Amendments Nos. 1 and 2 are related and may be discussed together by agreement. Is that agreed? Agreed.
Pensions (Amendment) Bill, 1995: Report and Final Stages.
I move amendment No. 1:
In page 4, between lines 38 and 39, to insert the following:
4.—Section 5 of the Principal Act is hereby amended by the insertion of the following subsection after subsection (3):
"(4) (a) The Minister may, with the consent of the Minister for Equality and Law Reform, make regulations specifying guidelines for the purposes of section 12 and the reference in subsection (1) of the said section 12 to any relevant guidelines for the time being in force under section 10 (1) (c) shall be construed as a reference to any relevant guidelines specified as aforesaid and for the time being in force.
(b) Without prejudice to the generality of paragraph (a), guidelines specified by regulations under that paragraph may—
(i) make provision in relation to the manner in which a contingent benefit, a designated benefit, a residual benefit or a transfer amount payable under a scheme, the actuarial value referred to in subsection (10) of section 12 or the value and the amounts referred to in subsection (25) of section 12 should be calculated and, in particular, but without prejudice to the generality of the foregoing, provide that, in making such a calculation, regard should be had to one or more of the following:
(I) whether the scheme concerned is a defined contribution scheme or not,
(II) the amount of retirement benefit payable (or which, but for the making of the relevant order for the decree of judicial separation, would have been payable) under the scheme concerned to or in respect of the member spouse concerned,
(III) the period of reckonable service of the member spouse for the purposes of such retirement benefit,
(IV) the period concerned and the percentage concerned specified in the order concerned under subsection (2) of section 12 pursuant to paragraphs (i) and (ii) respectively, of that subsection,
(V) the value, the actuarial value or the accumulated value, as may be appropriate, of the whole or the appropriate part of such retirement benefit as aforesaid.
(VI) whether, at the date of the making of the relevant order under subsection (2) of section 12, the member spouse was an active member of the scheme concerned or was being paid retirement benefit, or was entitled to any other benefit payment of which is deferred, under the scheme concerned,
(VII) the amount of contingent benefit payable (or which, but for the making of the relevant order for the decree of judicial separation, would have been payable) under the scheme concerned on the death of the member spouse concerned,
(VIII) the percentage concerned specified in the order concerned under subsection (3) of section 12,
(ii) specify the manner in which a transfer amount should be applied under section 12,
(iii) specify the manner and the circumstances in which a contingent benefit, a designated benefit, a residual benefit or a transfer amount should be paid or applied pursuant to section 12 (including the period, and the manner of its ascertainment, during which such a payment should be made) and, in particular, but without prejudice to the generality of the foregoing, where—
(I) the member spouse concerned retires upon or before or after attaining normal pensionable age.
(II) the member spouse dies before payment of the designated benefit has commenced,
(III) the member spouse dies after payment of the designated benefit has commenced,
(IV) the member spouse ceases to be an active member of the scheme concerned,
(V) the person in whose favour the relevant order under subsection (2) of section 12 is made dies before payment of the designated benefit has commenced,
(VI) the person in whose favour the order aforesaid is made dies after payment of the designated benefit has commenced,
(VII) the person in whose favour the said order is made ceases to be a dependent member of the family as defined in section 2 of the Family Law Act, 1995,
(VIII) in the circumstances specified in subsection (5) of section 12, a spouse makes an application under that subsection,
(IX) the trustees of the scheme concerned apply the transfer amount concerned under or in accordance with subsection (6) or (8) of section 12,
and
(iv) make such other provision as may be necessary or expedient for the purposes of section 12 and for enabling it to have full effect.
(c) In making regulations under paragraph (a), regard shall be had to any relevant principles, purposes or policies of this Act, the Income Tax Acts, the Family Law Act, 1995, any relevant current practices of the Revenue Commissioners in approving schemes, any relevant guidelines, guidance notes or codes of practice of the Board and any relevant guidelines of the Society of Actuaries in Ireland for the time being in force and the desirability of promoting equity and consistency in the treatment of individual cases, minimising any costs incurred under section 12 and conforming with good pensions practice.
(d) In this subsection—
"accumulated value" means—
(i) the realisable value of the units, shares or securities at a particular date, or averaged over a particular period before that date in which, pursuant to the rules of the scheme, the contributions for retirement benefit paid by or in respect of a member spouse under the scheme are invested, or
(ii) the realisable value of the contributions for retirement benefit paid by or in respect of a member spouse under a defined contribution scheme, together with the notional rate of interest or other investment return prescribed under the rules of the scheme, or
(iii) the amount of the proceeds of any insurance policies in which, pursuant to the rules of the scheme, the contributions for retirement benefit paid by or in respect of a member spouse under the scheme are invested.
less, in each case, the amount of any of the expenses of the scheme that, pursuant to the rules thereof, fall to be discharged out of the said realisable value or proceeds;
"active member", "actuarial value", "contingent benefit", "defined contribution scheme", "designated benefit", "retirement benefit", "scheme" and "transfer amount" have the meanings assigned to them by section 12;
"residual benefit" means the amount of retirement benefit remaining in respect of the member spouse concerned after deduction therefrom of the relevant designated benefit or the amount of contingent benefit in respect of the member spouse concerned remaining after deduction therefrom of the amount of contingent benefit payable pursuant to an order under subsection (3) of section 12 or the amount of payment made under subsection (7) of section 12;
"section 12" means section 12 of the Family Law Act, 1995.'.".
This amendment is to section 5 of the principal Act which involved the insertion of a new subsection (4) to extend the powers of the Minister for Social Welfare to make regulations in respect of certain provisions of the Family Law Act, 1995, in relation to pensions.
The Family Law Act, 1995, comes into force on 1 August and is one of the key elements of the Government's programme to deal with the problems of marital breakdown. Under section 12 of that Act, the court, on granting a decree of judicial separation, has power to order that a portion of the pension benefits of a spouse who is a member of an occupational pensions scheme be earmarked to provide a separate benefit for a dependent spouse and children. Section 12 of the 1995 Act already provides that the valuation of benefits, calculation of transfer amounts and the manner in which benefits ordered by the court are to be applied and paid, shall be in accordance with guidelines made by the Pensions Board under the Pensions Act, 1990.
The effect of this amendment will be to enable the Minister for Social Welfare to give full statutory effect to any such guidelines by way of regulation. This will ensure greater compliance by the pensions industry in the uniform application of the guidelines. It will also allow for greater certainty in applying the provisions of pension adjustment orders both for the trustees of pensions schemes and persons in whose favour a pension adjustment order is made under the 1995 Act. Subsection (4) (b) sets out the matters which have been taken into account when making regulations for the purpose of calculating amounts and making payments.
Does this issue have to be brought before the courts before a determination is made? Can it be done by way of agreement or must it be resolved by the courts?
I need hardly refer to the procedures which apply at this time but perhaps it would be wiser for the Minister of State to reply later in anticipation of Deputy Woods or any other Member intervening.
I welcome the amendment. The Minister is making provision for a variety of circumstances which can arise and empowering himself to introduce guidelines to deal with them. Amendment No. 1 lists the increasingly broad number of circumstances which can arise and the Minister is attempting, by way of guidelines and regulations, to provide cover to meet those circumstances. This amendment is particularly important because it is becoming increasingly urgent and important that we deal properly with the area of pensions.
It is alleged that by the year 2032 there will be an explosion in the demand for pensions due to demographic and population changes. I do not subscribe to this theory because, if certain alterations and changes are made in the interim, those circumstances can be met and adequate pensions provided for people who will retire in 2010, 2020 or 2030. It is not beyond the genius of mankind to deal with circumstances to which I referred. Policy-makers at a very high level have pointed to the occurrence of a demographic change whereby in the future people will benefit as children, contribute for a relatively short period as adults and live for a long period beyond that contribution period. It has been stated that there will be great difficulty with regard to pensions as a result of this change.
This theory is based in a number of assumptions. The first is that there will be fewer people at work in the middle stage, they will work less and the numbers applying for pensions will be reduced. Of course there will be changes and, if one considers current forecasts in relation to demographics, there will be fewer people at work relative to those who have retired. It is true that people will, on average, live for a much longer time — we do not know if we will be fortunate enough to be included in those statistics — and there will be pressure on the pensions system as a result. This also assumes that those who live longer will make no contribution, which raises many possibilities.
The Minister covers a wide area in this amendment and provides for changing circumstances. That is to be welcomed as he will have to deal with the changes that will occur in the marketplace. The marketplace is already changing the new pension schemes to defined contribution as opposed to defined benefit schemes. Talking about the technicalities of defined contribution and benefit schemes is a switch-off, but it should not be. Pensions are about security and will be an important issue for many years. The switch in the marketplace to defined contribution schemes means, in effect, that the pension will define the contribution an employee and employer makes.
In the past defined benefit schemes were the norm and contributors knew they would get approximately half the rate of their salary in the last three years of their employment. However, the market is changing in this regard. New defined contribution schemes are being introduced; employees will know exactly what they and their employers have contributed but what happens subsequently will depend on the progress of the fund. That means all the work done in relation to trustees and ensuring the funds are secure is very relevant. In addition, workers will need to know that their fund is being invested well to provide a decent pension on retirement.
The Minister has anticipated these changes and provided for guidelines to be put in place regardless of whether the scheme is a defined contribution scheme. In that sense he is looking to the future and to the flexibility he may require to deal with circumstances as they arise within the framework of the general pensions legislation we have introduced.
The Minister is examining the division of pension benefits on the breakup of a marriage, either through separation or divorce, and ensuring he can establish suitable guidelines in that respect. There is provision in the Family Law Act for the division of pension benefits and there are three options in terms of the way in which the pension will be applied. In this amendment the Minister will be given the power to put in place some of the arrangements in regard to those developments.
It must be recognised there are approximately 400,000 people in this country aged 65 or over. That represents in excess of 11 per cent of the population. The size of that group of people is increasing, their health is improving as is their general well-being and participation in activities. That is because of the changes in our society which enable people to live longer and healthier lives. We must anticipate and meet their requirements in pension terms. That is becoming increasingly important. It is predicted that the proportion of the population aged 65 and over will constitute 19 per cent by the year 2011, which is not too far away, and 23 per cent by the year 2021.
The Minister is making provision to deal with future challenges anticipated and is including in this amendment a wide variety of pensions to cover the various circumstances that may arise.
We welcome the flexibility provided in this measure which has the support of this side of the House. It is appropriate that the Minister is not only keeping up with the times — many other European countries have not taken similar action — but he is ensuring that we keep a little ahead of the times, anticipating the problems which may arise. I welcome the amendment.
I thank the Deputies opposite for their constructive contributions. Deputy Walsh wanted to know if the courts will be required to make a decision. The courts will be required to make a decision. The pensions must be paid in accordance with the pension scheme but having regard to the Family Law Act, 1995 the court may decide otherwise in relation to the division of the benefits. Ordinarily, pensions must be paid in accordance with the scheme; a change is made only in cases decided by the courts. Accordingly it was deemed prudent in this section to table this amendment to anticipate the type of circumstances that may arise in the future.
Deputy Woods referred to the need to anticipate future requirements in the legislation; that is precisely what is being done in this substantial amendment which provides for eventualities that can and will arise as a result of the courts making an order in relation to division of the benefits of a pension scheme in respect of a spouse. The guidelines are already in place but they will now have statutory effect. In the event of a marriage breakdown, there must be an order of the court if the pension is to be effected.
This is a worthy amendment which will have a far-reaching effect. It would have had to be introduced at some future stage given the provisions of the 1995 Family Law Act.
Amendment agreed to.
I move amendment No. 2:
In page 4, line 46, to delete "occupational pension schemes" and substitute "pension schemes (within the meaning of section 2 of the Family Law Act, 1995)".
Amendment agreed to.
I move amendment No. 3:
In page 4, after line 47, to insert the following:
"(2) The Minister shall ensure that, in guidelines issued by the Board, the precise interpretation of the words `misappropriate' and `being contemplated' as set out in section 36, shall be detailed.".
We discussed this matter on Committee Stage. There has been an improvement in that the words "being contemplated" have been deleted and that is desirable. To introduce legislation for what people might think from time to time would be go beyond what we are charged with in this House. It is important to have misappropriation specified clearly and comprehensively. Will we have a definition of what is meant by "misappropriation" in the guidelines? For instance, could a simple query in relation to, say, various levels of self-investment be considered as misappropriation?
The amendment in the name of Deputy Walsh proposes that the pensions board guidelines should define precisely the term, "misappropriation" and "being contemplated". Following consultations with the pensions board, the Office of the Attorney General and the relevant organisations who made submissions to the Bill, as indicated on Committee Stage, the text of section 36 has been amended and the words "is being contemplated", are no longer being used, nor is there reference to "guidelines", as some concern was expressed about the legality of this approach. To remove any doubts in this regard the reference to "guidelines" in the Bill was removed. Facilitative guidelines may be issued by the pensions board under its general powers to make such guidelines. I do not believe the board would have the right to interpret the precise meaning of the term used in legislation which is not defined in that legislation. That would be a matter for the courts.
In view of the fact that the words "being contemplated" are deleted, which was the import of our concern during Committee Stage, we can agree with the present form of the Bill.
Amendment, by leave, withdrawn.
I move amendment No. 4:
In page 6, line 22, after "appropriate." to insert "The trustees of the scheme should be furnished with a copy of any such report or reports, as the case may be.".
My concern is that the entire burden of compliance under the pensions Acts rests with the trustees. In the event of an investigation being carried out by the pensions board and other parties being supplied with a copy of the report of such an investigation, it would seem to be right and equitable that the trustees should be furnished with a copy of such report. The Bill provides that anybody as appropriate would be furnished with a copy of such a report. It is important that it be spelt out in the Bill that the trustees would be provided with a copy. It may be argued that this will be the practice of the pensions board but the importance to the trustees of receiving such a report merits reflection in the Bill.
This amendment proposes that any pensions board report prepared in relation to an investigation should be furnished to the trustees of the scheme involved. The issue has already been discused in detail with the board. It has indicated that its policy is that, where possible, reports will be available to all relevant parties. This policy is one with which I am in full agreement. I am also aware that a case could arise where it would be appropriate for some reason to furnish such a report to the trustees of the scheme. Accordingly, I am reluctant to put such a provision in legislation at this stage. I acknowledge the intent of the Deputy's amendment and while I oppose its introduction, it is my intention to keep the matter under review. If it transpired that reports were not being made available by the board to the trustees, without sufficient good reason, the matter would be revisited.
Obviously there is a large measure of agreement between the Minister of State and Deputy Walsh. I understand the point the Minister makes that there could be some circumstances where it would not be appropriate. It is difficult to specify those circumstances and the Minister has not given us examples of what they might be. It is only when one gets down to giving an example of what they might be that one beings to ask why the reports should not be made available. Nevertheless, if we thought about where circumstances could arise, it is reasonable to assume there could be such circumstances.
The Minister of State said he recognised the point made by Deputy Walsh and would keep the matter under review. I suggest the Minister of State examines this question with a view to providing guidelines to ensure the trustees get the maximum amount of information possible. From what the Minister of State said he obviously intends they should receive the maximum amount of information possible and the board would say it should receive the same. Problems arise in the House or in the media, because we thought certain things were being provided for and the people who were there when it was discussed intended to do it but it did not happen. When examining the guidelines perhaps the Minister of State would consider the valid point made by Deputy Walsh, which generally he accepts, with a view to ensuring it happens as intended by Deputy Walsh and the Minister of State. Given that it is not provided for in the legislation it could be covered by normal procedures, such as guidelines, so that everybody is clear about the intention in the House. If the Minister were to consider that matter it would go a long way towards meeting the genuine concern of Deputy Walsh.
I had in mind and stated as desirable that it should be spelt out in the legislation that the trustees, the important people so far as pensions are concerned, would be furnished with a copy of any such report and that those reports be made available. In view of the fact that the Minister of State has accepted the principle of what we are trying to achieve, I accept in good faith what he has to say and, accordingly, withdraw the amendment.
Amendment, by leave, withdrawn.
We come to amendment No. 5. I observe that amendment No. 33 is consequential. I suggest, therefore, that we debate amendment Nos. 5 and 33 together, if that is satisfactory. Agreed.
I move amendment No. 5:
In page 7, between lines 24 and 25, to insert the following:
"10.—Section 33 of the Principal Act is hereby amended by the insertion in subsection (4) after `(in this Act referred to as "the revaluation percentage")' of `which shall determine the amount'.".
This amendment seeks to clarify the preservation of benefit provisions, particularly having regard to the amendment of the Second Schedule of the Pensions Act, 1990, which deals with the calculation of preserved benefit and which will allow for the revaluation of preserved benefit of a portion of a year.
The principle underlying section 33 (2) of the Pensions Act which deals with the revaluation of preserved benefits is that there should be revaluation of preserved benefits where there is a period of at least one year between the date of leaving service and the date of commencement of pension. The anomaly which amendment No. 33 seeks to correct is that because revaluation is calculated by reference to complete calendar years it is possible that a period of more than 12 months may elapse between the date of leaving service and the date of commencement of pension. However, the member may not qualify for revaluation because the period does not include a complete calendar year.
At present revaluation is applied to "the amount of preserved benefit as at the last day of the previous revaluation year". Where a member has left service since the previous 31 December as of the last day of the previous revaluation year should be nil. Paragraph (a) of amendment No. 33 provides that in such cases the appropriate amount is to be added to the preserved benefit as of the date on which the member left service. Paragraph (b) amends the formula to provide that where the member has left service since the previous 31 December — P in the formula will be the amount that is his preserved benefit as at the date on which he left service.
Paragraph (c) also amends the formula used in calculating preservation to allow that in respect of a calendar year during which a member leaves service the number of months can be revalued as a percentage of the revaluation percentage — one-twelfth for each completed month. For example, if the revaluation percentage was four per cent and the member completed six months he would receive two per cent.
Paragraph (d) of amendment No. 33 deals with an anomaly where, in some instances, a person remaining in service can be treated less favourably than a person leaving. In these circumstances it allows that they may revalue the preserved benefit on a different basis but one which they consider to be just and equitable.
I welcome the amendment. It sounds good. I am aware of a pension scheme in which some individuals were within days of a pension entitlement yet they did not receive it because they did not have a full year's service. The consideration of portions of a year is important.
There is some ambiguity in pension schemes and other investment schemes in relation to the contribution year and the benefit year. Many people contribute to the An Post savings certificates through their salaries yet it is only at the end of the contribution year that the benefit year commences. In other words, they pay for six rather than five years.
I welcome the clarification in this regard. This Bill is about ensuring pension schemes are properly funded and run and the members rights are clearly and comprehensively protected. Any amendment which improves members' entitlements and benefits is welcome.
I welcome the pro rata benefit precedent. I hope the Ceann Comhairle will note it for application in other circumstances.
It is duly noted.
I am sure the pro rata approach will be taken in other circumstances in future.
Amendment agreed to.
I move amendment No. 6:
In page 8, between lines 13 and 14, to insert the following:
"(3) Forfeiture of a members' pension in respect of employers" claims arising out of criminal, negligent or fraudulent acts shall be provided for.'.".
The vast majority of employees make their contributions to pension schemes and also contribute to the well being of the company. At the end of their working lives they receive their pensions. An employee may not fulfil his or her obligations to a company and may be guilty of fraud, criminal activity or negligence which may have a deleterious effect on the company. It seems anomalous that such an employee would end up getting a pension, although they may have been dismissed. It is important that the workers who serve their companies well are protected and those who do not are not rewarded with a pension.
This amendment proposes to allow for forfeiture of a member's pension in cases arising out of criminal, negligent or fraudulent acts. Up to now under the provisions of the Pensions Act, 1990, forfeiture has been totally forbidden. The provisions contained in the Bill allow for forfeiture only in respect of situations where it would be to the benefit and for the protection of the member that such forfeiture takes place.
The provisions of section 36 of the Pensions Act and this Bill are designed with the interests of the individual members of pension schemes in mind. The Deputy's amendment proposes to introduce forfeiture in instances where it would not benefit the member.
While it may seem reasonable in the first instance in the type of cases the Deputy has mentioned, I am concerned that it could be used against individual members where disputes arose with employers. In certain circumstances it could be open to an unscrupulous employer to use such provisions against an individual member of a pension scheme. The matter the Deputy mentions can best be dealt with through the courts but it should not affect the pension of an individual member which the Pensions Act sets out to protect. The courts are the final arbiters in this case.
I accept the Minister of State's interpretation of the issue.
Amendment, by leave, withdrawn.
I move amendment No. 7:
In page 8, between lines 17 and 18, to insert the following:
"13.—(1) It shall be prohibited to deduct State pensions from private scheme benefits.
(2) Where it is the case that pensions (other than State pensions) accrue over a 30 year period, the annual accrual rate shall be increased by a factor of 40/30, that is, from 1.66 per cent to 2.2 per cent, to reflect current labour market conditions.".
In virtually all cases the State pension is merged with the overall pension payment and people receive their State and contributory pensions. However, in many cases the matter is not clarified properly. When some pension companies produce their glossy brochures stating that on retirement people will be entitled to a certain pension, they fail to clarify that a major portion of that pension will be made up of their PRSI contributions. I tabled this amendment to ensure that pension schemes that use PRSI contributions to supplement retirement pensions do not give the impression that the pensions they pay to members accrue totally from personal contributions to the scheme.
In the past the length of the normal working life was generally 40 years which allowed for a maximum pension of 40/60 or two-thirds to be paid to the person at the age of 65. Nowadays, however, people retire at a much earlier age and do not work for 40 years. A maximum working life of 30 years is the norm. Over a 40-year period of pensionable service an employee could earn a maximum pension of 40/60 in remuneration. The Minister of State took account of social change in an earlier amendment. In this case he should take account of modern working trends and the fact that people generally retire at an earlier age. Under current employment practices employees lose out on two fronts. When they retire at 55 rather than 65 they lose ten years service at a time which for many, because of incremental salary increases and so on, would be the most remunerative period of their working lives. Instead of receiving a rate of 40/60 or two-thirds in pension entitlements they receive a rate of only 30/60. As the 40/60 rate was devised at a time when people generally worked for a longer period, a more enlightened pension accrual formula should be devised to reflect modern working practice. The proposal in my amendment is based on the modern working life of 30 rather than 40 years.
Pension schemes are important. Rather than taking a full salary on a weekly, fortnightly or monthly basis, people should be encouraged to contribute to retirement schemes. When people retire at 55 rather than 65 it provides an opportunity for younger people to come into the workforce. Rather than remaining in a job merely to make up full pension entitlements, people should be encouraged to retire earlier and not be penalised for doing so. That is the import of my amendment.
The amendment seeks to prohibit deducting State pensions from private scheme benefits and to change the annual rate of accrual where pensions accrue over a 30 rather than a 40 year period.
As outlined in the final report of the National Pension Board, it is now a common feature of most defined benefit schemes that they are co-ordinated with the social welfare pension. This type of co-ordination is generally aimed at giving the member two-thirds of final salary, based on social welfare pension topped up by an occupational pension.
The amendment suggested by the Deputy is radical and in this regard it should be noted that occupational pension schemes are voluntary arrangements and employers do not have to introduce or implement such schemes. This proposal would result in a change in the rules of each individual pension scheme, reducing occupational pension entitlement. Ultimately the position would remain unchanged.
A major survey of occupational pensions currently being undertaken by the Economic and Social Research Institute on behalf of the Department and the Pensions Board, which will be available later in the year, will be significant in considering the development of pension systems and informing us of the current level of cover and other issues arising.
In regard to the Deputy's amendment, I am informed that there is nothing to prevent such a rate of accrual currently applying. It would be a matter for the rules of each individual pension scheme Again I emphasise the voluntary nature of such schemes. We do not legislate for benefits in individual schemes, which would be the effect of the Deputy's proposal. Once an employee has ten year's service there is nothing in the Revenue Commissioners' rules to prevent such a person from qualifying for a full pension subject to the rules of the individual scheme to which he or she has contributed.
I agree with Deputy Walsh in regard to clarity. It is the policy of the Pensions Board to make available as much information as possible. I am sure Deputies opposite are aware that pension schemes vary considerably and to apply legislation across the board, which would be necessary under this amendment, could create difficulties for some schemes. Therefore, unfortunately, I cannot accept the amendment.
The purpose of Deputy Walsh's amendment is clearcut. He wants to ensure that people have adequate pensions. The Minister of State said it is the practice to use the State pension to make up a two-thirds pension, but people on low wages would still be entitled to a low pension. The difficulty with percentages or proportions is knowing to what they relate. While a percentage of two or three is very little, a percentage of 1,000 is a considerable amount. That is the problem that arises. Deputy Walsh is particularly concerned to ensure that people on lower incomes have an adequate pension at the end of the day. Many people on less than the average industrial wage end up with a meagre pension which, with a top-up State pension, gives them only a reasonable income. Last Saturday a man who attended my clinic had spent his lifetime working in a good job and now receives the equivalent of the social welfare pension. That man, who retired at 65, cannot afford to keep his car on the road. Unlike some people who may have suffered from illness, he is fully fit, intelligent and capable of working, but his whole life has been turned upside down because his pension is inadequate. That is the type of case Deputy Walsh spoke about and against which we must guard.
I appreciate the Minister's difficulty. I accept that many of the schemes, which are voluntary, provide an adequate income — two-thirds of salary is reasonable and in some cases even 50 per cent, based on a decent salary, is reasonable — TDs receive 50 per cent of salary rather than two thirds, and perhaps the Ceann Comhairle will take note of that.
We are concerned about people on lower levels of income. The Minister is right, but what Deputy Walsh said about people on lower incomes is also right. The Minister said that this problem cannot be resolved readily in the legislation, although if he reconsidered the matter he might find a way of resolving it in that way. Perhaps it should be brought to the attention of the social partners so that it is taken into consideration in voluntary agreements. Workers on low incomes are not adequately catered for, and without a social welfare pension they have very little to live on.
One must ask whether the Minister's proposition should apply to the defined contribution schemes. In those circumstances the employer has no responsibility other than to make a contribution and ensure the scheme is properly operated. In some cases a social welfare pension may be necessary to ensure the amount is adequate. We accept the Minister's point but we are anxious to outline the difficulties for those on the lower end of the scale who, unfortunately, are too often forgotten in legislation, whether for reasons of cost or whatever. They are the people who will experience problems in the future and for whom Deputy Walsh, in his proposal, is trying to cater. I suggest that the Minister, and perhaps the board, bring these matters to the attention of the social partners so that in future negotiations the position of people at the lower end of the scale, in terms of pension as well as salaries, is given due consideration.
Unfortunately many younger people, particularly up to 40 years of age, do not give much thought to pensions. Those who are fit and healthy and living a very full life realise when they reach retirement age that they should have given greater consideration to the matter. It reminds me of a friend who smoked for years and whose attitude was that another five or six years would not make much difference, but when he reached 65 his attitude changed and he realised the importance of an extra few years. Young people do not appreciate the importance of pensions, and the younger the person the more important the pension will be because, according to demographic statistics, people are living longer.
Deputy Walsh is anticipating some of the problems for people on lower incomes, and I think the Minister recognised that, but we also recognise his difficulty. Greater consideration of this matter by those involved in pensions generally and by the social partners might be helpful.
Amendment, by leave withdrawn.
I move amendment No. 8:
In page 9, to delete lines 15 and 16 and substitute the following:
"(i) making a payment to another funded scheme which provides or is capable of providing long service benefit and of which he is a member or a prospective member, or".
This amendment brings the wording of section 48 into line with section 34 and clarifies that any transfer effected by the trustees must be to a scheme of which the person is a member of a prospective member. As currently worded, section 48 could technically allow the transfer to be made to any scheme, even if no link existed.
Perhaps the Minister will provide additional information on this amendment. The greatest difficulty in practice in terms of transfers arises where a person is a member of a "with-profit" scheme. He may suddenly leave his job, as there is now great mobility in employment. Some of us are lucky enough to have near-permanent jobs but that does not apply to everyone. On one day, a person could be in a high risk job which may be relatively secure but on the following day he might be in another employment, in which case he would have to bring his portable pension with him, but the pension scheme for the new job may be of a different type — for instance, a unit-linked rather than a "with profits" scheme. Many people are extremely concerned about such new schemes and there should be greater clarity. A similar effect is seen in mortgages. People find that, having contributed for 20 years the unit funds are inadequate to fund the pension.
The intention of this Bill is to protect the rights of scheme members and to ensure they know exactly what is in the small print. All transfer arrangements should be clear to them, so I ask the Minister to clarify the position on this amendment. A normal pension scheme will inform its members that a certain fund will have been built up after 20 to 30 years to provide for a pension of two thirds or a specified proportion of salary, however, that is not the case in unit linked schemes. If the units grow adequately and do well, there will be a surplus in the fund but that is no use to someone who retires and finds his scheme is inadequately funded. He needs information at the beginning to ensure he is adequately protected, particularly given changing job requirements and the tendency to change employment. Will the Minister of State clarify this matter?
I agree with the Deputy about the need to provide for the future. I fully appreciate that a contributor to or member of a scheme must have an adequate degree of confidence in it. Deputy Woods referred to a similar case. This is a technical amendment to bring section 48 into line with section 34. It provides that, in the event of a transfer effected by the trustees, it must be to a scheme of which the person is either a member or a prospective member. In other words, it provides simultaneously for both the continuing or ongoing benefit and the link. It was felt that, if this amendment were not introduced, sections 34 and 48 as currently worded might be in conflict with one another and as a result, a contributor to or member of the scheme could be disadvantaged. In any event, this proposal does nothing more than enhance the security of the individual's investment and future.
I take into account the points raised by Deputies opposite the contributors' continuing confidence in the pensions and the necessity to safeguard their interest, as they are the main people who will be affected. I also bear in mind Deputy Walsh's point about changes in the marketplace from an investment point of view. The market may vary greatly over a period of years and could dramatically affect benefits accruing where investments were made. I reassure the House this proposal is merely to enhance the confidence and security of contributors.
Amendment agreed to.
Amendment No. 9 is in the name of the Minister, amendments Nos. 10 to 14, inclusive, are cognate and all may be taken together. Is that agreed? Agreed.
I move amendment No. 9:
In page 11, line 10, to delete "1993" and substitute "1997".
These amendments provide that, in relation to disclosure requirements for frozen schemes, the provisions will only apply from a future date — for instance, 1 January 1997 — to allow the schemes to be aware of the requirements and make allowances for any costs which may be involved.
Is there any loss involved for members of schemes as a result of the change of date from 1993 to 1997 in each case?
No.
Amendment agreed to.
I move amendment No. 10:
In page 11, line 16, to delete "1993" and substitute "1997".
Amendment agreed to.
I move amendment No. 11:
In page 11, line 36, to delete "1993" and substitute "1997".
Amendment agreed to.
I move amendment No. 12:
In page 11, line 41, to delete "1993" and substitute "1997".
Amendment agreed to.
I move amendment No. 13:
In page 11, line 46, to delete "1993" and substitute "1997".
Amendment agreed to.
I move amendment No. 14:
In page 11, line 51, to delete "1993" and substitute "1997".
Amendment agreed to.
Acting Chairman
Amendments Nos. 15 to 17, inclusive, are related and may be discussed together. Is that agreed? Agreed.
I move amendment No. 15:
In page 12, line 5, before "costs" to insert "reasonable".
The matter of trustee training was discussed on Committee Stage and the Minister offered to insert the word "reasonable" to ensure trustees are limited to reasonable costs and expenses regarding trustees training.
Amendment No. 16 provides that the principal employer should agree any expenditure on trustee training in excess of £500 per head per annum. Section 21 allows the trustees of a scheme to pay for trustees training from the resources of a scheme. It is not a mandatory provision and it is open to employers to pay for such appropriate training or for an arrangement to be reached between the union, the trustees and the employer. I understand that employers usually pay for such training. The rules of a schemes normally refer to "reasonable costs" incurred by the trustees and I have brought forward an amendment to include the word "reasonable". Specifying an amount in the legislation is not a suitable method for dealing with this. The disclosure of information regulations will be reviewed and amended after the enactment of this Bill. Requiring in those regulations, mandatory disclosure of the amount spent on trustee training to all members of the scheme in the annual report might be the best way forward in conjunction with the amendment I have introduced. I must therefore oppose that amendment.
Amendment No. 17 provides that time off for an employee during working hours for the purposes of attending appropriate training should be provided for on a statutory basis. I strongly support time off for trustee training but most employers realise it is in their best interests to have trustees trained properly and would accordingly make whatever provisions are necessary, including paid time off, to ensure this happens.
I am advised there are no problems in this area and, therefore, I do not see the need to put this arrangement on a statutory footing. However, I will keep the matter under review and changes will be introduced in due course if they are considered necessary.
I thank the Minister for his amendment which will insert the word "reasonable" before the word "costs". This meets my objective to a great extent. It is important that adequate training be given to trustees in the complex area of pensions and pension schemes. We do not want people who wish to retire being told by the scheme operator that their contributions are inadequate. The 1990 Act was landmark legislation and this amendment to it is extremely important. The amendments tabled on Committee and Report Stages are extremely important in that they endeavour to take us into the next century and take into account social and demographic changes. They have been tabled in good faith and will be seen in years to come as enlightened improvements.
Many universities, regional colleges and other bodies provide training in the financial area, including pensions. The IMI also runs specialist courses which are very valuable. It is important that trustees are allowed time off to attend these courses and are paid whatever reasonable expenses they incur. We have sought to ensure that trustees do not go on trips to exotic parts of the world and incur large expenses which are paid out of the funds. This sort of activity reduces the credibility of the entire operation.
The insertion of the word "reasonable" before the word "costs" meets the objective we all wish to achieve, that is to have adequate, proper and continuous training courses for the trustees of pension schemes. As this objective is adequately met by the Minister's amendment I will not move my amendments Nos. 16 and 17.
Amendment agreed to.
Amendments Nos. 16 and 17 not moved.
Acting Chairman
It is proposed to take amendments Nos. 18 and 19 together.
I move amendment No. 18:
In page 16, line 5, to delete "order," and substitute "order".
Amendments Nos. 18 and 19 remove and insert commas as appropriate. In the original drafting the punctuation inadvertently went astray, a common occurrence even in the best run businesses.
Commas are extremely important and I accept these amendments with all the generosity at my disposal. I deplore the fact that punctuation in modern English is not given the same attention it used to be given. Colons and semicolons are seldom used in modern literature and I urge the drafters to ensure that commas, colons and semicolons are not allowed to fall off the paper, so to speak. Teachers in primary and second level schools and third level colleges must also give greater attention to punctuation. At times I am amazed at reports of the proceedings of the Dáil and other events which are not properly presented or easy to read. In many cases one has to read these reports twice, and if proper punctuation was used it would make life much more pleasant for all of us. I wholeheartedly welcome these amendments.
Amendment agreed to.
I move amendment No. 19:
In page 16, line 5, to delete "section" and substitute "section,".
Amendment agreed to.
I move amendment No. 20:
In page 16, between lines 16 and 17, to insert the following:
"27.—Having regard to the Barber decision in the European Court, the ownership of all existing and future fund assets and surpluses shall be defined as belonging solely to the members of the scheme and such surpluses shall be apportioned between the members by increasing their benefits, subject to revenue limits and any balance shall be treated as a contribution holiday over a defined maximum period of 5 years.”.
On Committee Stage I said I attached great importance to this amendment and asked the Minister of State to give further consideration to it before Report Stage. I feel strongly about it as the Barber decision was a landmark one and we are dealing with their protection of the interests of members of pension schemes. At times cases in this and other jurisdictions are brought to our attention where contributions are pilfered and the unfortunate members are left high and dry. Predators, asset strippers, who see a surplus of several million pounds in a scheme acquire the company and pass the surplus on to the new company. These surpluses rightly belong to the contributors, and the decision in the 1990 Barber case made that very clear by affirming that pensions are deferred pay which belongs exclusively to the workers. Instead of taking home all their pay many workers put part of it aside for their retirement and or other reasons. This pay is withheld by employers and put into a separate pension fund.
The decision in the Barber case stipulated that, even if all contributions were made by employers — most companies make certain contributions in addition to their workers — and none by workers, the fund represented deferred pay and was owned by workers. Being the owners of the fund the workers have a right to distribution of the fund's surplus. They are the only people who have a right to that surplus since it was they who made the contributions, it was their deferred pay that went into the fund and formed that surplus. The sole purpose of pension contributions should be to provide pension benefits for members, not to accumulate surpluses to attract predators; in other words, to protect the interests and assets of scheme members. Pension surpluses are the exclusive property of members, as was made absolutely clear by the decision in the Barber case.
Some years ago there were instances of pension funds and surpluses having gone astray. There was a case of an ICI surplus which, when that company was acquired by another, went to the new company. In any case of a take-over or privatisation members' contributions, the fund built up by them, must be protected and guaranteed against any such eventuality.
My amendment would guarantee that. There are several precedents for such a guarantee, specifically the decision in the Barber case which made it abundantly clear that the funds and surpluses belong exclusively to its members. There is a fear or sense of insecurity on the part of ordinary rank and file workers who defer their pay and generally meet their PAYE commitments. Since we are in the course of passing legislation to take us well into the next century, it is incumbent on us to be extremely careful and prudent in the manner in which we frame it. Everything we do should be in the interests of members and contributors to pension schemes. This is true more especially when not alone do members make their contributions but the Exchequer contributes very largely and supports pension schemes and their contributors. It is estimated that between the tax advantage of making pension contributions and the tax concession when one draws one's pension and lump sum, approximately £250 million in tax is deferred or foregone annually. The State is extremely helpful and generous in relation to pension funds and encourages people in every way to provide for their retirement, at considerable cost to the Exchequer.
I am concerned that in the drive by the State to make contributing to pension schemes attractive through deferred pay, any surplus funds might be siphoned off or confiscated in some other way. With the favourable improvement in the investment climate in recent years, workers are opting to retire earlier but there will need to be adequate funds available to guarantee them an adequate pension.
I intend to press my amendment for the very good reason that members' rights and contributions must be fully protected.
Since we discussed this issue on Committee Stage I have taken considerable advice from a number of parties, including the Pensions Board. The one issue that has emerged very clearly from those discussions is that one has to be very clear about the definition and nature of a "surplus" and exactly how it can arise. One needs to understand the nature of funding in a defined benefit pension scheme to understand how excess assets build up in a scheme year.
Once moneys or other assets have been transferred into a trust fund they cannot be withdrawn except in so far as authorised by the trust deed or by law, unless all the beneficiaries agree or the trust is wound up. There is a fundamental distinction to be drawn between a continuous fund and one being wound up. So long as the fund is continuous no beneficiary has any interest in particular assets. These are vested solely in the trustees and cannot be withdrawn by an employer or members unless authorised.
In a continuous fund, the surplus is the amount by which the actuarially estimated value of the scheme assets at a given time exceeds the actuarially estimated value of its liabilities. Valuation on an ongoing basis involves a number of long-term projections and assumptions. The actuary compares the present value of an estimated stream of future income with the present value of an estimated stream of future liabilities. On this basis, a surplus exists at any time when the present value of the future income exceeds the present value of the future liabilities.
In calculating these values, the actuary must employ a wide range of actuarial assumptions. These include financial assumptions as to the earnings increases, price increases and investment returns and demographic assumptions as to mortality rates, rates of entry into and withdrawal from pensionable service and rates of early retirement in good health and in ill health. Since these are long-term assumptions, it is highly unlikely they will exactly match assets to liabilities at any given time.
It follows that a surplus cannot be accurately identified by a valuation on an ongoing basis. For reasons of prudence and given the uncertainties involved, actuaries tend to be conservative in their assumptions, a factor which can lead to over-funding on an ongoing basis. What may be shown as a surplus using one actuarial method or set of assumptions may appear as a deficit if a different method or set of assumptions is used. Moreover, since the value of a surplus or deficit normally is small in relation to the value of the assets and liabilities, it can require only a modest variation in a particular assumption to make a substantial difference to the asset-liability equation.
Therefore, it follows that from a legal viewpoint any surplus in an ongoing fund is purely notional. The existence of a surplus cannot be finally determined except at the point at which the scheme is wound up and beneficiaries' rights are crystallised.
Unless otherwise provided by the scheme rules, or authorised by all the beneficiaries, a trust fund must be maintained intact for the purpose of the scheme until it is wound up. An employer cannot withdraw assets from the fund. A scheme member becomes entitled to benefit only on retirement or having fulfilled other conditions laid down in the scheme rules or documentation. Therefore, in relation to a continuous fund, ownership of a surplus does not arise in legal terms.
Ownership of the pension fund in the true sense arises only when the scheme is wound up. At that point the rights of members crystallise, the assets comprising the fund must be sold and members' entitlements under the scheme documentation secured from the proceeds. The distribution of any surplus assets remaining after members' entitlements have been fully paid or secured is determined by the trust deed and rules. This can be in a variety of ways as follows: (i) it may be mandatory for trustees to augment member benefits; (ii) any augmentation of member benefits may have to be done with the consent of the employer or in consultation with the employer and (iii) after augmentation, if so permitted, any surplus then arising may revert to the employer.
As I said on Committee Stage, the issue is complex and before we decide on the need for legislation in this area the Pensions Board should examine the matter in detail. The original National Pensions Board discussed this topic, but did not consider it a live issue as pensions in Ireland, unlike in the UK, were not developed to such an extent that significant real surpluses arise and that is still considered the position. Therefore, there is no need to rush into legislation, the best approach is as I have proposed.
Deputies should be clear that any proposal along the lines suggested by Deputy Walsh in this amendment could have adverse effects as it could lead to a reduction in the level of funding by employers or have implications for the development of occupational schemes generally, given their voluntary nature. In its examination the Pensions Board would address the present position and all the likely knock-on effects. Given the composition of the board, all interests would be considered in the review. For that important reason I must oppose the amendment.
I am not satisfied with the reply of the Minister of State. He is in an ungenerous mood today.
Tomorrow will be better.
It appears he has decided he will oppose every reasonable amendment I tabled. Phrases like "highly unlikely" are not of much use to members. I disagree with the claim that Irish pension schemes are not well developed. They are quite well developed and we have a total fund of £16 billion, which, by Irish standards, is a considerable amount of money.
A balance of advantage still rests with the employers in regard to the composition of the board. For all those reasons and emphasising the importance of protecting scheme members I will press this amendment.
Amendment put.
The Dáil divided: Tá, 59; Níl, 72.
Tá
- Ahern, Bertie.
- Ahern, Dermot.
- Ahern, Michael.
- Ahern, Noel.
- Andrews, David.
- Aylward, Liam.
- Brennan, Séamus.
- Briscoe, Ben.
- Burke, Raphael P.
- Byrne, Hugh.
- Callely, Ivor.
- Clohessy, Peadar.
- Connolly, Ger.
- Coughlan, Mary.
- Cullen, Martin.
- Davern, Noel.
- Dempsey, Noel.
- de Valera, Síle.
- Doherty, Seán.
- Ellis, John.
- Fitzgerald, Liam.
- Flood, Chris.
- Foley, Denis.
- Fox, Mildred.
- Geoghegan-Quinn, Máire.
- Haughey, Seán.
- Hilliard, Colm M.
- Hughes, Séamus.
- Jacob, Joe.
- Keaveney, Cecilia.
- Kenneally, Brendan.
- Keogh, Helen.
- Killeen, Tony.
- Kirk, Séamus.
- Kitt, Tom.
- Lawlor, Liam.
- Lenihan, Brian.
- Leonard, Jimmy.
- Martin, Micheál.
- McCreevy, Charlie.
- McDaid, James.
- Moffatt, Tom.
- Morley, P. J.
- Ó Cuív, Éamon.
- O'Dea, Willie.
- O'Donnell, Liz.
- O'Donoghue, John.
- O'Hanlon, Rory.
- O'Keeffe, Batt.
- O'Malley, Desmond J.
- O'Rourke, Mary.
- Quill, Máirín.
- Ryan, Eoin.
- Sargent, Trevor.
- Smith, Brendan.
- Treacy, Noel.
- Wallace, Mary.
- Walsh, Joe.
- Woods, Michael.
Níl
- Ahearn, Theresa.
- Allen, Bernard.
- Barrett, Seán.
- Barry, Peter.
- Bell, Michael.
- Bhamjee, Moosajee.
- Boylan, Andrew.
- Burton, Joan.
- Byrne, Eric.
- Carey, Donal.
- Connaughton, Paul.
- Connor, John.
- Costello, Joe.
- Coveney, Hugh.
- Crawford, Seymour.
- Creed, Michael.
- Crowley, Frank.
- Deasy, Austin.
- Deenihan, Jimmy.
- De Rossa, Proinsias.
- Doyle, Avril.
- Durkan, Bernard J.
- Ferris, Michael.
- Fitzgerald, Brian.
- Fitzgerald, Frances.
- Flaherty, Mary.
- Flanagan, Charles.
- Gallagher, Pat (Laoighis-Offaly).
- Gilmore, Eamon.
- Higgins, Jim.
- Higgins, Michael D.
- Hogan, Philip.
- Kavanagh, Liam.
- Kemmy, Jim.
- Kenny, Enda.
- Kenny, Seán.
- Bradford, Paul.
- Bhreathnach, Niamh.
- Broughan, Tommy.
- Browne, John (Carlow-Kilkenny).
- Bruton, John.
- Bruton, Richard.
- Burke, Liam.
- Lowry, Michael.
- Lynch, Kathleen.
- McCormack, Pádraic.
- McDowell, Derek.
- McGahon, Brendan.
- McGrath, Paul.
- McManus, Liz.
- Mitchell, Gay.
- Nealon, Ted.
- Noonan, Michael (Limerick East).
- O'Keeffe, Jim.
- O'Shea, Brian.
- O'Sullivan, Toddy.
- Pattison, Séamus.
- Penrose, William.
- Quinn, Ruairí.
- Rabbitte, Pat.
- Ring, Michael.
- Ryan, John.
- Ryan, Seán.
- Shatter, Alan.
- Sheehan, P. J.
- Shortall, Róisín.
- Stagg, Emmet.
- Taylor, Mervyn.
- Timmins, Godfrey.
- Upton, Pat.
- Walsh, Eamon.
- Yates, Ivan.
Tellers: Tá, Deputies D. Ahern and Callely; Níl, Deputies J. Higgins and B. Fitzgerald.
Amendment declared lost.
We now come to amendment No. 21 which is a drafting amendment. Amendment No. 22 and amendment No. 21 form a composite proposal. I suggest, therefore, that we debate amendments Nos. 21 and 22 together.
I move amendment No. 21:
In page 16, line 20, to delete "`member"' and substitute "`member"'.
These amendments are simply to remove commas as appropriate which, in the original drafting, inadvertently went astray.
Amendment agreed to.
I move amendment No. 22:
In page 16, line 20, to delete "who" and substitute "who,".
Amendment agreed to.
I move amendment No. 23:
In page 22, line 43, to delete "(2)" and substitute "(3)".
This amendment simply renumbers a subsection to update a reference on foot of an insertion.
Amendment agreed to.
I move amendment No. 24:
In page 23, lines 16 and 17, to delete ", whether in writing or otherwise," and substitute "in writing".
The purpose of this amendment is to insert the words "in writing". I am concerned that reports can be made by telephone and I wish to provide in legislation to ensure that mischievous calls or reports are not made. The obligation to submit a written report would not necessitate a lengthy submission and one would not be expected to call on the assistance of an actuary, an accountant or a solicitor. The obligation to submit a short written report would discourage somebody from dropping into a telephone kiosk and making a call which could necessitate a substantial inquiry and perhaps an unnecessary investigation and it would save time. That reports must be submitted in writing should not deter a person concerned about the manner in which a scheme is being administered from communicating his concern to the Pensions Board. A person who has a complaint should be prepared to put it in writing.
This amendment seeks to limit the protection for people making reports to those who make them in writing. Making reports by means other than in writing relates to voluntary reporting only. It is felt that if a person makes a telephone call or comes in person to the Pensions Board office to make a voluntary report and makes it in good faith there is no reason the protection should not extend to the person.
The objective of this reporting mechanism is to protect the pensions of individual members of pension schemes and to encourage the making of voluntary reports, where the pensions could be in jeopardy. I do not wish to limit it to reports in writing. A person making a malicious report whether in writing or verbally will not be afforded any protection.
For these reasons I oppose this amendment.
Amendment put and declared lost.
Amendment No. 25 is in the name of the Minister. Amendments Nos. 25 to 29, inclusive, and amendment No. 31 form a composite proposal and by agreement may be discussed together. Is that agreed? Agreed.
I move amendment No. 25:
In page 23, line 34, to delete "84" and substitute "85".
This amendment renumbers a section and is necessary because of an earlier insertion of a section and the other amendments are simply consequential amendments that renumber the relevant sections.
Amendment agreed to.
I move amendment No. 26:
In page 23, line 37, to delete "85" and substitute "86".
Amendment agreed to.
I move amendment No. 27:
In page 23, line 39, to delete "86" and substitute "87".
Amendment agreed to.
I move amendment No. 28:
In page 24, line 7, to delete "87" and substitute "88".
Amendment agreed to.
I move amendment No. 29:
In page 24, line 20, to delete "88" and substitute "89".
Amendment agreed to.
I move amendment No. 30:
In page 24, line 29, after "scheme." to insert "The Board must publish guidelines as to the methodology it will employ to form the view as to what constitutes an inappropriate investment for a specific pension scheme.".
Section 35 provides for the Pensions Board to make miscellaneous applications to the High Court and the court may make an order directing trustees to dispose of an investment where it is satisfied the retention of the asset could jeopardise the rights and interests of members. What constitutes an inappropriate investment? Will a concentration of investments in a small number of quoted companies be considered an inappropriate investment, because it does not adequately diversify risk? A high concentration in equities might be considered inappropriate for a mature pensions scheme and it is not clear how the Pensions Board will form its view as to what constitutes an inappropriate investment for a specific scheme.
In Ireland there are fairly limited opportunities in equities and we do not have a large number of quoted companies. Nonetheless, the publicly quoted companies are sound. There is a general belief that a far greater proportion of pension funds should be invested in Irish equities. The total pension fund available for investment is of the order of £16 billion and it is regrettable that only 23 per cent of that fund is invested in Irish equities. I cannot understand how fund managers invest the contribution of the ordinary workers, the PAYE sector and others who pay into a pension scheme, because it surely would be in their long-term interest to support Irish companies by investing in them rather than having fund managers take the funds to various parts of the globe for investment.
There are many suitable investment vehicles and I use this occasion to exhort fund managers to invest a greater proportion of funds in Irish equities. In the past number of years some Irish companies have been wholly or partially privatised giving ordinary people an opportunity, especially through pension funds, to make solid investments in them. It would be preferable to have contributions from Irish workers going to Irish companies rather than to multinational company fund managers making investments in Irish companies.
A number of our co-ops are now publicly quoted. In recent weeks the limit of 51 per cent has been breached which will make it possible for foreign fund managers to invest substantial sums in our co-ops and the food industry. It would be more desirable to have Irish pension funds invest in the development and modernisation of those companies. This would be a more stable investment than the investment of moneys by fund managers in a company solely for profit.
In the case of Telecom Éireann in which we are asking multinational companies to invest up to a certain percentage, I can see no good reason ordinary workers should not be encouraged to make an investment in its modernisation and development to ensure employment is maintained and the most modern technology is available to it.
The ratio of investment of pension funds outside Ireland and in fixed interest schemes is far too great and not proportional. I make a plea to fund managers to invest a greater proportion of pension funds in Irish companies as they will get a good return. We have a good economy and a good economic performance by indigenous Irish companies.
Approximately 75 per cent of pension funds are of no value to the economy in terms of the creation and maintenance of jobs. It is right and proper in a discussion on pension funds that we should allude to where investments are made. Is there a good reason fund managers have not invested greater sums in Irish companies? Is it considered an inappropriate investment? Is that the reason only 22.8 per cent of pension funds have been invested in Irish companies? I have not received satisfactory answers to these questions.
For these reasons the board should publish guidelines as to the methodology it will employ to form the view as to what constitutes an inappropriate investment for a specific pension scheme.
A report on pension fund investment in Ireland has been commissioned by the Minister for Finance and should be available shortly. It will address most of the concerns expressed by the Deputy.
The amendment seeks to provide that the board must publish guidelines on the methodology it will employ to form the view of what constitutes an inappropriate investment for a specific pension scheme. These provisions deal with applications to the High Court and it is my hope and expectation that they will be used only in extreme cases.
It would be extremely difficult, if not impossible, to set out in advance what precisely would constitute an inappropriate investment, except in obvious circumstances. It was agreed on Committee Stage that one could say it would be inappropriate to put funds on a horse at a race meeting, even at the right odds. In most cases it may not be possible to be absolutely precise.
The trustee handbook, which will be published in the near future by the Pensions Board, will deal with the proper investment of funds by trustees and should, therefore, be helpful in relation to the suggestion made by the Deputy in the amendment. This provision gives the board the right to seek a High Court order in relation to an investment. Before the court grants such an order it will have to be satisfied that the investment concerned is inappropriate and likely to jeopardise the rights and interests of the members of the scheme. This is a reasonable precaution in the circumstances. Unfortunately, I have to oppose the amendment.
Amendment, by leave, withdrawn.
I move amendment No. 31:
In page 24, line 46, to delete "89" and substitute "90".
Amendment agreed to.
I move amendment No. 32:
In page 25, between lines 36 and 37, 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,`,".
On Committee Stage I asked the Minister of State if he would consider including a provision to provide that one additional ordinary member shall be a representative of the investment management industry, that one additional ordinary member shall be nominated on the recommendation of the Consumers' Association of ireland and that one additional ordinary member shall be a pensioner trustee. I do not know if he has had an opportunity to consider this reasonable request in the meantime, but given his attitude so far today it will probably to turned down.
In relation to my request that one additional ordinary member should be a representative of the investment management industry, it is the investment managers who manage investments. We are talking about large sums of money and an industry which receives substantial support from the taxpayer. As we are aware, those who contribute to pension funds can avail of attractive tax rates. A person may contribute up to 15 per cent of his or her salary to a pension fund and avail of full tax relief. A further improvement was made in the Finance Bill. A person aged 55 years or over may now contribute up to 20 per cent of his or her salary to a pension fund and avail of full tax relief. This was an enlightened amendment. I hope the age limit will be reduced to 45. In relation to my request that one additional ordinary member should be nominated on the recommendation of the Consumers' Association of Ireland, in this Bill we are seeking clarity to ensure that those who contribute to a pension fund know what they are doing.
Acting Chairman
As it is now 1 p.m. I am obliged to put the following question in accordance with the order of the Dáil of this day: "That the amendment put down by the Minister for Social Welfare and not disposed of is hereby made to the Bill, that Fourth Stage is hereby completed and that the Bill is hereby passed."
Question put and agreed to.