Select Committee on Social Affairs debate -
Wednesday, 29 May 1996

SECTION 36.

Mr. J. Walsh

I move amendment No. 30:

In page 23, paragraph (c), after line 53, to insert the following:

"(c) one additional ordinary member shall be a representative of the investment management industry,

(d) one additional ordinary member shall be nominated on the recommendation of the Consumers' Association of Ireland,

(e) one additional ordinary member shall be a pensioner trustee,',".

My proposal evisages one additional member being a representative of the investment management industry. The investment managers are responsible for between £15 billion and £16 billion in funds, a considerable amount of money. To the best of my knowledge they are not represented at present. It would be appropriate to have at least one member.

Subsection (d) provides that one ordinary member shall be nominated on the recommendation of the Consumers' Association of Ireland. This takes account of changes in society and gives representation to consumers' interests. The association was established in 1966 to protect and promote the interests of consumers' goods and services and to enhance the quality of life for consumers generally. They would have a role to play in ensuring that the consumers or members were represented.

Subsection (e) proposes that one additional ordinary member shall be a pensioner trustee. A pensioner trustee would be an appropriate addition to this board. I ask that those three extra members be represented on the board.

Mr. Durkan

This amendment seeks to expand the Pensions Board further by the addition of three new members — one a representative of the investment management industry, one nominated by the Consumers' Association of Ireland and one representative of pensioner trustees. As the Deputy is aware the Bill already provides for two new board members who will be trustees of an occupational pension scheme, which could include a pensioner trustee.

The board has no specific function in relation to investment policy, except for the limits imposed in the funding standard on the level of self-investment and the concentration of investment that can be counted for purposes of the funding standard. This is an actuarial issue. Investment policy itself is a matter for the trustees of schemes. I realise, however, that there is a major issue of trustee training in this regard and this is being addressed by the Pensions Board in the trustee handbook which will be published shortly and to which I referred to earlier.

I considered the proposal for a representative of the investment management industry and took account of the representations made by the Irish Association of Investment Managers and by the Irish Institute of Pension Managers. The current make up of the board covers a reasonable spectrum of the pensions industry and a new representative is not required. However, a number of subcommittees of the Pensions Board dealing with specific issues have been or will be set up by the board. If, for example, one was set up to deal specifically with investment issues, a representative from that area could be invited by the board to serve on it. I understand this already arises in relation to issues or areas of specific pensions expertise.

I presume that a member nominated by the Consumers' Association of Ireland and a representative of pensioner trustees would represent pensioners themselves. This issue was considered in much detail as a number of representations were received before the Bill was published. The Irish Congress of Trade Union representative — there will be two after the Bill is enacted — the three nominees of the Minister and the official from my Department will more than adequately serve the interest of all members of pension schemes, including pensioners and pensioner trustees.

I note what the Deputy said about the magnitude of the investment, the responsibility and so on. I am not sure that the three additions he mentioned will further enhance the protection of the investment. My advice is that it is reasonably adequately covered by the existing legislation and the additions proposed under this Bill. Unfortunately I cannot accept the amendment.

Dr. Woods

The Minister plans to expand the board by two members — one a nominee of ICTU and the other a nominee of IBEC to represent both the trade union and employer sides. These proposals are quite specific. The investment industry and institutional investors have made a strong case in favour of representation. They are obviously deeply involved in the funds and investment of funds, which is quite important. The Irish Association of Investment Managers could claim to have a right to be represented.

Of necessity, particularly in the early stages, the board was weighted strongly in favour of the industry and the technical people involved. One will see this if one examines the composition of the board. Deputy Walsh proposes that the Minister add one additional ordinary member who shall be nominated on the recommendation of the Consumers' Association of Ireland.

The Minister will agree that customers are very important in this area, as they are in the delivery of the social welfare services generally. The Minister was very pleased to announce on television recently that customers had a fairly good opinion of the delivery of the service. I notice his chest has become puffed up and he is feeling very proud of himself at this stage. If he really meant that and if he wants to follow the customer line, which was being followed in the Department prior to the arrival of the Minister and Minister of State, he must take seriously the desirability of including a representative of consumers who has a genuine interest in them. I suggest that the Minister consider this further before Report Stage.

Customers are generally the consumers of pension schemes. The Minister should consider the implications of this between now and Report Stage. He should think of the implications of saying he is for the consumer. If he says this, it should be the case. This is happening in the Department of Social Welfare with regard to the delivery of services throughout the country. It should also happen in matters like this. I ask the Minister to consider this issue between now and Report Stage.

The Bill provides that the two new trustees could be pensioners. The Minister probably knows this is not likely to be the case in practice and we should not lead people to think this might happen. I think the Minister has definite views on which people will be nominated by ICTU and IBEC. The likely outcome is that there will not be a pensioner trustee. Pensioners themselves were the first to raise this issue. They went on television to say what was happening to their pension funds. Many young people are contributing to these funds but they did not take a great interest. Pensioners are normally totally dependent on and have a vital interest in their pensions. Consequently, it is important that their views be taken on board and that they be given a central role, not just the kind of role suggested by the Minister, which is that they might be involved in a committee. I ask the Minister to further consider this issue before Report Stage. The Minister will realise that these are matters we wish to press but we will hold back until Report Stage and hope the Minister will consider what we have said.

Mr. Durkan

The Department has already considered these issues at great length. We all agree on the necessity to ensure that customers are protected and that their interests are kept to the fore at all times. This is the purpose and intention of the Bill. We feel the subcommittee will do the job which is necessary and which is not being covered by any other area at present. Officials from the Department discussed this issue in great detail with the Irish Association of Investment Managers and, as a result of those discussions, the subcommittee was seen as a solution.

The three nominees of the Minister and the representative of the Department will represent the interests of customers and investors. On the basis of the information available to us, it is felt that adequate provision has been made. I would not like to be political on this issue and I am sure Members on the other side would never intend to be so. Suffice it to say it is out intention that customers will be protected and represented by the nominees of the Minister and the Department. This will be the first priority of the Department's representative. That person will obviously also be responsible for investment in and liquidity of the fund.

Amendment put and declared lost.

Amendment No. 31 not moved.

Question proposed: "That section 36 stand part of the Bill."

Dr. Woods

This section clarifies the situation in the event of the chairman of the board having to be replaced. Paragraph (b) states:

If the chairman of the Board dies, resigns, becomes disqualified or is removed from office, the Minister shall appoint a person to be chairman of the Board and the person so appointed shall hold office for the remainder of the term of office of the chairman occasioning the vacancy and shall be eligible for reappointment as chairman of the Board.

Why is the Minister introducing this provision? There are similar provisions in other Bills. If the Minister wishes to remove a chairman from office, he will be free to do so. What view does the Minister take of the potential conflict of interest if the chairman is a member of one of the major companies which tender for business, arrange courses and take other steps which would be part of the day to day operations of the board? Can the Minister say such a conflict would not exist in the case of the present chairman? What structures exist to ensure such a conflict cannot arise? Does the Minister consider it preferable to have as chairman somebody from outside the major companies involved in the pensions industry? Would there be a problem if schemes in which the chairman was involved were under investigation? What would the chairman do in such a situation? Would there be a danger of bias or influence if the chairman came from one of the major companies? Perhaps the Minister would give us his views.

Mr. Durkan

In relation to a possible conflict of interest, interests are declared at all Pension Board meetings. That is a requirement similar to our own interests in these and other matters which also have to be declared. That is as good a protection as one can possibly get. Once the interests are declared, everybody knows the position of those involved. I am not sure, however, that it would be a good idea to eliminate people with particular expertise in the field in order to ensure that you had somebody who had no interest at all. Will you achieve expertise in the area of pension funding if, for example, you do not have recourse to some of the people in the business?

They are obviously experts in the business because that is their living. They may have interests but when they assume the position of chairperson of the board they take on other responsibilities which they will honour. Consequently, this point is well covered under section 36 which clarifies the situation in the event of the chairman of the board having to be replaced, or following a death or resignation. It would not have been possible to do so in the absence of the section.

Dr. Woods

I take it that the Minister is quite happy with the situation. Can he say what steps will be taken or structures put in place to ensure that no conflict of interest arises? How many major companies are there in Ireland, perhaps only three or four? So, once you put in a director of one of those companies, the other companies will immediately feel disadvantaged. That is the first issue that arises. Second, the extent of the involvement of a company in what would be the work of the board in investigating schemes must be considerable. When you divide all these schemes between only three or four major companies the ramifications will be extensive for any one of them. These issues will arise frequently.

The Minister suggested that you might have somebody who has no particular interest. Many people have a general interest in finance and in pension fund management without being directly involved in the ownership and day to day running of major sectors of the pensions industry. That is a concern of the companies and that is why I am asking how the Minister sees it and how he plans to deal with the issue. Perhaps he does not see it as a problem or as an issue to be addressed.

Mr. Durkan

One must assume that all members of the Pension Board act correctly and take their jobs seriously because substantial responsibilities are placed on them. Likewise, the chairperson of the board will take his or her job seriously. Unless you have people with specific expertise in that area they will be at a disadvantage in dealing with issues that arise.

In the event of a conflict of interest arising for the chairperson of the Pension Board, the vice-chair or deputy chairperson takes over. In addition, interests must be declared. In the event of there being a possible conflict of interest, the rest of the board will obviously be well attuned to the situation. In such case, it is in the interests of board members to follow the procedures laid down for making a declaration of interests and, by so doing, to fulfil their obligations.

The procedures laid down are reasonable and adequate to deal with situations that might arise. The points raised by the Deputies are valid. Everybody is concerned to ensure that the highest possible standards will apply but that is already the case. We should recognise that members of the board are people of great integrity and commitment. That also applies to the officers.

Dr. Woods

The Minister mentioned expertise and, through its membership, the board has considerable expertise available to it. I want to state clearly that the current chairman is an expert in the field. There is no question about the expertise that exists there at a high level, that is not the problem.

I tabled a Dáil question to the Minister for Social Welfare and, replying, in the Official Report of 22 February 1996, columns 149-150, he said:

I appointed Mr. Eamon Heffernan chairman of the National Pensions Board with effect from 20 December 1995. Mr. Heffernan brings to this position his 30 years of experience in the pensions industry with the esteem and recognition of his professional colleagues. He is a past president of the Irish Association of Pensions Funds and was nominated by that body to serve on the National Pensions Board, 1986-93, and the outgoing National Pensions Board, 1990-95. His nomination was approved on each occasion by my predecessors. There is no question about the chairman's expertise.

I was aware at the time of the appointments that the Heffernans are brothers and that Ms Lee is married to Mr. Tony Heffernan. I knew when making the appointments that it was likely that Fianna Fáil would seek to make an issue of this fact. I do not believe the fact of family relationships should militate against the appointment of people of ability.

I also agree. The Heffernans are very fortunate to have a great deal of ability and they are also fortunate in having married people of great ability. That is fair enough but the Minister went on to say:

The appointment of each of the three persons in question was based entirely on merit and their undoubted and unchallenged suitability for the tasks to be undertaken. No expression of public concern has been brought to my attention other than that expressed by the Deputy himself in a Sunday newspaper. There is no salary attached to the position of chairman of the Combat Poverty Agency. The chairman of the National Pensions Board receives an annual payment of £2,000. This does not come from the Exchequer, but from the resources of the National Pensions Board. All the appointments and nominations I have made to boards since becoming a member of Government are similarly based on the principles of merit and suitability.

I would not disagree with that. The appointment is based on merit, ability and expertise. I fully accept and recognise that but my concern relates to a conflict of interest. It applies more widely than to the board chairman and can apply to others in a similar situation.

In this country, however, it may apply only to a few others because a small number of major pension funds and groups control the whole business. This is why I asked if procedures have been put in place to deal with the consequences when a conflict of interest arises. For example, have any contracts been awarded to date? Pension consultants and/or actuaries would be statutorily obliged to report pension schemes when they want to take action against them. The number of investigations of schemes in which the chairman's company could be involved will, of course, increase greatly with the new legislation. What about the danger of a conflict of interest?

I asked the Minister about the steps he has taken because concern has been expressed about this. The Minister said that the vice-chairman will take over whenever a potential conflict might arise. Has the vice-chairman taken over on any occasion? On how many occasions has this happened because of a potential conflict of interest? The board could frequently be investigating companies, schemes, etc., given the extensive nature of the company's involvement and this is natural. I am not casting any aspersions on reputable and successful companies but on the wisdom of the approach taken by the Minister in this instance.

Mr. Durkan

As I said, to achieve expertise in a particular area it is impossible to go outside the people in the business and still retain the same degree of expertise. Hence, successive Ministers saw fit to reappoint some of the people on the Pensions Board. That was an indication in itself of the degree of integrity with which it was felt that those members had pursued their tasks.

Any contracts awarded are handled through the Government Controls Committee and are dealt with in the same way as other similar contracts. Not only does the board have expertise but it also has integrity. This is borne out by the fact that it was seen fit by successive Ministers to restate their confidence in board members for reappointment.

Obviously, there will be many occasions when experts and people involved in the business will arrive at a juncture where a possible conflict of interest could arise. This will be readily and regularly disclosed and the person involved will then leave and take no further part in the proceedings.

Mr. J. Walsh

We do not have any difficulty with this section or with appointments. Ministers make appointments. When a Fianna Fáil Minister makes an appointment, it is usually said that it is given to a party hack.

Mr. Durkan

I would never suggest that.

Mr. J. Walsh

I have no difficulty with this section. People who support political parties participate in democracy and do a good job. I appointed several people in my time to boards and many of them have been reappointed.

In making appointments, however, it is prudent to appoint somebody, particularly as chairman, with expertise in a related area but if their expertise is in the direct area, there can be a conflict of interest. I found it more prudent to bring in somebody from outside the immediate industry but in a related area. For example, while there would be expertise in any of the financial organisations or institutions, if one was directly involved in a company, organisation or management it could lead to a conflict of interest.

What Deputy Woods said is legitimate. We have no political difficulties with this section. If a political mistake is made, we will have to account for it to the people. We stand for election on a regular basis and we will have another election in a matter of months. Politicians should be responsible for their appointments and actions. We only have problems with the potential conflict of interest and Deputy Woods asked a legitimate question; the number of occasions on which the current chairman has had to step aside since his appointment and be replaced by the vice-chairman. We could conclude this section if that matter was sorted out on Report Stage.

Mr. Durkan

I may be getting tetchy in my old age, Sir, from the repeated suggestions that in some way the chairman of the Pensions Board might not be a person of the highest integrity and might have a conflict of interest.

Mr. J. Walsh

Nobody said that.

Mr. Durkan

The Deputies suggested that this might be the case and that if Fianna Fáil appointed somebody, he would be regarded as a party hack. Maybe he would, but I presume that if they were, they would have discharged their duties responsibly and in a manner that befitted the appointment.

I cannot understand why such detailed discussions might take place at this time any more than it might apply to any board member. I do not agree with Deputy Walsh's suggestion of appointing a person with related interests. That person would have as much a conflict of interest as one with expertise in the area. The reappointment of members of the present board by successive Ministers is a clear indication of a recognition by various Administrations that they had every confidence in the ability of those people to carry out their duties in a fair and non-biased fashion. That has been the pattern for the last four Administrations. People do not instil that sort of confidence in those making political appointments without having served their time and shown that they were capable of carrying out their duties impartially, and that will continue to be the case. There are also adequate safeguards in place, the same as those which apply to the Members of this House.

I have every confidence that the chairman and members of the board will discharge their duties in the forthright and admirable fashion to which they have brought the highest standards of honesty and integrity, that they will do so in the future and that, in the event of there being a conflict of interest which has been referred to on more than one occasion, there are procedures in place which will cover and cater for that situation.

I would be particularly aware of the need to have people in that sensitive area who have expertise in their own right. I do not accept or agree with the suggestion that somebody from a more vague association with the expertise would serve the greater good by replacing the person with the direct expertise.

Dr. Woods

I appreciate that the Minister is getting tetchy.

Mr. Durkan

Old age.

Dr. Woods

We can get tetchy too. It is important not to misrepresent the situation. Again and again I have had to listen to PR statements from the Minister for Social Welfare that are misrepresenting the issue. It is not about the integrity or expertise of the individual but of the potential conflict of interest, which is a separate issue. The Minister refers to the suitability of the people concerned and the fact that they were appointed by his predecessors. As Deputy Walsh said, the question of prudence arises in relation to a potential conflict of interest, which could be a problem. I hope the Minister will not find it a greater problem in time. We have asked him to let us know before Report Stage how many times the vice-chairman has taken over since the beginning of January or whenever the appointment was made.

The Minister referred to the politics of this and Fianna Fáil's position. We are well used to this being thrown at us again and again.

Mr. Durkan

No.

Dr. Woods

Those appointed by Fianna Fáil are not supposed to have expertise, integrity or anything else, which is nonsense. I assure the Minister that if we appointed the wife and brother of our former public relations officer, P. J. Mara, as chairmen of two boards, I am certain the Opposition would have raised questions.

Mr. Durkan

I would have raised a question.

Mr. J. Walsh

The Minister was a dab hand at it.

Dr. Woods

The Opposition would have doubted if all the expertise could reside in one family, but that is different to the issue the Minister referred to. It is only a caveat as regards the industry and appointments. I agree with the Minister on the expertise and integrity of those appointed, including the chairman. This is only a caveat in relation to the potential conflict of interest.

Mr. Durkan

Due to the nature of the business and the expertise contained within the board, conflicts of interest must arise regularly at board meetings. I did not raise the question of the Fianna Fáil hack; I believe it was Deputy Joe Walsh. By raising that, it implied that Fianna Fáil appointees had less integrity than anyone else, which I would not accept. I have the highest and utmost confidence in Fianna Fáil's ability to produce people of absolute integrity, including Mr. P. J. Mara and his wife.

I would have asked a question about such an appointment which should not have been taken personally. Those concerned would have been able to recognise why the question was being asked and there would have been no animosity towards them. Conflict of interest is dealt with when it arises. If it arises in the case of the chairman, his position is taken by the vice chairman and in the case of a member, they vacate their position and take no further part in the discussions. This issue has been discussed at great length in the House and at committees. If we eliminate all the experts and decide they do not qualify to hold the exalted position of chairman, we are saying that they are eminently qualified but because they are an expert in that area, there might a conflict of interest. While we accept the eminence of their qualification, we do not accept their integrity or ability to proceed in a fashion which encompasses the integrity the post demands.

If there was sufficient confidence in the person's appointment in the first instance, it must still prevail. One would automatically assume that if the person had a conflict of interest on day one, they were able to deal with it so there is no reason for them to change their minds. Such people have a duty to themselves in that they are responsible for their good name and reputation.

Mr. J. Walsh

In a spirit of generosity, will the Minister consider the redoubtable P.J. for one of the two vacancies which will arise.

Mr. Durkan

I will consider any nominee the Deputy puts forward.

Dr. Woods

We are not talking about experts or expertise; there are many experts on this and other boards. The question is, what structures are in place if there is a potential conflict of interest, which would be substantial in the Irish pensions industry? What structures are in place and how often have they been used? The Minister mentioned the vice-chairman had stepped into the chairman's place a number of times. How many times has that happened?

Mr. Durkan

It would not be the done thing for me or my colleague, the Minister, to knock at the door of a pensions board meeting to ask how often members had stepped in and out of meetings over recent weeks. It would not be a good indication of the trust we placed in them and I do not propose to do so. I have every confidence in their ability to observe the rules. I am sure Deputy Woods had confidence in their ability because he appointed most of the people to whom I referred. He is not really serious about this because he knows the people involved have been operating these procedures for years and will continue to do so.

Contracts are strictly dealt with. The procedures are set out by the Government's controls committee and they must be followed at all times.

Dr. Woods

The Minister is saying that we must leave it to the Comptroller and Auditor General rather than the committee or the House to inquire into these matters. The committee and the House have a function; they should express their concern if there is a potential conflict of interest and ensure there are structures and remedies in place to deal with such a situation. The need for structures and remedies has been highlighted in various semi-State bodies over the years. That issue does not have anything to do with experts. It is a question of the chairmanship and the degree of control which the chairman has in relation to the daily operations of the board and the chief executive by whom a great deal of the work will be done.

Mr. Durkan

As regards a conflict of interest to which the Deputy repeatedly referred, we have absolute confidence in the chairman and members of the board to follow the procedures and guidelines laid down and to ensure they observe them if and when a conflict of interest arises. This is in accordance with the procedure followed by the Deputy when he was in a similar position and he showed absolute confidence in the ability of those people. I am sure the procedures in place then served him well and will continue to serve the current Administration well. The characters of the people have not changed; it is not a case of Jekyll and Hyde. These people continue to work as they have always done because they take great pride in their work. If a conflict of interest arises, it is provided for in the procedures laid down for board meetings.

There is no difficulty about this matter; that has always been the case. It would not be appropriate to knock on the door during board meetings and ask how many times they had stepped out that day or how many times they will do so the following day. No board or chairman could operate on that basis and they should not be asked to do so. We have confidence in the people concerned.

Chairman

I remind Members that we agreed to adjourn at 7 p.m.

Dr. Woods

The protracted debate arises out of the confusion surrounding the issue. I will not re-enter the discussion, but it is known in the Department that I took special care to ensure that a conflict of interest could not arise at the chairman's level. It was not accidental but rather a clear-cut avoidance of conflict of interest in the chair. The chairperson was a woman and she was extremely successful, as the Minister admitted. I took special care, but that has been cast aside since then. Deputy Walsh is correct in saying that prudence might have been a better course.

Mr. J. Walsh

I want a commitment from the Minister that gender balance will be observed with the additional two members of the board.

Question put and agreed to.

Sections 37 to 42, inclusive, agreed to.

Title agreed to.