I move:
That, pursuant to Standing Order 177, Standing Order 131 is modified to permit an instruction to the Committee to which the Social Welfare Bill 2014 may be recommitted in respect of an amendment, for which it has power to make provision in the Bill in relation to the payment of moneys by the Minister for Finance in respect of liabilities which may arise in relation to certain defined benefit pension schemes and to change the title of the Bill to take account of these provisions.
The amendments I am bringing forward will enable the Minister for Finance to draw moneys from the Central Fund to discharge liabilities which may accrue to the State in the event of the wind-up of a defined benefit pension scheme where both the employer and the scheme were insolvent, known as a double insolvency; where the date of the wind-up of the scheme was on or after 25 January 2007 and before 25 December 2013; and where the resources of the scheme are insufficient to fund a minimum level of benefits.
The issue of a potential liability on the State arises following the ruling of the European Court of Justice in the UK case of Carol Marilyn Robins and others v. the Secretary of State for Work and Pensions, known as the Robins case, which was delivered on 25 January 2007, and in the Irish case of Hogan and others v. the Minister for Social Protection and others, known as the Hogan case, which was delivered on 25 April 2013.
Both of these cases were concerned with the transposition of Article 8 of EU Directive 2008/94, the insolvency directive. The original insolvency directive 80/987/EEC was transposed by Ireland via the Protection of Employees (Employers' Insolvency) Act 1984. The consolidated directive 2008/94 did not amend Article 8 of the earlier Directive 80/987/EEC.
The insolvency directive requires members states to ensure that the necessary measures are taken to protect the interests of employees and also the interests of persons having already left the employment of the employer, at the date of the employer's insolvency. This protection is in respect of rights conferring on them immediately or prospective entitlement under supplementary or occupational pension schemes. In a ruling on the Robins case on 25 January 2007, the European Court of Justice found that where the measures in place to protect the interests of scheme members fail to secure at least 49% of the member's entitlement then this level of protection was not sufficient to secure compliance with the directive.
In 2010, a case was brought on behalf of ten members of the Waterford Crystal staff and factory pension schemes against the Minister for Social Protection, the Attorney General and Ireland for the alleged failure by the State to properly transpose the insolvency directive and for consequent financial losses suffered. In 2011, the High Court referred certain matters to the European Court of Justice seeking clarification on provisions in the directive.
The European Court of Justice delivered its ruling in the Hogan case on 25 April 2012 and reaffirmed that where the measures in place to protect the interests of scheme members fail to secure at least 49% of the member's entitlement then this level of protection was not sufficient to secure compliance with the directive.
Deputies may recall that I amended the Pensions Act last year to change the manner in which the resources of a defined benefit pension scheme are distributed in the event of the wind up of a pension scheme where both the employer and the scheme is insolvent. The purpose of this was to ensure that all beneficiaries of the scheme - this includes pensioners, current employees and former employees who have not yet retired - receive at least 50% of their benefits and protect pension benefits in payment up to €12,000 per annum.
The amendment at that time provided that where the resources of a defined benefit pension scheme are not sufficient resources to meet that level of liabilities then the State will provide funding from the Exchequer to address this shortfall in the resources of the scheme. In budget 2014 and in the Finance (No. 2) Act 2013 the Minister for Finance provided for changes to the pensions levy to provide funding to meet potential State liabilities emerging from pre-existing or future pension fund difficulties. The legislation in the Social Welfare and Pensions (No. 2) Act 2013 is not retrospective and applies to double insolvencies arising after the date of the enactment of the Social Welfare and Pensions (No. 2) Act 2013 on 25 December 2013.
The amendment I am now bringing forward allows for payment from the Central Fund to be made by the Minister for Finance in situations where the State may need to address any liabilities that could arise between the date of the Robins judgment which was delivered on 25 January 2009 and the date of the enactment of the Social Welfare and Pensions (No. 2) Act 2013 - 25 December 2013.
The aim of the changes I introduced last year and the package of measures supporting those changes was to ensure as far as possible that the benefits of scheme members will be more secure; poorly funded schemes will become more sustainable and in the medium and long term achieve a fully funded position; and, the exposure of the State in the case of the wind up of a scheme where the employer is insolvent is minimised.
It is considered that the amendments which I made to the Pensions Act last year secures Ireland's compliance with the insolvency directive. One of the key mechanisms for securing the solvency of a pension scheme is the funding standard requirement as set out in Part IV of the Pensions Act. This is a "wind-up" standard: it looks at the benefits that a scheme is obliged to provide should the scheme be wound up and defines the minimum assets that the scheme must hold in order to cover those liabilities. The funding standard was in abeyance since the end of 2008 until I reintroduced it in June 2012. The reintroduction of the funding standard has provided a clearer indication of the funding position of pension schemes. The reintroduction of the funding standard has provided an environment where the Pensions Authority can fully engage with schemes and, in particular, with poorly funded schemes to advise and support schemes achieve a more sustainable funding position.
In advance of the reintroduction of the funding standard, I introduced legislation to require pension schemes to maintain additional funding in the form of a risk reserve to protect scheme members against future volatility in financial markets. It is the objective in the short term to support weaker schemes to achieve a more sustainable funding position, and in the medium term support all schemes to meet the requirements of the funding standard. Ultimately, pension schemes need to get to a place where they have provided for additional funding in the form of a risk reserve in order to protect the interest of scheme members against future volatility in financial markets. The application of the funding standard which the OECD report, Review of the Irish Pension System, which was published in April 2013, considered "undemanding" is key to achieving this level of scheme funding. Some 96% approximately of defined benefit pension schemes either satisfy the requirement of the funding standard, or have agreed, or are in the process of agreeing a funding proposal with the Pensions Authority. The remaining schemes are in dialogue with the Pensions Authority.
The number of defined benefits pension schemes in Ireland has reduced from 2,500 schemes in 1991 to 1,500 in 2003 and to 933 schemes with some 189,644 active scheme members at the end of 2013. The vast majority of defined benefit pension schemes are now closed to new members. However, while this change is in line with international trends it does not lessen the resolve of the Government to ensure that the funding levels in defined benefit schemes are sustainable, that measures are in place to secure compliance with the insolvency directive and that the system operates in a manner consistent with the public interest in ensuring the future sustainability of a system of private pension provision in Ireland.
Deputies will be aware that a number of changes have been made to the Pensions Act in recent years. The rationale behind these changes was to ensure that appropriate measures were put in place to balance the interests of all parties and ensure the sustainability of the defined benefit pension model. These measures included the reduction in the cost of providing pension benefits through the establishment of the pensions insolvency payments scheme and the introduction of sovereign annuities-bonds, the requirement to maintain a risk reserve in order to protect the interest of scheme members against future volatility in financial markets, and broadening the options available to employers and the trustees of defined benefit pension schemes to restructure scheme benefit in order to ensure the sustainability of the scheme. All these measures have been underpinned by a range of measures introduced by the Pensions Authority to ensure that schemes comply with the pension scheme funding requirements as set out in the Pensions Act.
I acknowledge that many schemes are making great efforts to ensure their ongoing viability and employers and members have often made significant financial contributions over and above those required by their particular trust rules.
This process is generally managed through dialogue between trustees, employers and members, where efforts are made to reach agreement regarding the steps that must be taken to secure scheme viability. This may include a mix of measures, such as increased employer and member contributions, longer working and amended benefits. I am pleased to inform the committee that I have not received any application for funding to meet a shortfall in resources in a defined benefit pension scheme arising in the case of a double insolvency as provided for in the 2013 Act. In the event, however, that a scheme does become insolvent, the measures introduced have been designed to strike a fair balance between the interests of all members of the schemes. The 2013 (No. 2) Act, for example, ensures that 100% of defined benefit pensions in payment will be protected up to €12,000. Based on research in 2007 by the Society of Actuaries in Ireland showing that the average defined benefit pension being paid directly from scheme funds was €10,718 per annum, this measure ensures substantial protection for the majority of persons.
I am hopeful the structures now in place will eliminate any recourse on the State to support schemes that wind up in a double insolvency situation. I expect that any liabilities that might exist prior to the 2013 Act will be resolved in the short term.
