providing for pensions, 50 years is regarded as a fairly tight time-span and it is at what actuaries look. He made the point about the projections in recent years on surpluses and economic growth, but particularly on surpluses. In my time as Minister for Finance, after the first budget when the surplus for the end of 1997 was better than anticipated, I initiated a departmental review of the whole mechanism, together with the Revenue Commissioners. A report was published, although I am not sure if it is available under the Freedom of Information Act, but if not I can let Deputies have it. We were advised of procedures as to how to estimate all these matters. I remember in my second or third budget that most commentators said: "Look, we have given out about the estimations made by the Department in the past, but we think they have gone to the limit this week. They are gauging it very closely". Yet, the out turn for the year was higher than expected. Colleagues of mine in the Government have also made this point to me.
In every country that has been on an upward spiral, the outturn for its figures has always been underestimated. Peculiarly enough, when countries are in a downturn spiral, the opposite is true in that revenue is overestimated and expenditure is underestimated and this has the reverse effect. That is merely a peculiarity of world-wide projections in this area.
What are we going to do with surpluses? We are going to reduce the national debt and provide for pensions into the future. I am also providing for the national development plan. I say to Deputies McDowell and Noonan that I think it is possible in the medium term to be able to do all these things and provide a good level of services. Without being too political about Deputy Noonan's recently published document, I think it is possible to provide an appropriate level of services. Deputy Noonan referred to the quality of the public services and the Deputy's document puts forward a unit that will assess the value of public services.
I am sure I speak for all previous Ministers for Finance when I say I would like if we could all agree to deal with three problems next year in our public expenditure. It would make the job of the Department of Finance very easy because one would not have to harangue people to get everybody into line. That never happens because every Minister has his or her priorities, as do those who await the services in education, defence or elsewhere It is the job of Government to decide on priorities.
I do not regard these surpluses as unplanned. Deputy Noonan and I have been around long enough to remember the bad times in the 1980s. If one goes back a little further to the period before the Deputy and I were elected to Leinster House - I have been here a few years more than him - the original theory on having a non-balanced current budget was at times Dickensian in that we were in terrible trouble so we decided to borrow more in the short-term to boost demand and achieve a budget deficit by increasing or reducing expenditure to kick start the economy. It was always the intention in the original theory that we would eventually turn the corner by boosting demand and move in the other direction. That was the original theory. Of course, as we all know, when we got into the spiral we could not get out of it and it fed upon itself. Budget surpluses should be used to repay the national debt because it was incurred on the proviso that the money would be repaid.
Deputy McDowell said that from an economist's viewpoint, what one should compare is the rate of return one gets on this investment fundvis-à-vis the cost of redeeming the national debt. If one cannot get a positive rate of return greater than the negative cost of the national debt, then one should pay off the national debt. Given the way in which we have got the national debt under control and world-wide interest rates, it would be everyone’s contention that this is the time to invest in a pension fund, but I also believe we should reduce the national debt. I know it is not as popular as it was in the 1980s to speak about this. I am old fashioned and suggest that these times will not last forever and, therefore, we should be reducing the national debt, and that is what we are going to do.
Deputy Noonan's fundamental point was that the Minister for Finance should have some discretion. Deputy McDowell's point was somewhat similar. In his document, he referred to a 0.75% average. He pointed out that the amendment did not reflect that, but I understand what he is trying to achieve. As I said on Second Stage, I fundamentally disagree on that point. If one leaves discretion to the Minister in this area, no matter what the will of the world or no matter how good the Minister for Finance is, it will vary. Ministers for Finance have always been politicians. According to the Constitution, there are only two positions in Cabinet that must be held by elected TDs - the Taoiseach and the Minister for Finance. There is discretion in the Constitution to bring in two people from outside Dáil Éireann, but the Minister for Finance and the Taoiseach have to be TDs.
We should not have this aperture, even though officials in my Department would suggest that we should have a little discretion in case the day turns really wet and that we should not tie our hands. I have a fundamental disposition in regard to the setting up of a pension fund. I readily accept, as I did in regard to other sections, that one can legitimately take another viewpoint. My motivation is to try to move it as far as possible away from political control.
This Bill does not prevent a Government from bringing legislation before the Oireachtas to change it. I cannot do anything about that. However, when this fund is up and running and has increased, a Minister would be very reluctant to vary it, or to start dipping into it, because the people would regard it as dipping into their money.
Deputy Noonan referred to the quality of public services and I have alluded to that point. He asked what would happen after 2025 in this regard. I have to confess - this information will probably come out under the Freedom of Information Act when this Bill is completed - that originally we drafted a complicated formula as to how this would be decided after 2025. We got all sorts of advice from all over the place. We drafted a section that became so complicated that I decided not to proceed with that formula. I did not think it would serve the original purpose. One cannot be absolutely certain of the situation in 2025 or of what ratio to put in. This was an exact science and we had nothing to go on.
Section 20 relates to payments from the fund. Section 20(4) states: "The Minister shall, following consultation with the Commission and the Minister for Social, Community and Family Affairs, make rules under which payments of the Fund under subsection (2) shall be calculated during the relevant period." Section 20(5) goes on to state:
Without prejudice to the generality ofsubsection (4), rules under that subsection shall provide that payments to the Fund shall be calculated-
(a) by reference to the projected increase in the number of persons in the State who should have attained the age 65 years, during the relevant period, as estimated by the Minister following consultation with the Central Statistics Office, and
(b) with a view to avoiding undue variations from year to year in the net Exchequer position arising from payments to and receipts from the Fund.
Section 20(6) relates to the point Deputy Noonan made about how the fund is going to operate. It states: "Payment from the Fund to the Exchequer in any year shall not exceed the total Exchequer outlay on social welfare pensions and public service pensions in that year." Therefore, one can look at that formula in 2025. I hope we will all be alive then, whatever about being politically active. One would not be able to take enough money out of the fund to exceed the amount the Exchequer will pay out that year in public sector pay and pensions. I readily accept that on account of not being able to come up with an acceptable formula, these are the devices with which I came up. Perhaps the matter can be considered then and reflected in the orders made by the Minister on foot of this enabling section.
In 2025 we will probably have set up what I would term "a real pension fund" in the sense that after a certain date - Deputy Noonan made this point on Second Stage - all the moneys being collected from persons in their PRSI, a good element of which relates to pensions, will be transferred to a pension fund. Money will be transferred from this reserve fund into that fund and the two will balance. That is my ultimate objective and I hope I live to see the pension reserve fund increasing, another pension fund alongside it and that all contributions go into it. The reserve fund will be there to ensure there is not too great a hit on the Exchequer at that time due to our economic largesse now.
Section 19 refers to preventing raids on the fund. I have tried to prevent raids on the fund by setting it out so far into the future. In a later enabling provision I have provided that I can put in more than 1% in any one year, but Deputy Noonan made a good point. I referred to his point, perhaps not on Second Stage but when I announced in July 1999, that it was my in intention to put the bulk of privatisation receipts into the pension fund. In the past fortnight I considered tabling an amendment on Committee Stage stating that all of the receipts of any future privatisation of any State company which yielded more than £25 million would have to be paid into the pension funds also. In the past week I said "no" to it, although not with great conviction. This decision is a little against my theory.
In response to the points made by both Opposition spokespersons on Second Stage, when they asked "why tie the hands so much?", it had been my intention to tie the hands of the Minister even further by inserting that amendment. I said the criticism had been that I was tying the Minister's hands too much and therefore I would abandon the amendment I was about to table, and that I was sure the reasons for the decision would come out in time. I decided I would not tie the hands of future Ministers. I could introduce the amendment on Report Stage but my decision was taken in deference to the contributions made. My gut feeling is that we should proceed with that amendment but I made my decision, on account of the valid points about tying the Minister's hands too much, and taking account of Deputy McDowell's document published the previous weekend, thinking that would be the biggest criticism. This has been a topic of debate within my Department from the time I mooted this idea a long time ago when I said, when I became Minister for Finance, I would do something about pensions.
The other question the Minister has not answered is about the 1% payments between 2025 and 2050 because he will be drawing out and paying in simultaneously.
As I tried to explain earlier, it will be going into the pension reserve fund. Maybe at that stage we will have set up another proper pension fund and the money will come out of that into the proper pension fund. On the proper pension fund, the moneys taken from people in PRSI would go in one side and out another to pay pensions.
The burden of this ageing of the population will grow slowly up until 2025, but thereafter it will grow very quickly, according to current projections which are open to the normal caveats regarding accuracy. If we stop the contribution at 2025, there will be a huge swing in the Exchequer position in 2026 because the 1% will stop and the draw down will start. By leaving the 1% in place with the draw down starting in 2025, the net Exchequer position will start to benefit gradually. The draw downs are linked to demographic conditions and therefore the fund cannot be raised in 2025. The exact formula for doing this will be by ministerial order, to which I referred, which is in the next section in subsections (4), (5) and (6).
The Deputy asked about privatisations. After 2025, if not beforehand, I am sure the whole matter will be considered, although I hope it will not. I put forward my formula for doing it and I said we would try to come up with real advanced actuarial formulae. There were more meetings between my advisers and actuarial experts, etc., but it was getting so convoluted that nobody was able to follow it in the end and anyway it did not mean a great deal.
Deputies McDowell and Noonan made the point about immigrants entering the country. Even the biggest expectations of people returning to the country make very little difference to the long-term results of this plan. Even if we were in a position to take in many more people than are coming here at present, it would make very little difference to the overall figures.
On the 1%, as I pointed out on Second Stage and yesterday, according to our current projections this will not go in any way towards meeting the time bomb problem we will hit at that stage. In Europe yesterday and also in my press conference, I referred to the long-term issues document. It is not just the ageing which will cost more as a percentage of GNP. It is not just that pensions will cost more. It is the increased costs which have to do with health care which we will have to bear. It was estimated yesterday, when the figures were given, that there would be an increase of 4% or 5% in GNP in Europe and our "guesstimates" are similar. Therefore, it is not just about pension. It has to do with the other additional costs arising which have to do with ageing.
All in all, 1% is the minimum which should be set aside. No doubt my colleagues in the Opposition would feel strongly that it must be 1% in the legislation. There might be weaker people than them taking office in years to come and we must try to do our best to please politicians also.
The system is well worked out for the start-up and it works reasonably until about 2025. Beyond that, it is very loose and it is impossible to project the actual circumstances which will prevail.
The Deputy would enjoy seeing some of the convoluted formulae which arose regarding what would happen from 2025 onwards. I said at the end that we should let the people at that time deal with that issue. My official can verify that I said that we should get that far to start with.
There are a couple of things in it on which the Minister should reflect. The Minister's opening position is that the fund will partially fund pensions. He did not take up the position that it would fully fund the pensions.
No, it will not because we estimated in that long-term issues document that we would need to put in 3% of GNP plus the good kick start from the privatisations.
He dealt with that on Second Stage. At the same time, in the little regulatory section on draw downs, the Minister envisages annual draw downs from the fund equal to the total cost of both PRSI pensions and publicservice pensions in any one year.
The payment from the fund in any one year cannot be greater than that. If one thinks about it, if that was the case we would be nearly negating the purpose of building up the fund.
The point I am making is that in the regulatory section the Minister is allowing a draw down of up to the total of social welfare pensions and State pensions. In circumstances where his opening position is that he is only partially funding it, it is illogical to have a provision where he can fully fund in any one year. Rather than there being an inhibition on the Minister, it is a very permissive section.
The Minister knows what will happen at the Cabinet table when his creative colleagues see the opportunities. When times are tight, what will happen is that there will be a draw down of the full cost of pensions in the year which will enable expenditure elsewhere because the full draw down would not have been necessary and money which was being set aside in 2025 for pensions will or could be spent elsewhere. The whole pension Vote, if we call it one Vote, in 2026 could be drawn off the fund.
It could be, but I have guarded against that in subsections (4) and (5) which state that it must be done by ministerial order and then after consultation with the Minister for Social, Community and Family Affairs. The rules must then be set up and must be in accordance with subsection (5). By going through the complicated formulae, that was a way to try to come up with that at a particular stage and it refers to the segments of the population over 65. The final provision in that regard is subsection (6). No matter what one does in the other ones, when one adds the two together, one still cannot have a figure greater than what the pensions in that year will be. The number of man hours spent on trying to make this watertight in this area, in sections 20 and 21, is colossal. We eventually gave up on it and came up with this in the end.
On that basis I will not recommence the debate but there are a couple of general points worth stating. The Minister drew comparisons with Europe regarding the ageing profile of the population. If one looks at some of the main players in Europe, like France and Germany, the level of funding of pensions, even private pensions, is very low.
I understand that in France the funding on offer is only of the order of 8% of total pensions. Therefore, in terms of pension liabilities were are quite high on the scale and we are not Europe's emergency case. There are great difficulties across Europe in respect of this matter.
The Minister referred to our ageing population and the fact that the percentage of those over 65 in Europe will increase dramatically over the period suggested here. The greatest historical event that will take place during the next 30 years will be the level of migration. Already there are unprecedented numbers of people moving throughout the world. As a result of information technology and relatively inexpensive air transport, that trend will continue. In any region where there are poor countries contiguous with rich countries, movement of people from the weaker to the stronger economies will occur. It is like trying to turn back the tide.
Europe's current migration policies will prove increasingly ineffective because, within fortress Europe, it will be in people's economic interests to ensure that immigrants are encouraged to enter. The estimates I have seen in respect of immigration into the European Union between now and 2030 are very interesting. Research has been carried out which suggests that to maintain services in European at their current level and to maintain living standards against the background of the ageing population to which the Minister referred, 30 million immigrant workers will be required during the next 30 years. In that context, the kind of demographic projections we are discussing and the dependency ratios in terms of the age of the population take on a different dimension. That is where the figures will be proved wrong. I am not saying that migration and immigration are the solution to the ageing problem because they will clearly lead to other problems.
When one considers the stage at which our economy stands at present - with full employment, etc. - in light of other economies that reached the same stage during the past 50 years, it is obvious that the next step must be a major dose of immigration. One need only look at the number of Irish people who emigrated to Britain in the aftermath of World War ll. At that time, the British economy was recovering rapidly but it was beginning to suffer from a shortage of manpower which it overcame by shipping in people from the nearest source of supply. The British brought those people into the bottom of the market, namely, the services industries, the construction industry, the road development industry, etc. Regardless of the type of policies we put in place, a similar situation will arise here. By fair means or foul, there will be a large influx of immigrants into Ireland.
I have no desire to re-enter a Second Stage debate but the Bill is interesting in the sense that politicians tend to think in the short-term. The longest term we usually contemplate runs from election to election. In effect, we are concerned with the middle distance. To think about what will happen so far into the future is novel and interesting.
I agree with what the Deputy said about immigration. Ireland will have to develop a proper policy.
I was somewhat surprised by the Minister's assertion that he did not believe immigration was likely to make much difference to the ratios.
I was referring to the Irish context over the shorter period. The latest estimates indicate that we have a population of 3.79 million but we will know the precise figure next year when the census is carried out. Our view is that in the medium term there would have to be an enormous number of immigrants entering the country in order for the overall projections to be affected. That takes into account that a 1% increase in the population as a result of immigration will not make much difference.
The Department of Enterprise, Trade and Employment produced an estimate which indicated that approximately 200,000 immigrant workers would be needed to cater for our needs in the next five years. I understand the total number in employment is approximately 1.7 million so we are talking about an increase of approximately 12.5% in the total work force. Surely that would have a significant effect over the period in question.
Yes. However, if these workers enter the economy during the next few years - I do not remember whether the projection relating to the 200,000 relates to a five or ten year period - they will contribute to the economy, paying their taxes and, hopefully, contributing to increased budget surpluses which will allow us to put more money into the fund. It is for that reason the subsection in question advocates the investment of increased moneys to the fund. They will contribute to the economy and to economic growth.
One problem that would force economic growth to contract is the shortage in the supply of labour. The various experts are producing lower figures for economic growth in light of a number of factors but paramount among these is the availability of the labour supply. If the labour supply increases, economic growth should follow suit. Having said that, however, everyone's predictions in respect of this science has been somewhat inexact.
I move amendment No. 17:
In page 15, before section 19, to insert the following new section:
"19.-The Commission shall, with the consent of the Minister, prepare and publish an ethical investment policy which the Commission shall apply in holding or investing monies standing to the credit of the Fund and which shallinter alia prohibit investment in enterprises involved in the armaments industry and the tobacco industry.”.
We touched on this matter on Second Stage and I do not believe there is a need to delay proceedings - I know that will be the Minister's response. The amendment merely sets out the proposition that the commission should prepare an investment policy which will take ethical considerations into account. The logic in the argument is self-evident, namely, that it makes no sense, for example, for the Government to take measures which are, at least in principle, intended to reduce the consumption of tobacco at the same time as the State is actually investing in the tobacco industry. In addition, it makes no sense to run a foreign policy that is critical of the arms industry if we are investing in and making money from that industry.
I know that will be the Minister's response but there is a need to provide for an ethical investment policy in the Bill. The amendment requires the commission to draw up a strategy which would involve doing so.
I have outlined on Second Stage the reasons I did not take this route. I could read into the record the argument I put forward at that point but it runs to three pages of text.
That will not be necessary.
Is the amendment being pressed?
I am sure we can discuss this matter further on Report Stage. I am sure Deputies McDowell and Noonan would like to receive a more expansive reply at that point because this is an important matter.
I move amendment No. 18:
In page 15, subsection (1), line 33, to delete "time, to time" and substitute "time to time".
Amendments Nos. 19 and 20 are related and may be taken together by agreement.
I move amendment No. 19:
In page 15, between lines 40 and 41, to insert the following subsection:
"(2) Notwithstandingsubsection (1), the Minister may by order give directions to the Commission to require it to hold or invest monies standing to the credit of the Fund in a manner specified in the order and otherwise than in a manner which secures the optimum total financial return thereon, where the Minister is satisfied that such requirement is conducive to the common good.”.
This is the same core issue we debated earlier, namely, the investment strategy applying to the fund. The only elements of the strategy set out in the Bill are the requirements to make an optimal return and to ensure that the level of risk to moneys held or invested is acceptable to the commission. I am concerned that such a bald assertion has to be the optimal return. While it depends on how it is defined, if one defines it as getting the best possible return in terms of the most possible money, that arguably makes ethical considerations of the type we discussed a few minutes ago legally doubtful. It would not be open to the commission to decide, for example, that it would not invest in the armaments industry if the return that might be acquired from it would demand that it should do so.
In response to questions about ethical investment, the Minister has always argued that, by laying it before the Oireachtas in the annual report or whatever, the malodour would be such that the fund would steer clear of this type of investment. That is all very well in so far as it goes. It assumes people pay attention to what is contained in annual reports, which they frequently do not.
However, there is still a major difficulty, which we must overcome, of the simple requirement of optimal return which spancels the commission and its discretion, even if what the Minister said about publication is taken into account. I seek to give discretion to the Minister to require that the moneys can be invested either to get the optimal financial return or in a fashion whereby the Minister is satisfied that the requirement is conducive to the common good, in other words, allowing a social "out" in terms of the criteria determining the strategy.
I stated on Second Stage my reason for going this route and I will read into the record the short note I have on this amendment. In discussing the proposed amendments it might be useful if I set out the key principles which I have enshrined in the legislation establishing the fund. It is the people's money which is being invested in the fund and I have, therefore, structured the fund to enable it to achieve the maximum returns normally achieved by a private pension fund. To this end the fund will operate like a private pension fund. Its investment strategy cannot be influenced by other policy considerations and the fund moneys cannot be used by future Governments for other purposes.
These aims are reflected in two key features of the Bill. First, the fund will be managed by commissioners who will be independent of Government and who will control and manage the fund and have discretion and the authority to determine and implement an investment strategy for the fund. Independence of the commissioners is a cornerstone of the legislation. To prevent the fund from being politicised, which would seriously compromise it, I have deliberately ensured that the Minister for Finance does not have the right to give directions to the commissioners or set criteria to which they must adhere.
Second, this investment strategy will be based on a commercial investment mandate with the objective of securing the optimal return over the long-term subject to prudent risk management. I do not consider it appropriate to ask the commissioners to take into account other national or social objectives when determining the investment mandate for the fund. Any dilution of the commercial nature of the investment mandate, such as requiring the commissioners to support a particular project in Ireland, for example, could seriously compromise the returns achieved by the fund.
The purpose of the fund and the justification for asking the taxpayer to make a contribution of 1% of gross national product to it each year is to provide as far as possible for the cost of future pensions. The State has a solemn duty to do everything it can in accordance with prudence to maximise the return on this investment. The use of fund moneys for any other objective, no matter how laudable, should not be countenanced. Such objectives, if worth achieving, can be attained in other ways. Both amendments conflict with both these key features of the fund and I cannot, therefore, accept them. I am sure we will return to this again.
Yes. Essentially, I argue that the Minister should retain a certain residual discretion. I do not see the Minister issuing directives to the fund regularly and possibly he might not at all. However, there should be a residual discretion on the part of the Minister to do this in circumstances where there are good policy reasons which determine that it is necessary. The Minister should provide that power for himself and his successors. Clearly we have a fundamental disagreement.
In circumstances where the international community decides a certain country is beyond the boundaries of civilisation for investment purposes, such as the boycott of Iraq, surely the Minister would require some type of residual power to fulfil the country's international obligations to ensure the fund was not invested in countries such as Iraq where there was an international decision that such investments should not be made.
It would have been possible, if the fund existed a generation ago, to have invested in Rhodesia as it was then. After the unilateral declaration of independence, it was a country on which the international community placed not only a trade but also an investment boycott. The Minister will recall the experience in the United States where a proposition went from state capital to state capital to prevent investment in Northern Ireland unless there was a settlement. I am sure the Minister remembers the McBride principles and what was enshrined in them.
There are occasions when an Administration is constrained by a decision of the international community not to invest in certain economies. The Minister must retain some provision for that, even if he does not go so far as to agree with us on this side about arms industry or pro-environment investment or whatever words one uses to describe it.
EU sanctions, for example, would automatically preclude investment of the pension fund in any country to which sanctions apply because EU law supersedes Irish law in those areas and any area where it has required a change in our Constitution. As the Deputy knows, when UN sanctions are put in place, we must put laws into effect by legislation or by regulation which prohibit certain things happening. I recall being Minister in another Department where I signed orders relating to people training in certain countries. I recall a jet being serviced by TEAM Aer Lingus at Dublin Airport which was impounded for a year and a half because, while the owner was not involved, he came from a country in which there were certain problems with a company or companies.
I do not see the issue the Deputy raised being a problem. If EU or UN sanctions are placed on a country, they will automatically take precedence and the fund manager and commissioners will be prohibited from acting in that regard. I am sure we will return to Deputy McDowell's general point on Report Stage.
Is Deputy McDowell pressing his amendment?
No. I can re-enter it on Report Stage.
Amendment No. 21 is out of order as it involves a potential charge on the Revenue.
I move amendment No. 22:
In page 16, lines 43 to 45, to delete subsection (4) and substitute the following:
"(4) The Manager shall supply the Commission with such information, advice and assistance regarding the responsibilities of the Commission and the activities of the Manager, investment managers, custodians and any other adviser or service provider engaged by the Commission, as the Commission may, from time to time, require.".
Section 21 deals with the appointment of a manager of the fund who will act as the agent and executive arm of the commission. The National Treasury Management Agency will be manager of the fund for an initial period of ten years and the commission may, with the consent of the Minister, reappoint the agency for a further five year period or appoint an alternative manager.
Section 21(4) sets out the responsibility of the manager to supply such information to the commission regarding the management activities as the commission may require. The amendment clarifies that this position includes the activities of other agents working for the manager. It also strengthens the provision from a simple information requirement to a more active advisory function on the way the commission, the manager and other agents exercise their responsibilities and carry out the various functions assigned to them.
That is fine.
I move amendment No. 23:
In page 18, subsection (5)(c), line 15, after “interest” to insert “and to declare any such conflict to the Commission”.
This refers to the contracts for the appointment of investment managers and custodians. I seek to amend the provision, which I presume will be enshrined in the contract, that a custodian or an investment manager will make every effort to avoid conflicts of interest. I am trying to include a provision so that if there is a conflict it will be declared.
I accept the amendment.
It may need to be redrafted.
I accept it. It fits the purpose to which the Deputy refers.
Will the Minister outline the concept of custodian?
I did not in a stockbrokers or investment firm. Custodians and investment managers, as I recall from my lectures years ago, physically handle the paperwork, the share certificates and so on. It is big business in Dublin, particularly in the IFSC where there are back office operations involving custodians who do this work.
For example, section 22(3) provides for the appointment of custodians to ensure proper safekeeping of the assets of the fund. It is normal practice for large funds to engage a custodian. The main duties of a custodian are safekeeping of the fund's assets, the settlement of transactions, the collection of dividends on income and securities, and, where applicable, the recovery of withholding tax on dividends and interest. These specialised services are normally provided by large international banks which have a presence in all the major financial services.
The alternative whereby the management fund would open such offices is clearly not an option. It is envisaged that investment managers or custodians will be appointed by the commission after a rigorous competitive tendering procedure. Section 22(4) lists some of the factors to be taken into account by the commission in the selection process. This relates to big business which has come to the IFSC in Dublin. We do not intend that custodians would be part of the NTMA. The expertise will be hired.
There was a misunderstanding about it because when the legislation was drafted it appeared the Minister proposed in-house invigilators who would make sure everything was kosher.
No, additional specialist staff will be required by the NTMA but that will not involve a gigantic number. Custodian services and investment mangers will be hired on contract following rigorous tendering procedures. The NTMA staff will not undertake this work.
The Minister said the procedure will be that the commission will retain the services of one of the companies that provides the custodian service in the same way a company would hire an auditor.
Absolutely. When I practised, companies farmed the work out to firms which specialised in secretarial and custodian services. It has become big business in Dublin because of the establishment of the IFSC. Thousands of people work in this area now.
Does the Minister envisage that the NTMA will farm out all or most of the fund to individual investment fund managers?
Yes, there is little scope for the NTMA to manage the funds. I am sure the NTMA could do it. My advisers inform me the NTMA may undertake passive investment. I referred to passive investmentsvis-à-vis other investments on Second Stage. Long before the Bill was produced a study of passive investments was made. It did not form part of the establishment of the fund or my long-term issues group. A study was given to me——
And the return is just as good.
It was better and I was greatly surprised.
It is also a consoling concept.
The major difference is that the fund managers would not get all the fees.
I do not know. They may also manage bonds in-house. The expertise for managing bonds would be more relevant to the NTMA.
What about managed funds?
I refer to the rules for drawing down. The section refers to "every order, regulation or rule". The Minister's matrix for drawing down mentioned making rules but not regulation. I understood that to mean rules did not have any statutory power. Is it intended to confer such power on them?
Every order, regulation or rule under Part 3, for instance, which draws down on the fund shall not come into effect unless and until it is approved by an affirmative resolution of Dáil Éireann. During the passage of a previous Bill, I accepted an amendment tabled by Deputy Noonan relating to the Central Bank and the euro changeover which provided for a positive affirmation by Dáil Éireann rather than doing nothing about it. We copied that in this legislation.
I presume the confirmation of the rules is a policy decision by Dáil Éireann and would not give statutory authority to them. The purpose of putting the rules before the House would be for it to affirm the policy?
It would give statutory power to the regulations, not the rules. An affirmative motion regarding the regulations would have the force of law.
Is the purpose of referring the rules to affirm the policy or is the rule given statutory power?
That is my intention but perhaps I have not achieved it. I will examine that again before Report Stage.
I have not come across the concept before. Normally such a section is drafted so that the Minister will have power to enact regulations regarding the draw down, for example. Is that correct?
However, the word "rule" is used and then all the rules are bundled in this section and once they are passed by an affirmative motion of the House they are underpinned by statutory power. Is the rule to affirm the policy or will it have the power of statutory regulation?
It is my intention the rule will have the power of statutory regulation.
Perhaps rule should be termed "regulation" throughout the Bill.
I used the word "rules" under section 20(4)——
Why not change it to "regulations"?
The Minister used the word "rule" deliberately to avoid giving it statutory power and it would be an agreed guideline.
That was not the case. I used the word "rules" in section 20(4) because calculations and formulae look like rules.
The Minister promised toexamine this before Report Stage.
I move amendment No. 24:
In page 18, lines 40 to 43, to delete subsection (2).
This relates to the accountability and reporting procedures. I was concerned that under subsection (2) no response would be given in relation to individual investments which might be questioned in the context of the chairman coming before the Committee of Public Accounts - the Minister can correct me if I am wrong. For example, if a bad investment was made the chairperson of the commission may not answerable as it would not be a matter of policy. I am anxious to ensure the maximum level of accountability and that bad decisions of that kind could be examined by the committee. I am not sure if the term "policy" is sufficient in this regard.
The Deputy's amendment would delete subsection (2). The section allows the chairperson of the commission to appear before the Committee of Public Accounts. If I accepted the amendment I would delete the subsection which states that "Any evidence given undersubsection (1) shall, subject to preserving confidentiality in relation to such commercially sensitive information, as determined by the Commission, relate to the policies of the Commission in relation to the Fund.” Section 25 requires the chairperson of the commission to appear before the Committee of Public Accounts at such times as the committee may reasonably request. This is an unusual provision which it was decided to include because of the considerable discretionary authority given to the commission and the importance of ensuring a high degree of transparency and accountability in the operation of the fund. While it is equally important to protect commercially sensitive material, disclosure of which could be prejudicial to the performance of the fund, I am happy the section as it stands achieves an appropriate balance between these two objectives. Therefore, I cannot accept the amendment. Accepting the amendment would result in the deletion of the subsection.
Perhaps I have gone too far. My intention is to ensure that it is possible to have detailed consideration of decisions which the commission or the manager made within a given year.
The chairman of the commission will give evidence regarding policy. The manager - the chief executive officer of the NTMA for the first ten years - will give evidence and details of decisions taken by the commission. To compensate for other restrictions, etc. we want to have as much openness as possible in terms of accountability. That is why provision is made for the appearance of the chairman before a committee of the Dáil and why the annual report will go to the Minister and the Houses of the Oireachtas.
Is the Minister satisfied that individual decisions will be open to——
Is the Minister satisfied that the chief executive officer will not be able to hide behind this provision?
Yes. That is definitely not my intention. This provides a balance in terms of maximum disclosure.
I move amendment No. 25:
In page 19, subsection (4), line 20, to delete "Exchequer and Audit Departments Acts, 1866 and 1921" and substitute "Comptroller and Auditor General Acts, 1866 to 1998".
This is a drafting amendment.
I accept the amendment.
I move amendment No. 26:
In page 19, subsection (1), line 25, after "Oireachtas" to insert "and the Minister will be accountable to Dáil Éireann for any matter in the report or arising from the report".
The purpose of the amendment is to ensure the Minister for Finance will answer parliamentary questions on the content of the annual report and that the Ceann Comhairle will not rule such questions out of order on the grounds the Minister has no responsibility for the material in the report, which is likely to happen. Vast sums of public money will be invested in the fund, in excess of 40% of GNP when it reaches its peak. Already, almost £6 billion is due to be lodged in the fund on the establishment day. There must be some last line of defence in terms of responsibility being vested in the Minister for Finance. I know the Minister for Finance cannot be expected to be answerable for the day to day decisions of the commission, and that is not the intention. However, I am concerned with the matters of general policy, the results of the implementation of that policy and the profile of investment, etc. and the Minister rather than the Committee of Public Accounts or any other forum should be accountable for the contents of the annual report.
Although implementation of the investment policy of the fund is a matter for the commissioners who control and manage the fund, ownership of the fund is vested in the Minister for Finance. Furthermore, under section 27(4), the Minister may have the operation of the fund examined. To copperfasten these already detailed accountability arrangements set out in Part IV, I will answer parliamentary questions on the overall performance of the fund. However, the details of individual trades are a matter for the commissioners and it would not be appropriate for me to answer parliamentary questions on these detailed issues. Under the accountability arrangements being put in place the chairperson will answer questions about general policy and the investment manager - the NTMA for the first ten years - will answer detailed questions.
What about a question that Deputy McDowell or I might table in respect of an investment which is regarded an unethical?
That would be a matter of policy and therefore a matter for the chairman. I have deliberately ensured the Minister for Finance does not have to write to give directions to the commissioners and the proposed amendment would not be consistent with that approach. Making the Minister accountable to the Dáil for the matters set out in the report of the commission disturbs the arms length relationship between the Minister and the commission. In this scenario the Minister would be forced to exercise much closer control over the activities of the commission than is provided for in the Bill and much of the discretion awarded to the commission would be compromised. If the approach proposed in the amendment was adopted, it would be necessary to further amend the Bill to enable the Minister give directions and guidelines to the commission regarding their activities. Otherwise the Minister would be accountable for activities over which he had no control. Such an approach runs counter to the basic philosophy underpinning the Bill and therefore I must reject it.
That is fair enough; it is a strong argument. The Minister suggested he would be prepared to answer parliamentary questions.
Yes, on the overall performance of the fund, but not on matters relating to why the commissioners, through the manager, invested in a particular fund.
Can the Minister table an amendment on Report Stage to enshrine that concept and to underpin the Minister's commitment?
If we can draft a suitable amendment I will do so, but I am putting this at arms length.
I understand, but if what the Minister said could be enshrined in the Bill that would be sufficient to meet my needs.
I am told by one of my advisers that once one parliamentary question is answered on this matter then the precedent will have been established. I intend being Minister until 2002. The fund will be up and running by then and the first annual report published, and I will answer questions on the overall performance of the fund.
I will consider the point made by the Deputy.
The Minister's advice is correct that if one parliamentary question is answered that sets a precedent. However, if one parliamentary question is ruled out of order that would also set a precedent.
It cuts both ways. There is only one chance at this and that is why I want the provision included in the Bill.
I am not certain we will be able to come up with a wording but we will try to do something without compromising the work of the commission.
What the Minister says will address my intention.
The Deputy knows what can happen during the rúille búille of Question Time and the Order of Business.
I accept my amendment is too wide and I will withdraw it.
I assume the provisions of the section do not mean there is a requirement to liquidate assets, rather that they would be transferred from one fund to another .
Is there any provision in section 30 which should be brought to our attention in respect of taxation. Are there any hidden exemptions?
The Select Committee went into private session at 10.41 p.m. and resumed in public session at 10.43 p.m.
Amendment No. 27 cannot be moved as amendment No. 3 was negatived.