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Pension Fund Fees

Dáil Éireann Debate, Wednesday - 16 April 2014

Wednesday, 16 April 2014

Questions (79, 80, 82, 83)

Regina Doherty

Question:

79. Deputy Regina Doherty asked the Minister for Social Protection the legal penalties that will be imposed on the trustees of a scheme which enters in a double insolvency event; and if those penalties have ever been imposed; and if she will make a statement on the matter. [18092/14]

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Regina Doherty

Question:

80. Deputy Regina Doherty asked the Minister for Social Protection if she will introduce a statutory limit on the amount of fees that a pension fund can charge as is proposed in the UK; and if she will make a statement on the matter. [18096/14]

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Regina Doherty

Question:

82. Deputy Regina Doherty asked the Minister for Social Protection the reason the pension levy was chosen as the source of funds to deal with a double insolvency event in a defined benefit scheme; and the reason she did not introduce a specific levy on defined benefit schemes; and if she will make a statement on the matter. [18091/14]

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Regina Doherty

Question:

83. Deputy Regina Doherty asked the Minister for Social Protection if she will introduce legislation requiring the full disclosure in a transparent fashion by pension companies of all charges related to the administration of a defined contribution pension schemes; and if she will make a statement on the matter. [18093/14]

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Written answers

I propose to take Questions Nos. 79, 80, 82 and 83 together.

The pension levy which was introduced by the Minister for Finance to fund the Jobs Initiative in 2011 will be abolished from the 31st of December 2014. An additional levy on pension funds at 0.15% will apply to pension fund assets in 2014 and 2015. This additional levy will continue to help fund the Jobs Initiative, including the continuation of the reduced 9% VAT rate in the hospitality sector and to make provision for potential State liabilities which may emerge from pre-existing or future pension fund difficulties.

The revenues arising to the Exchequer from the levy are, in common with Exchequer revenues generally, not hypothecated to any particular item of expenditure or liability but have been used to help fund the various measures introduced by the Jobs Initiative.

In relation to DB schemes and double insolvencies, agreement has been secured for certain liabilities to be met by the Exchequer, where they arise. However, it must be stressed that I am not aware of any double insolvencies 'in the pipeline'. I see this as providing an insurance and it is not expected that there will be a significant draw on contingency funds available. Rather, the regulatory measures now in place are intended to move underfunded schemes towards an appropriate funding position and further minimise the risk of a requirement to utilise funds raised through the pension levy. The legislation which I introduced late last year to provide funding in the event of a double insolvency does not provide for the imposition of penalties on the trustees of a scheme in the event of a double insolvency.

You will be aware that I published a 'Report on Pensions Charges' in October 2012. This is the first comprehensive Government report on this subject. The purpose of the report was to gather information on the level of pension charges levied to assess whether charges are reasonable and transparent, to report on the findings and make recommendations. The report highlights a wide range of issues in relation to pension charges and identifies a number of serious problems. While the provision of pension schemes cannot be cost free, it is clear that there are major challenges to be addressed in the two main areas of reasonableness and transparency of charges.

A Pension Charges Working Group is in place to initiate actions that follow up on the recommendations of the report. This group comprises the Department of Social Protection, the Pensions Board and the Central Bank. Each has a core role to play in delivering on the recommendations contained in the 'Report on Pension Charges' and work is progressing in this regard. Improvements in disclosure requirements, including those for pensions, were introduced in the Central Bank’s 2012 Consumer Protection Code and these should enhance transparency for those consumers covered by the Code. There are also various ongoing developments at EU level which should lead to stronger consumer protection over time.

The imposition of a statutory limit on the amount of fees that a pension fund can charge was not recommended in the report. The focus of the recommendations is on measures which would increase consumer understanding and provide a better result for the consumer. The view is that, in principle, it is not good practice to interfere in the price fixing mechanisms of the market, particularly since this could result in unintended consequences which may impact on competition. However, this will be kept under review with further consideration being given to more stringent options in the future.

Developments in broader pensions policy needs to be taken into account addressing the issues of pension charges, given that the research clearly identifies the importance of economies of scale in driving down charges. The proposed introduction of an auto-enrolment pension scheme for all employees may be the most effective way to introduce change and could have a major impact in reducing charges, particularly for those people with small pension funds and reduced pension expectations. International experience has shown that this type of scheme is extremely successful in providing a simplified and lower cost charging structure and a consistent application across employer.

Last month I announced key appointments to the Pensions Authority and Pensions Council. These new bodies will strengthen governance of occupational pensions and give consumers greater input into pension provision. Under the strengthened arrangements, the Pensions Board was renamed the Pensions Authority to better reflect its key role of safeguarding the pensions of occupational pension scheme members and also the provision of information on occupational pensions. The changes will ensure the system has a far stronger consumer focus, with the Pensions Council there to represent and protect the consumer. As its first task, I will be asking the Council to monitor the implementation of the recommendations in the Report on Pension Charges to tackle excessive fees, and advise me if further actions are needed.

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