Question No. 6 will not be taken as Deputy Dara Calleary is not present.
Other Questions
Question No. 6 replied to with Written Answers.
Pensions Legislation
Michael McGrath
Ceist:7. Deputy Michael McGrath asked the Minister for Finance the reasons the option of early encashment of AVCs has resulted in significantly less yield than expected; and if he will make a statement on the matter. [16172/14]
This question relates to the initiative in budget 2013 pertaining to early access to certain additional voluntary contributions, AVCs. I support this worthwhile initiative, but the figures for the drawdown thus far have been disappointing. The expectation at the time it was announced was that in the first year the additional amount would be approximately €100 million, and that the yield would be approximately €200 million over three years. I understand the actual amount raised, however, is about €25 million thus far. Has the Minister any plans to review it or to broaden the scope to make it more attractive so that more people will avail of what I think is a worthwhile initiative?
The Finance Act 2013 provides members of occupational pension schemes with a three-year window of opportunity from 27 March 2013 during which they can opt to draw down, on a once-off basis, up to 30% of the accumulated value of AVCs. The provisions also apply to AVCs made to personal retirement savings accounts. Administrators of AVC funds, including PRSA administrators, are required to provide within 15 working days of the end of each quarter, commencing with the quarter ending on 30 June 2013, certain statistical information to the Revenue Commissioners in relation to AVC and PRSA pre-retirement transfers or encashments made during the quarter in question. The tax deducted from the aggregate value of transfers made in the period to 31 December 2013 - the latest date for which details are available - was close to €26 million. The yield from this measure was estimated in budget 2013 at €100 million in 2013 and €200 million in total over three years.
Pre-retirement access to a portion of AVCs is allowed on a tax-neutral basis. The contributions were tax-relieved at the individual's marginal income tax rate on the way in and are taxed at the individual's marginal income tax rate on withdrawal. The take-up of the measure to date has not been particularly significant, with transfers or encashments running at an average of €22 million per quarter up to the end of 2013. I would remind the Deputy, however, that this is a measure which was designed to enable rather than to incentivise individuals to access part of their pension savings beyond their regular or compulsory pension contributions. It is important that individuals continue to provide for their retirement and it would appear that most individuals with AVCs have, to date, decided to preserve their AVC pension savings for this purpose.
I thank the Minister. The issue of early access to pensions raises its head every now and then. It is an important issue that needs to be debated. The scope of what the Minister introduced in budget 2013 was quite narrow. For example, employer-paid contributions were excluded, as were regular employee contributions, self-employed personal pensions, normal PRSAs and AVCs which were made for the purposes of purchasing notional added years. I agree there cannot be a free-for-all situation. It is important to continue to support people who are saving for their retirement, and there has to be a limit to the circumstances in which people are allowed early access to their pension savings. However, there is a need to examine other scenarios such as cases of critical illness or over-indebtedness, or cases in which a person's financial position could be greatly improved if early access was allowed. Has the Minister any plans to review this initiative with a view to possibly broadening its scope?
From a policy point of view, I am a bit ambivalent about it. I realise the importance of making proper provision for pension purposes; however, if people are absolutely financially stuck they might need access to savings they have put away in AVCs. Certainly the drawdown was less than I expected.
I would have thought, as a result of the advocacy by different groups and the personal representations made by Deputies on all sides of the House, that there would be a bigger take-up. That said, the Finance Bill provided for a three year wind-down starting in June 2013. I will look at the issue in the context of the next Finance Bill and, in particular, take into account the suggestions made by the Deputy to see if we will let it run, as initiated in the last Finance Bill, or modify it to make it more attractive, as the Deputy would describe it. I do not want to incentivise it. It is tax neutral.
I agree that early access can only be allowed in very limited circumstances and that it is policy to encourage people to provide for their retirement, but one of the reasons some people are reluctant to join a private pension scheme is they believe, rightly, that the money will be locked away for a very long time and that, come what may in their own lives - as we know, life throws the unexpected at us - there is no provision to access that money. In very narrow circumstances we could allow people to access a proportion, not all, of the money they have put away because in the circumstances I have outlined where there is loss of employment, a critical illness or they are simply drowning in debt, the money would be of far more use to them than it will be in ten or 15 years time when retirement is on the horizon. There are limited circumstances in which the economy, as well as the individuals concerned, would benefit and it might encourage more people to join a pension scheme if there was a little flexibility.
The points are well made. I will examine the matter again before the next Finance Bill is introduced when I will take the Deputy's views into account. We may have a further discussion on it at some stage at the finance committee-----
-----in order that I can establish the views of a wider group of Deputies. That is not to say the Deputy's views are not very valuable because what he is saying is correct.
While I agree that we should not be incentivising people to do this and that clearly the pension industry is incentivised - that is a different debate - I advise caution about one of the issues mentioned by Deputy Michael McGrath, namely, over-indebtedness. If there was access to AVCs to meet debt, the banks would force people to forgo their future for the present. That is the problem and the issue needs to be dealt with. We are in a broken system, but there are ways by which the issue of debt should be dealt with in a humane way. However, allowing one's bank to rob one's future should not be on the cards. I strike that note of caution.
Mortgage Arrears Proposals
Richard Boyd Barrett
Ceist:8. Deputy Richard Boyd Barrett asked the Minister for Finance in the aftermath of reports that AIB is giving debt write-downs to distressed mortgage holders, the actions he will take to require other banks to follow suit; and if he will make a statement on the matter. [16152/14]
The news that AIB was offering write-downs to distressed mortgage holders was somewhat positive, but the submissions we received from groups such as FLAC, the Irish Mortgage Holders Organisation and others last week showed that there was incredible inconsistency across the banks in dealing with mortgage holders in distress. They have stated a crisis that was in abeyance for the past few years because of uncertainty is now ready to explode, particularly for the 33,000 families over two years in arrears. With rising property prices and so on, the banks will accelerate the move to repossess people's homes and the people concerned pointed to the Government as being the one that needed to do something about this.
The Deputy will be aware that in March 2013 the Central Bank published the mortgage arrears resolution targets, MART, framework, which sets out performance targets for mortgage arrears resolution for the six main mortgage lenders. As I mentioned, these lenders are Allied Irish Banks, Bank of Ireland, Permanent TSB, Ulster Bank, ACC Bank and KBC Bank Ireland. They are required to meet targets for both "proposed" and "concluded" sustainable solutions for their principal dwelling home and buy-to-let mortgagees who are in arrears for more than 90 days.
In that context, a sustainable solution has been defined in the Central Bank's published MART, mortgage arrears resolution targets, document as one of the following: an arrangement, concluded in accordance with the CCMA, code of conduct on mortgage arrears, where the borrower is co-operating under the MARP, mortgage arrears resolution process, and the bank has satisfied itself that the arrangement provides a sustainable solution which is likely to enable the customer to meet the original or, as appropriate, the amended terms of the mortgage over the full remaining life of the mortgage; a personal insolvency arrangement, effected under the Personal Insolvency Act 2012; or, if an arrangement could not be reached or is not appropriate having regard to the circumstances of the case, that the property securing the mortgage loan has been voluntarily sold or, failing that, any situation where a bank takes possession of the property, including by way of voluntary agreement with the borrower or by court order or otherwise.
Regarding performance to date, the lenders have reported to the Central Bank that they met the 20% proposed sustainable solutions target in the second quarter of 2013 and also the 30% third quarter target. Regarding the third quarter, the lenders reported they had issued, in total, proposals to 43% of mortgage accounts in arrears of more than 90 days. Furthermore, last December, the Central Bank set its expectations for the quarter ending June 2014 which requires that sustainable solutions be offered to customers to reach 75% of over 90-day arrears and for concluded solutions to reach 35% by that date.
Additional information not given on the floor of the House
The CCMA applies to the mortgage loan of a borrower which is secured by his or her primary residence. The CCMA requires lenders to explore all of the options for alternative repayment arrangements offered by that lender. Such alternative repayment arrangements may include reducing the principal sum to a specified amount and-or an alternative modification of the mortgage such as interest only repayments on the mortgage for a specified period of time; permanently reducing the interest rate on the mortgage; an arrangement to pay interest and part of the normal capital amount for a specified period of time; deferring payment of all or part of the scheduled mortgage repayment for a specified period of time; extending the term of the mortgage; changing the type of the mortgage; adding arrears and interest to the principal amount due; equity participation; and warehousing part of the mortgage, including through a split mortgage.
However, it remains the case that it is at the discretion of each lender, including, as provided for in the relationship frameworks, those banks in which the State has a shareholding interest, which alternative repayment arrangements it offers to borrowers in arrears. These are operational decisions for the individual lender having regard to the circumstances of individual cases. In this context, however, the CCMA requires a lender to document its considerations of each option examined, including the reasons why the options offered to the borrower are appropriate and sustainable for his or her individual circumstances and why the options considered and not offered to the borrower are not appropriate and not sustainable for the borrower's individual circumstances.
In order to improve transparency for borrowers, provision 14 of the CCMA also requires that a lender must detail, in its MARP booklet, which is issued to borrowers in arrears of more than 31 days and must be published on its website, the alternative repayment arrangements offered by that lender, including how they work, their key features and an outline of the lender's criteria for assessing requests for alternative repayment arrangements.
As has been said already today, as well as on many other occasions and reinforced by the groups before the finance committee last week, many of the so-called sustainable solutions are just demands for so-called voluntary surrender or, increasingly, an acceleration of repossession efforts. Lenders are not seriously implementing the mortgage-to-rent scheme, for example, which would be a way of dealing with people in real repayment difficulty. There is significant inconsistency across the banks because the Minister gave them the veto in the personal insolvency legislation. Banks are being banks. That is what we were told in the finance committee. Banks will always behave with their best interests at heart, not in the best interests of distressed mortgage holders. The Minister’s responsibility is to ensure consistency and fairness for the tens of thousands of people in mortgage distress.
The total number of permanent restructures has increased to 54,000. Term extensions and arrears recapitalisation are the dominant permanent restructure types, comprising 60% of the total. It should be noted there has been an increase in the number of split mortgages to over 7,100 from approximately 2,500 at the end of August 2013. This includes split mortgages on a trial basis, pending the completion of a short period of successful payments. Temporary restructures have fallen over the period, as a greater focus is being applied to permanent restructures. Total restructures of accounts more than 90 days in arrears are around 21,000. The proportion of these that are classified as permanent is increasing every month. Regarding buy-to-let properties, a key point to note is that receivers have been appointed in respect of 3,721 accounts. Progress is being made across the range of options that are being applied to restructured debt.
The point is that while some progress is being made, there is also a clear increase in the move to repossession proceedings. In the last two months of 2013, there were 3,331 proceedings for repossession, a significant increase the finance committee was told last week. As I already pointed out, there has been no serious effort to offer the mortgage-to-rent option for people on the lowest incomes. Instead, for much of the time, the so-called long-term solutions are just demands for voluntary surrender. There is radical inconsistency across the banks.
Does the Minister intend to let the banks carry on doing what they want to do or does he propose to improve fairness and consistency in this area by intervening more in the process? That is what we called for last week at the Joint Committee on Finance, Public Expenditure and Reform.
It is not true to say there is a widespread move across the banks to a repossession strategy. I understand the joint committee will have the banks before it shortly and individual cases can be raised with them. The information we in the Department of Finance have got from the Department of Justice and Equality advises that the number of new civil bills issued for the first two months of 2014 was approximately 450. The Deputy knows well that the issuing of a civil bill is a long way back from repossession. Usually, many of these bills just sit there and are left unprocessed, as there is little repossession in the Irish system. I am glad of that. We do not want houses to be repossessed. It is untrue and it upsets people to suggest that the banks are on a rampage now and are into tens of thousands of repossessions. They are not.
Question No. 9 replied to with Written Answers.
IBRC Mortgage Loan Book
Éamon Ó Cuív
Ceist:10. Deputy Éamon Ó Cuív asked the Minister for Finance the reason he does not propose extending the consumer protection and recourse to the Financial Ombudsman to the mortgage holders who are at present with Irish Bank Resolution Corporation in the event of the mortgage book of IBRC being sold to an entity outside this jurisdiction; and if he will make a statement on the matter. [15985/14]
I understand that two-thirds of the mortgage loan book of IBRC has been sold, or has been announced as having been sold. This leaves many customers of what was the Irish Nationwide Building Society without the consumer protection and recourse to the Financial Ombudsman they enjoyed previously. What action is the Minister taking to ensure this protection is afforded to these mortgage holders?
The Government has always been clear that we would ensure mortgage holders retained the protection of the CCMA. We also made clear that we fully expected that any purchaser of the IBRC mortgage portfolio would service the loan books in accordance with the CCMA. This expectation has been met in recent days with the conclusion of the sale of the IBRC mortgage portfolio. The two purchasers of the residential mortgage loans, Loanstar and Oaktree, have both committed to servicing these books in accordance with the terms of the Central Bank's code of conduct on mortgage arrears, CCMA.
The Department's legislative programme includes the sale of loan books to unregulated third parties Bill, which will address concerns surrounding the continued applicability of the Central Bank's CCMA after loan books are sold to unregulated entities. In preparation for this legislation, my officials have been considering how best to ensure that the protections under the CCMA and other codes continue to apply when a loan book is sold to an unregulated entity. The complexities of this issue have been discussed at meetings with officials in the Central Bank, and the Attorney General's office has been kept informed of progress. Draft heads of the legislation have been sent to the Central Bank for its consideration in advance of more detailed engagement with the Attorney General's office. I do not consider it appropriate to discuss the details of these draft heads now, because we are at a very preliminary stage and the heads have not been cleared from a legal viewpoint. However, I hope that whatever changes are made will also include giving these mortgage holders access to the Financial Services Ombudsman.
It was difficult to catch everything the Minister said, but am I right in thinking that the legal position is that the arrangements the Minister has made have no legal status and are totally unenforceable and that this is a case of what might be called light-touch regulation, whereby there is some kind of moral understanding, but if a dispute arises people have no recourse to the mechanisms available to those who are covered or to the recourse they had before the loan books were sold?
I do not think that is correct. It is not my job to give out legal advice, but I believe that when there is a serious agreement between two people, even if they only shake hands on it, there is a contract. Some of the guarantees we saw before the sale were transmitted by way of e-mail and in written form. Therefore, I work under the assumption that there is a contractual obligation.
Lone Star and Oaktree are reputable organisations and I do not think they would welsh on their commitments. There is a tranche of loans which may be transferred to NAMA. We also have guarantees from NAMA that it will implement all of the protocols agreed with the Central Bank. To make doubly sure, I am preparing legislation. As I described, although we have sent the heads of the Bill to the Central Bank and are consulting the Attorney General's office, we are at a preliminary stage. There are complex issues which will take time to work out. We will work through them and underpin the voluntary agreements made with legislation in due course.
The Minister has some arrangement in place, but if a client is in dispute with the financial institution that has bought his or her loan, where does he or she go to enforce the rights he or she would have been able to enforce if the institution was covered by the legislation as a covered institution? Is all of this not putting the cart before the horse? Why did the Minister not introduce the legislation first and make the sale second, rather than making the sale first, leaving people vulnerable and then trying to bring forward the legislation retrospectively? They are two specific and separate questions.
I did not introduce the legislation first because the sale was moving along a tight timeline and the legislation was complex. It will take some time to bring it to a conclusion. The other reason is that we had guarantees from the potential purchasers that they would honour the codes of practice set down by the Central Bank. They are reputable organisations and there is no reason to doubt them. Where other loan books have been sold to other organisations, nobody has run into any difficulty with the codes of practice. While the sales were made some time ago, nobody has come forward to say there was a lack of compliance with the codes of practice.
The Minister did not answer my first question.
Can the Minister inform us that the heads of the Bill provide for the retrospective nature of the legislation in order that it will not apply just to IBRC mortgages but also to the others sold by previous institutions? I have said we will be generous in facilitating the passage of the legislation to protect mortgage holders. What is its legal standing? Was it a spit in the hand and a firm handshake between somebody from the Central Bank, Lone Star and the other companies that bought these loans? Was it agreed to by e-mail? The Minister seems to suggest that although the loans of thousands of mortgage holders were sold a number of weeks ago, he is still completely in the dark as to whether there is a contractual agreement or it is just somebody in an office sending an e-mail to the Central Bank with a nod and a wink agreeing that the institutions will comply and telling the Central Bank not to worry. Is the Minister not concerned whatsoever? Should he not take some interest in this issue and find out if the e-mail correspondence which seems to give the only assurance that they will comply with the CCMA is of a contractual nature?
Although I know it is the job of Opposition Deputies to misconstrue as far as possible the views of Ministers, I said none of the things he has accused me of saying. He asked me about the heads of the Bill. As I said in the original answer, because the heads have not yet been legally proofed, I am not in a position to discuss them with him.
The Minister is in a position to tell me what is his intention.
Let me finish. My intention is to legislate in order that the code of practice that applies to regulated organisations which have mortgage books will also apply to organisations outside the jurisdiction which are not regulated by the Central Bank.
I asked if the legislation would be retrospective.
It is the same thing.
Written Answers follow Adjournment.