Dáil Éireann Debate, Wednesday - 3 February 2010
123 Deputy Martin Ferris asked the Minister for Finance his projections for the level of funding in the National Pension Reserve Fund over the next three years; if he will continue to divert funding from and payments to the NPRF; and if he envisages the NPRF meeting the demands made upon it at its end date in 2025. [5103/10]
View answerThe value of the National Pensions Reserve Fund (NPRF) was €22.3 billion at the end of 2009.
The National Pensions Reserve Fund Act 2000 provides, inter alia, for the annual payment into the Fund from the Exchequer of an amount equivalent to 1% of GNP as estimated at the time of the Budget. The amount payable to the Fund in respect of the 1% of GNP contribution for 2009 was €1.584 billion.
The Investment of the National Pensions Reserve Fund and Miscellaneous Provisions Act 2009 amended the 2000 legislation so as to allow the Minister for Finance to direct the NPRF Commission to invest in a listed credit institution and to make payments into the Fund for the purposes of such an investment, such additional contributions to be offset against the contribution liability in future years. These amendments reflected the Government decision, announced on 11 February 2009, that the recapitalisation of Allied Irish Bank and Bank of Ireland through the purchase of preference shares by the NPRF would be funded by €4 billion of the Fund's own resources and €3 billion from the Exchequer through the frontloading of the 2009 and 2010 Exchequer contributions to the Fund. Following the enactment of this legislation, the Minister for Finance made a total contribution of €3 billion to the Fund in 2009.
Furthermore, the Financial Measures (Miscellaneous Provisions) Act 2009 enables the assets of a number of the pension funds of certain non-commercial semi-state bodies and universities to be transferred to the NPRF and that the value of those assets is to be offset against future Exchequer contributions to the Fund. At end-2009, assets provisionally estimated by the National Treasury Management Agency at the time to be worth some €880 million were transferred to the Fund — the final value of these assets has yet to be determined. The value of the remaining assets, expected to be transferred this year and currently estimated to be worth about €980 million, will be determined when those assets are transferred to the Fund.
On this basis, taking account of the total of €3 billion paid into the Fund from the Exchequer in 2009 and the current estimate of the total value of the semi-state bodies and university pension funds' assets being transferred into the Fund, it is estimated that no contribution will be required in respect of the statutory obligation to pay the equivalent of 1% of GNP into the Fund until 2012. This position was set out in Table 10 of the Stability Programme Update which was published as part of the Budget documentation on Budget Day last December.
The objective of the National Pensions Reserve Fund is to meet as much as possible of the cost to the Exchequer of social welfare pensions and public service pensions to be paid from the year 2025 until at least 2055.
124 Deputy Eamon Gilmore asked the Minister for Finance the expected annual cost to the Exchequer of administering and funding, where the double insolvency criterion is met, the pensions insolvency payment scheme for the next three years; the way these costs are to be met to ensure that the scheme is cost neutral in accordance with the relevant legislation; the position regarding the initial success and take up of the scheme; the way he expects it to evolve over the coming years; if further measures are foreseen to reinforce and protect company pension funds in deficit; and if he will make a statement on the matter. [5320/10]
View answerThe Pensions Insolvency Payment Scheme (PIPS) is a three-year pilot scheme offering, as a special measure, payments in cases where a defined benefit pension scheme is winding up in deficit and the sponsoring employer becomes insolvent — the "double insolvency" criterion.
Under PIPS, trustees of a participating pension scheme must pay to the Minister a lump sum which equals the net present value of the future stream of PIPS payments for the lives of the pensioners concerned and the associated administration costs. The sum will be calculated by the National Treasury Management Agency on an actuarially cost-neutral basis.
PIPS will be administered to minimise start-up costs and facilitate orderly wind-up of the participating pension scheme. In this pilot phase, the existing payment administrator of participating schemes or an alternative payment administrator nominated by the trustees will be retained.
The cost of administering PIPS will be charged to participating schemes so that PIPS is cost neutral for the taxpayer, as required by the Social Welfare and Pensions Act 2009. As part of the application process, trustees must state the administration costs for the pensioner payments into the future as agreed with their chosen payment administrator. NTMA will convert this to net present value and factor it into the PIPS lump sum described above.
PIPS is a demand-led scheme with participation levels largely contingent on the number of employer insolvencies among defined benefit pension schemes in deficit where the trustees decide that PIPS offers pensions which might not otherwise be available.
PIPS came into effect only two days ago and so it is too early to make an assessment of the likely take-up. PIPS is a pilot scheme which will be reviewed within three years.
Broader policy responsibility for private sector pension issues beyond PIPS rests with my colleague the Minister for Social and Family Affairs. The Deputy will be aware that the Minister has taken a number of initiatives to support pension schemes. As a result the Pensions Board has taken a number of significant actions, for instance:
granting additional time for the preparation of funding proposals, as a temporary measure;
dealing as flexibly as possible with applications for the approval of funding plans;
allowing longer periods for recovery plans (i.e., greater than ten years), in appropriate circumstances; and
taking into account voluntary employer guarantees in approving recovery plans.
To ensure that these extensions will not weaken supervision, the Board will reject recovery plans which fail to demonstrate an appropriate investment approach. The operation of these proposed changes will be reviewed by the Pensions Board no later than 1 January 2011.
The Deputy may also wish to note that the Social Welfare and Pensions Act 2009 has amended the Pensions Acts to:
improve the affordability and viability of Defined Benefit pension schemes by allowing trustees to include the benefits of active and deferred pension scheme members, as well as post retirement increases, when considering the restructuring of a Defined Benefit pension scheme;
provide for a more equitable distribution of assets between those who are retired and current members of the pension scheme in the event of the wind-up of the scheme, by excluding post-retirement increases from the priority given to retired members;
strengthen the regulatory provisions in relation to the obligation on employers to submit pension contributions to the trustees of a pension scheme; and
provide the Courts with the power to relieve a trustee in whole or in part from liability for breach of trust where the Court is satisfied that the trustee has acted honestly and reasonably.
The Government will also be considering the National Pensions Framework prepared by the Minister for Social and Family Affairs.
125 Deputy James Reilly asked the Minister for Finance the costs and the benefits of the proposed 33% tax relief on private pensions; and if he will make a statement on the matter. [5202/10]
View answerThe recently published Renewed Programme for Government includes a commitment to introduce a single 33% rate for tax relief on private pension provision. Tax relief on individual pension contributions is currently allowed at the taxpayer's marginal income tax rate, that is, at the standard or higher rate of income tax as appropriate in each case. Tax relief at 33% would result in a reduction in the tax relief on pension contributions available to higher rate taxpayers and an additional incentive to pension savings for standard rate taxpayers. However, the full detail and timing of the introduction of this measure have yet to be decided.
A breakdown of the cost of tax relief on employee contributions to occupational pension schemes is not available by income tax rate, as tax returns by employers to the Revenue Commissioners of employee contributions to such schemes are aggregated at employer level. An historical breakdown is available by tax rate of the tax relief claimed on contributions to personal pension plans — Retirement Annuity Contracts (RACs) and Personal Retirement Savings Accounts (PRSAs) — by the self-employed and others, to the extent that the contributions have been included in the personal tax returns of those taxpayers. The latest data available in this regard are preliminary figures in respect of the tax year 2007.
There is, therefore, no statistical basis for providing definitive figures on the costs or benefits involved in moving to a 33% rate of relief. However, by making certain assumptions about the available information, it is estimated that the overall full year yield to the Exchequer from allowing tax relief at a flat rate of 33% in respect of individual contributions to occupational pension schemes, RACs and PRSAs would be about €135 million. It is assumed that tax relief at the flat rate of 33% would also be available to claimants who are currently confined to tax relief at the standard rate of 20%.
The estimated Exchequer saving assumes no change in the current relief arrangements for PRSI and health levy on pension contributions and takes no account of the economic or behavioural impacts which would occur as a result of a change in tax treatment as envisaged in the question.
126 Deputy Mary Upton asked the Minister for Finance if he envisages a role for the investment on a commercial basis of funds in the national pension reserve fund in infrastructure projects here; his views on whether this would require amending legislation; and if he will make a statement on the matter. [5336/10]
View answerThe National Pensions Reserve Fund (NPRF) was established in 2001 under the National Pensions Reserve Fund Act 2000. The purpose in establishing the NPRF was to meet as much as possible of the cost to the Exchequer of social welfare pensions and public service pensions to be paid from the year 2025 until at least 2055.
The Act provided for the establishment of the National Pensions Reserve Fund Commission. The Commission is solely responsible for the control, management and investment of the assets of the Fund (other than assets which the Minister for Finance has directed the Commission to invest in a listed credit institution under the provisions of the Investment of the National Pensions Reserve Fund and Miscellaneous Provisions Act 2009) and for determining the investment strategy for the Fund in accordance with Fund investment policy. The Commission is required to invest the assets of the Fund so as to secure the optimal total financial return, having regard to the purpose of the Fund and the eventual requirements on the Fund to make payments to the Exchequer, provided the level of risk to the moneys held or invested is acceptable to the Commission. It would be open to the Commission to invest in infrastructure projects by way of participation in a public-private partnership. The Commission would of course have to satisfy itself that the investment was in accordance with its investment mandate.
