I move: "That the Bill be now read a Second Time."
I wish to share my time with Deputies Darragh O'Brien and Mary Butler.
Even before 2008, defined benefit pension schemes were under pressure. Of course, this trend was accentuated by the crash in 2008 which is why, I suspect, in 2008 the pensions regulator suspended the minimum funding requirement. This was widely seen at the time as an attempt to allow defined benefit pension schemes which were struggling some breathing space to weather the storm. We had an election in 2011. I recall this was an issue during the campaign and the then Opposition parties, particularly the main Opposition party, promised to do something about it. They did not do anything for two years, but they did something about it in 2013 which, unfortunately, made matters much worse. They restored the minimum funding standard in 2013 and added a 15% reserve on top of it. In addition, they prised €2.5 billion out of pension funds by way of a levy. Even pension funds that were in difficulty had to pay this levy. One had a situation where some sponsoring company and its employees had built up a pension fund, it was not sufficient to discharge the accrued liabilities to the employees and nevertheless they had to pay a levy to the Government to further deplete their resources.
There are two aspects of the pensions system I want to deal with and there is a third dealt with in the Bill to which my colleague, Deputy Darragh O'Brien, will refer. The first one is a glaring anomaly whereby under Irish law a company which is perfectly solvent can allow its defined benefit pension scheme to run into deficit and then decide unilaterally to close it down to the detriment of those who have been paying into it, in many cases, for ten, 20, 30 or 40 years. I have come across persons who were coming quite near retirement when their scheme was arbitrarily shut down. The supreme irony of the situation, as I am sure Deputy Mary Butler will tell the House, is that if both the company and the pension scheme become insolvent, because the Government was forced to give a correct interpretation to the EU insolvency directive in the Waterford Glass case, the pensioners would get practically all they were due. In other words, the more solvent the company the less chance the pensioners have of getting anything in the event of a closedown.
Somebody who has paid into a pension scheme for many years in the legitimate expectation that he or she would get a certain return is entitled to have a situation where, if the company sponsoring the scheme into which he or she has been paying is financially viable and in a position to pay up the accrued liabilities of the pension scheme, the company should be compelled to do so before it winds the scheme up. This has been the situation in the United Kingdom for more than 20 years. Section 75 of the UK Pensions Act 1995 provides that in such a situation where the company is solvent, the company is in a position to pay and it decides to close down the defined benefit pension scheme, the company is not allowed to close the scheme down until such time as it has made up the deficit.
Admittedly, there have been a number of studies, debates, reports, etc., on this legislation and, of course, it has been found to be imperfect. The main argument is that in some cases a company cannot afford to keep paying the pension and if the company is forced to pay down the crystalised debt, it could drive the company into insolvency to the detriment of everybody. I accept that as a legitimate argument and that is why what I propose is a much more nuanced scheme. I am proposing that the Pensions Authority must give its permission to wind up the scheme if the company is solvent. If the company can establish to the satisfaction of the Pensions Authority that the payment of the full amount would drive the company into insolvency, the Pensions Authority should be able, at its discretion, to allow the company to pay a lesser amount - the minimum would be 50%, but I am not inflexible on the amount. I am aware that the Labour Party and Sinn Féin have produced their own proposals on this matter. I have not studied them in any detail but I intend to do so. I do not have a monopoly on wisdom. I am sure the Bill has many defects and if there is anything better in the legislation from the Opposition parties, I would be quite happy to take any amendments they submit on board.
The second problem is that the liabilities of defined benefit pension schemes are grossly inflated because they are based on a fiction. When calculating liabilities, a company needs to have enough funding in the pension scheme to discharge its liabilities if the company were to be wound up tomorrow. This is totally artificial. It takes no account of the long-term nature of pension provision. It takes no account of the fact that companies do their accounts on a going-concern basis rather than on the presumption of wind-up. A proper ongoing funding model will have to be devised to deal with this situation.
In addition, when it comes to valuing the liabilities, there is an equally artificial situation. Not only is the company supposed to have enough to discharge liabilities if the company is wound up tomorrow but it must discharge them by purchasing annuities which are underpinned by the most expensive possible type of bonds, triple A rated bonds. The yield on triple A rated bonds has been very low during the period of the financial crisis - it has recovered somewhat now which makes the situation a little easier. It is high time that this was looked at and an alternative model devised. This is why I provide that the Pensions Authority would look at this situation and report back to the Joint Committee on Social Protection or to both Houses of the Oireachtas within six months with its suggestions in this regard. If somebody who is entitled to a pension of a certain amount on retirement because that is what he or she has signed up for must buy an annuity, a bond which is yielding a 1% return will cost twice as much as a bond which is yielding 2%. Therefore, the standard has been set inordinately high. It is time that some method of recalculating these liabilities was looked at. If that could be done - I firmly believe it can and there are moves to do so in other countries - not only would it make defined benefit pension schemes, many of which are on the brink, viable but it might even turn the tide of closures.
Those are my two requests. There is another aspect to the Bill which my colleague, Deputy Darragh O'Brien, will deal with, but those are the two requests I have for the Minister. I ask the Minister to allow legislation which requires the Pensions Authority to come back to us with a feasible system based on reality of calculating liabilities in order that schemes will not be artificially in deficit, and to correct a blatant injustice, which has wiped out many honourable persons who contributed to pension schemes for years and were left with nothing and which has been allowed to fester for far too long. Those are not unreasonable requests. As I said, the Bill is not perfect and I am prepared to take on board amendments or any suggestions from the Opposition, the Government or whoever, but those two issues have to be dealt with as a matter of urgency. Owing to the difficulties with the British legislation, I have deliberately nuanced my party's approach in order that it will not be as onerous on the sponsoring employer. In other words, I am trying to find a balance between fairness and justice for the contributors and the danger that some might be tempted to wind up existing defined benefit pension schemes in view of the imminence of this legislation.