Pension Schemes: Discussion

I welcome the witnesses to the meeting. I wish to draw attention to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

The opening statements submitted will be published on the committee website after the meeting. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

I remind members and witnesses to turn off their mobile phones or switch them to flight mode for the duration of the meeting as they affect the recording and transmission of proceedings.

The heads of the Social Welfare Bill, the summer Bill, were published a number of weeks ago. This committee engaged in pre-legislative scrutiny. A number of issues about pensions were outstanding and some witnesses have made written submissions to the committee. It was in that context where members wanted to explore those issues a little further thus the witnesses were invited to attend today. I invite the witnesses to make their opening statements and members will ask a number of questions.

I call on Mr. Courtney from Pension Equality to commence.

Mr. Fergus Courtney

I thank the Chairman and members for the opportunity to address the committee today.

I represent Pension Equality, which campaigns for gay and lesbian persons to be given an opportunity to leave a pension to their surviving spouses when they die. Our Chairman, Mr. Billy Hannigan, Deputy General Secretary of the PSEU, wished to be here today but, unfortunately, is unable to attend. I am accompanied by Ms Lily Toner who is one of our members. She has not been given the opportunity to leave a survivor pension to her wife.

Some of our group are elderly and ill and cannot be here today. Some of them did not wish to come because they are still fearful of public exposure. This is the first time that there has been an opportunity such as this for a public discussion on survivor pensions for same-sex couples.

We fully support the provision in head 14 of the Bill that provides a survivor pension for Dr. David Parris and remedies the injustice that he suffered. We deplore the exclusion from the head of a small group of people who are in the same position as him. We propose amendments to head 14 that are intended to rectify that anomaly and give practical effect to marriage equality. The amendments are accompanied by explanatory notes and are dated 12 June. An earlier version dated 28 May may be disregarded by the committee. The amendments we propose are restricted in scope and are intended to apply only to this small and diminishing group. There have been no new members since 1984.

We set out our case in our letters dated 28 May and 8 June that we sent to the committee. I hope that members have received them. Our central point is that our situation is unfair and our injustice is the same as that of Dr. Parris. He was locked out of his pension scheme because he could not marry his husband before he was 60 years of age. People like Ms Toner are locked out of her pension scheme because she could not marry her wife before her retirement. It is unclear why a distinction was made in head 14 between people in the same position as Dr. Parris and people in same position as Ms Toner. It is also difficult to understand why, two years after the referendum, we are here today.

We believe that the purpose of the constitutional amendment, and the reason that the people voted for it in such numbers, was to give same sex spouses the benefits and comforts that people in opposite sex marriages have always enjoyed, and that Article 41 of the Constitution protects. The people did not vote for partial equality or to keep special disadvantages for same-sex couples. Marriage cannot be separated from the benefits that it brings. Among the advantages of marriage has always been the opportunity to provide for one's family in life as in death.

The contention has been advanced that because, in 1984, some of our members who were in the public service did not accept the option of a survivor's pension for an opposite-sex spouse, acquired after retirement, they were forever disqualified from a survivor pension for a same-sex spouse. To even propose that shows a deep lack of understanding of the circumstances for gay and lesbian people in that period.

In 1982, when a young man was beaten to death in Fairview Park in Dublin because he was gay, the trial judge said that the crime could not be viewed as serious manslaughter, and the perpetrators received suspended sentences. Yet it is being suggested that at that time, and in that atmosphere, gay and lesbian people were required to make a final decision about their survivor pensions that would bind them, for the rest of their lives, in a pension scheme that was designed for opposite sex marriages only.

In 1984 the idea that there could be same-sex marriage would have been ludicrous, including to the State itself when it made the offer. One gay member has told me that he opted to benefit from an imaginary wife because he was fearful that if he did not do so he would be identified as homosexual, by his co-workers and employers, and passed over for promotion.

We have set out in our letter to the committee dated 8 June why we believe that our proposal will not cause unfairness to opposite sex couples, and this point have been raised. This includes persons who were prohibited from marriage by reason of the lack of divorce. FOI requests have ascertained that in the 20 years since the introduction of divorce, only one or possibly two persons who were affected by the lack of divorce have made application to any Department to change the option they had made. Their requests were successful. The reason for this lack applications is that anyone who was affected by the absence of divorce had ample opportunities, under the pension scheme rules, to obtain a survivor pension. We have listed the opportunities in our costings paper at footnote (e) for paragraph 6.

As regards the potential costs if our proposal is accepted, we have already furnished the committee with our calculations. They demonstrate that the cost would be minimal because of the very limited number of persons who would be eligible to benefit.

The State, it seems, has accepted in head 14, that changing an existing pension rule that is deeply unfair to gay and lesbian employees is the right thing to do, and will not be a cause of any general uncertainty. There is no reason to adopt a different attitude to our proposal to change an unfair rule.

In terms of the amendments, section 73A of head 14 effectively disallows any condition in a pension scheme that requires employees to have married or entered into a civil partnership before a certain age in order to obtain a pension for their spouse or civil partner. By adding the two words "or retired" to the section our amendment effectively disallows any condition in a pension scheme that requires employees to have married or entered into a civil partnership before retirement in order to obtain a pension for their spouse or civil partner. The amendment is shorter and clearer than our earlier wording dated 28 May but it has the same effect. We would not have a problem with an improvement of our wording that might be suggested as long as it achieves the purpose intended by our proposal.

Yesterday we received a copy of the response given to the committee by the Department of Social Protection. Having read it I spoke at length to Department officials.

There was a misunderstanding in that response, based on the mistaken belief that the original pension scheme to which most of our members belong does not have a spouse and dependant benefit. It does have a spouse and dependant benefit, but it is only available if the member marries before retirement. Following that clarification, we seem to have reached a common understanding with the Department of Social Protection that head 14 is intended to cover those gay and lesbian people in the original scheme who have retired and who were unable to marry before their retirement. However, putting that understanding into the Bill, where it will pass through several hands, is another matter. In order to guard against an unexpected change of mind from any source, it is very important that the committee make a formal recommendation that our group be clearly included in the scope of head 14. I believe that such a recommendation would ensure its passage.

Another issue which calls for remedy concerns gay and lesbian public servants who, following the constitutional amendment, have an entitlement to a survivor pension for their same-sex spouse but whose survivor pensions are not being calculated on the entirety of their service. One of our members, Annette McCabe, whose case featured in The Sunday Business Post recently and who is an ordinary level HSE employee, has been told that she is in this position. Whether this should be remedied by administrative action or by legislation is a matter for the Department, but we strongly urge that it be resolved speedily because of her serious health problems. She will not benefit from head 14. I suggest that the committee recommend that where a person has a right to a same-sex survivor pension, it should be based on the whole of her service record.

Pension Equality wants to be made redundant. We want an Ireland where there is no need to have gay and lesbian campaign groups for any reason. I hope the committee will make us redundant. Ms Lily Toner would like to say a few words about her own personal experience of the pension schemes.

Ms Lily Toner

Mr. Courtney has more or less covered everything so what I have to say is more of a personal contribution. I started my career in the telephone exchange as a telephonist. I am sure the committee will be aware that in 1979 we walked the streets for 19 weeks. Included in that action was our fight for equal pay. For all of my working life I have been involved in trade unions. We fought for everything. Women were always on the back foot in terms of equality. Now, I find myself at 64 years of age trying to get justice for women or men of my age who are trying to find equality in all aspects of their working lives and careers, especially in our retirement and, as Mr. Courtney has already said, in our ill health as we get older. Our time is limited. We are not going to live forever. We are all of a certain age. I just wished to make that point, but it is also about pride. It is about the pride of having something to leave to someone - to leave something to the spouse with whom one has walked the road. In many cases over the years that road was walked in secret and in fear. Justice needs to be served. I do not wish to take up too much time, but I wish to express the personal feelings around how one lives one's life, how one hides oneself and how one is afraid to come out because of everything - whether real or imagined - that was there. There is an espoused theory but, even since marriage equality, the theory that was in use is still there and there is still a sense of it. This committee can show us that it means what it says and that we can be helped.

I thank Ms Toner. Just before I go to Mr. Kennedy I want to mention something from the point of view of the committee. Mr. Courtney added more than was in his statement because we supplied him with the Departmental response and he took it further, which is fine. Following today's meeting a transcript of what Mr. Courtney said will be sent to the Department for its written response to the committee so that we can consider it in full. It is important that Mr. Courtney had the response in advance so that he could pursue it further, because when we get to Committee Stage of a Bill it gets technical and detailed and things needs to be precise. From the committee's point of view, we will get a technical response to the discussion which Mr. Courtney had yesterday. I thank him for that.

Mr. Brendan Kennedy

I thank the Chairman. We are very happy to be here. We have supplied the committee with our opening statement. I will not go through it word for word, but I will just touch on the main points. I am the Pensions Regulator and the chief executive of the Pensions Authority. Mr. Pat O'Sullivan is our actuarial adviser and Mr. Colum Walsh is an assistant principal in our legal unit who has been working on the proposed changes to the pensions legislation on behalf of the authority.

I will start by briefly explaining who we are. The Pensions Authority was established by the Pensions Act 1990. This Act is the legislation that governs Irish pensions, so changes proposed in, for example, the current social welfare and pensions Bill, are actually amendments to the Pensions Act. This Act provided for the establishment of what was then called the Pensions Board. Our responsibilities include overseeing the operation and application of the Pensions Act, providing information and guidance on pensions to both the public and those involved in the operation of pensions, and to advise the Minister for Social Protection on matters related to pensions generally. We are therefore responsible for the regulation of trustees of occupational schemes, both for defined benefit and defined contribution schemes. Therefore, it will be our responsibility to enforce any changes that are made to legislation as a result of this Bill.

Many people do not realise how large Irish pension savings are. The total assets of Irish pension schemes total approximately €100 billion. These schemes provide for approximately 415,000 current employees and 105,000 retired members who are currently receiving pensions. Those numbers do not include pension schemes for civil and public servants, which are run on a pay-as-you-go basis and include approximately 360,000 further current employees.

The rest of my statement will deal with defined benefit schemes because that is the subject matter of the Bill. To make it clear, a defined benefit scheme is a scheme that is expressed in terms of people's earnings when they retire. For example, a person might get one eightieth of his or her annual pay for every year he or she had been working when he or she retires. A defined contribution scheme is a scheme where an agreed contribution is made by a person and their employer and, at retirement, his or her benefit is the value to which those contributions have built up. Of the €100 billion in pension schemes in Ireland, approximately €58 billion is in respect of funded defined benefit schemes. There are currently 628 of these schemes, including approximately 115,000 current employees. Both the numbers and the membership of funded defined benefit schemes are falling. The numbers have fallen in the last year. That figure of 628 was about 666 a year ago. If we look at 1992, there were 2,560 defined benefit schemes at that stage with approximately 200,000 active members. Both the numbers of schemes and the membership have been falling pretty continuously over the last 25 years. It is usual when an employer closes a defined benefit scheme that it would be replaced with a defined contribution scheme.

To speak briefly about the rules which govern defined benefit schemes, every year defined benefit schemes are required to calculate the value of the benefits they have promised. They then compare this value to the total assets of the scheme. If there are not enough assets they have to take certain steps. All this process is overseen by the Pensions Authority. This yearly assessment must be done in accordance with a set of rules, and these rules are collectively known and the funding standard. In many discussions about defined benefit schemes the phrase "the funding standard" will be heard. That is the set of rules that apply to schemes to ascertain whether they have enough money to meet the promises they have made. Where a scheme does not have enough assets the most common response is that the scheme trustees and the sponsoring employer will agree a recovery plan to eliminate the shortfall over an agreed period of time. This recovery plan is known as a funding proposal - another bit of jargon. That is the name in the legislation.

Usually a funding proposal involves additional contributions by the employer. Sometimes it may involve additional member contributions and sometimes the funding proposal may involve cuts to the benefits that have already been promised. However, those agreements are voluntary under current legislation. If no agreement can be reached and if a funding proposal cannot be signed off, the scheme may eventually be wound up. In such a case, if there is a shortfall, there is usually no obligation on the employer to make up the shortfall unless, in rare cases, the rules of the scheme oblige it to do so. It is important to point out that there have been many cases where employers have paid off some or all of the shortfall, but there is no legal obligation.

There is a reference in the letter the committee received from the Irish Business and Employers Confederation, IBEC, to a number of changes that the Pensions Authority is considering to the funding standard. I will briefly discuss those. There are three changes under consideration at present. The first is a change to the calculation of the risk reserve within the funding standard. This will make the funding standard slightly easier on schemes that have taken steps to manage carefully their investment risk. The second change is a procedural change relating to a funding proposal which is paying off or closing a deficit. Where there is a funding proposal in place and it goes off track for whatever reason, we are looking at making it simpler for the trustees and employer to agree changes to that funding proposal to restore the scheme. The third change we are considering is to examine the funding standard calculations. The funding standard calculations in respect of members who have already retired are based on how much it would cost to pay an insurance company to take over responsibility for paying those pensions. Questions have been raised about whether the current calculations reflect the actual cost that would arise if that transfer was made. There are concerns that the current funding standard calculations might overestimate that cost, so we are examining whether we can improve those calculations to make them more accurate.

I am happy to take questions.

Thank you. Finally, I invite Mr. O'Brien to make his presentation on behalf of IBEC.

Mr. Fergal O'Brien

I thank the committee for the invitation to the meeting this morning. I am accompanied by my colleague, Maeve McElwee, and we are here to represent the views of IBEC members. The committee will be aware that IBEC is the country's main business representative organisation. It has 7,500 members across all sectors of the economy and they employ approximately 70% of the private sector workforce. Many of our members have an interest in issues relating to defined benefit pensions and the legislation under discussion today.

Our concerns relate specifically to Part 3, the amendments to the Pensions Act 1990, heads 12 and 13, which will have unintended and negative consequences for employers and scheme members. Head 12 proposes an obligation on employers sponsoring defined benefit pension schemes to give 12 months notice of their intention to cease contributions and head 13 proposes that the Pensions Authority can determine a legally enforceable schedule of contributions that will restore defined benefit schemes which do not satisfy the funding standard.

Most defined benefit pension schemes are established under a trust deed. The employer undertakes to be bound by the rules of the scheme and to meet certain duties and liabilities on a voluntary basis. There has never been a statutory obligation on employers under Irish law to contribute to a pension scheme or to accept liability for any deficits. We have just heard the comments on that from the Pensions Authority. This Bill will turn a voluntary contribution into a mandatory obligation and potentially jeopardise the viability of businesses which are unable to absorb this extra cost. IBEC shares the Government’s ambition to protect scheme members, to encourage employers to ensure that schemes are well funded and to prevent employers who will not pay, as opposed to those who cannot pay, from walking away from the schemes they sponsor. However, we also recognise that it can be very difficult to put forward legislative proposals which will have the desired effects without any negative implications. This area of pensions is quite technical and the issues are not amenable to easy solutions. While it may seem that a few simple changes could provide scheme members with the level of security they want, the unintended consequences can be damaging and far-reaching.

IBEC is particularly concerned that the provisions, first, could be unfair on employers who have voluntarily set up defined benefit schemes and invested significant resources over time to maintain them. The previously voluntary commitments under these schemes would become mandatory, whereas there would be no corresponding obligation on employers who had set up defined contribution schemes or who had no pension schemes.

Second, we believe the provisions would destabilise ongoing efforts of many employers and trustees to support and deliver on the pension promise made to scheme members. The experience of recent years has demonstrated that this process is best managed through discussion and negotiation between trustees, employers and members, where efforts are made to reach agreement on the steps required to secure scheme viability. These steps may include a mix of measures such as increased employer and member contributions, which have been commonplace, longer working and changed benefits. This painstaking process of supporting schemes to gradually move to a more appropriate funding level may not attract the same media attention as a small number of high profile scheme closures. However, it is more likely to secure sustainable member benefits than additional regulation.

Third, we believe the provisions would impose an extra funding burden on the employer. While the proposals might appear to improve scheme security, in many cases the pension liabilities and the investment risk assumed would be too big for a company to support. It could jeopardise the viability of the business and the jobs of those employed. There are also a small number of significant companies sponsoring schemes without a balance of cost provision. This means that the employer contribution is fixed under the scheme rules. This legislation would now mean that those companies would have to assume large pension liabilities onto their balance sheets. This could have significant commercial and financial implications for those organisations.

Further, we believe the provisions will accelerate the closure of defined benefit schemes in the private sector. The experience in the UK is that the introduction of "debt-on-employers" in 2005 has been widely blamed for the quickening pace of closure of the UK’s 6,000 remaining private sector defined benefit schemes. The director of a leading academic think-tank has said:

Despite the major increase in pension rules over the last 10 years, aimed at protecting the consumer and encouraging better retirement saving, there has been a significant drop in the membership of defined-benefit pension schemes, with many people on course for inadequate incomes in retirement. Our once brilliant, flexible, final salary schemes have been killed off by over-regulation. We will all live to regret this.

We fear a similar situation playing out in Ireland.

Finally, we believe the provisions will result in a far worse outcome for some scheme members, particularly younger members. In some cases preventing an insolvent scheme from winding up can result in its ongoing deterioration before inevitable closure, with older members using up the assets before younger members retire. IBEC therefore believes that the result of the changes proposed in this Bill, which have been designed to protect the position of defined benefit pension members, would deliver the opposite of that. The Pensions Authority has spoken about its proposals to allow for some additional flexibility for defined benefit schemes and to tackle some difficulties with the current operation of the minimum funding standard. Given that this in many cases is the root cause of the difficulties encountered by the schemes, the proposal should be given time for implementation before going further down the legislative route.

We urge committee members to recommend that the flawed provisions we have mentioned be removed from the Social Welfare and Pensions Bill.

Before I call on colleagues for their questions, I have a general question for Mr. Kennedy. The heads of the Bill have been published and there is a clear intention. Is there a timeliness to this being done? In other words, are there negative consequences from the Bill now that what is going to be done on defined benefit pensions has been flagged?

IBEC set out a case on moving from a voluntary to a mandatory scheme. Has any financial analysis been carried out in respect of the additional cost to the providers of those schemes, that is, the companies IBEC represents? Does Mr. Kennedy have an indication of what that might mean in financial terms? I ask him to address those questions and I will then call on colleagues for questions.

Mr. Brendan Kennedy

I will answer the second question first because it is the simplest. I am not aware of any analysis of the cost. It has to be said that in the annual financial accounts of most, but not all, employers that have a defined benefit scheme, this is reflected in their balance sheets. There are exceptions to that. Those are accounting rules and not related to the Pensions Act or Irish statutory rules. I am not aware of such an analysis, nor were we asked to undertake one.

Could that analysis be done? Should it be done? Would it be prudent, before introducing legislation, to have some indication of the costs for the companies that would be affected? Would that have been prudent and advisable?

Mr. Brendan Kennedy

There are a number of different aspects to my response. We have statistics for the current financial situation of defined benefit schemes. Of the 628 schemes to which I referred in my opening statement, of those schemes that have shortfalls, the total amount is approximately €3.5 billion. Some schemes are in surplus and others are in deficit. The total amount involved in respect of those in deficit is in the region of €3.5 billion. Clearly, those deficits are specific to particular employers. It is also important to say that those figures change over time. In some of those schemes, things may work out better than was anticipated and the current deficit will turn out to partially heal itself through, for example, investment returns being better than expected or something of that nature. On the other hand, some of those deficits may get worse or schemes that are currently in surplus may fall into deficit. The current amount is about €3.5 billion. We have not carried out any company-specific analysis on whether one employer could afford the money involved while another could not because the Pensions Authority would not have the expertise to undertake that kind of analysis.

Should that analysis has been done before something goes from voluntary to mandatory?

Mr. Brendan Kennedy

I am trying to be helpful. I wonder whether that is a policy question.

It is a policy question because if something is unaffordable, the policy will not be implemented and there are negative consequences. I am looking at the process in terms of where we are going. Mr. Kennedy indicated there is a deficit totalling €3.5 billion. The system is changing from voluntary to mandatory schemes. I am trying to ascertain the capacity of schemes to address the deficit. Is the Pensions Authority going to fast-track the demise of some of those schemes?

Mr. Brendan Kennedy

Returning to the Chairman's first question, the introduction of this legislation, as we understand it, will not affect schemes that will continue in existence. By that, I mean schemes which are not planned to close. The legislation will not require money to be paid any sooner. As the Chairman understands, an employer does not currently have an obligation to pay. The legislation will mean that they will in the future. Many employers pay shortfalls through funding proposals, as I explained. The Bill will change things. In the case of any schemes that wind up with deficits in the short term, employers will be obliged to pay those deficits. That payment, depending on how the mechanism works out, may be a lump sum or it may take the form of payments spread over a number of years. Under the new legislation, employers will be liable for such deficits and forced to make a contribution. Under existing legislation, if that happens, employers have no legal liability although they may or may not choose to pay.

My first question referred to the timeliness of the passing of the legislation.

Mr. Brendan Kennedy

I am not aware that there is a timeliness issue. Let us be clear: this is a significant change in Irish defined benefit schemes and the responsibilities relating to those schemes. There is nothing specific about 2017 that is special compared to 2015 or 2018.

I thank the witnesses for attending in order to discuss this very complex issue, which is of concern to many people. We have seen the impact of the winding down of many defined benefit schemes on workers who have paid into them all of their working lives and have been unfairly left out on a limb. Some major and highly profitable businesses have wound down their defined benefit schemes. That is why this Bill is so important. Sinn Féin brought forward a Bill to make it illegal for profitable companies to wind down their defined benefit schemes. I will touch on some of those points.

I refer to the statement from Pension Equality. I welcome the group. When someone speaks from the heart and lays the facts before a committee, it is very powerful. It is hard to believe that it has been two years since the passing of the marriage equality referendum, which was very important day for the State. A serious anomaly has been left in place. If we are serious about equality, we need to recognise that it is more than a word. Rather, it involves action and everything which flows from that. This is something that needs to be addressed irrespective of the concerns of the Pensions Authority and whether it affects one person, 100 people or 2 million. It is fundamentally about equality. Mr. Kennedy referred to the low numbers of people involved. As I said, irrespective of whether it is one person or 1,000 people, equality is equality. Out of interest, does the Pensions Authority know the numbers involved?

Mr. Fergus Courtney

We have estimated the number of people involved at about 20. We did a detailed costing based on FOI requests, mainly to the Department of Public Expenditure and Reform. Most of those affected by this particular anomaly are public servants - there are 300,000 public servants - and one or two are in private schemes. It tends to be a public service problem. I would be seriously surprised if any more than 20 people are affected because it involves older people and their opportunity to marry immediately after the referendum. Not that many people are affected.

I thank Mr. Courtney. That says it all. The issue affects 20 people. The financial implications of bringing into effect the real meaning of equality would be very small. While we are dealing with heads of the Bill and it is to be hoped that the issues the witnesses outlined will be addressed once it is published. If not, it is incumbent on members of this committee to bring forward amendments. I will consider doing so.

We wait with great anticipation for the actual Bill to be published. Again, I thank the delegation for attending.

Sinn Féin introduced a pensions Bill against a backdrop where defined benefit schemes in many large companies - most recently that in Irish Life, which had a large surplus and was never in deficit - are being wound down and replaced with defined contribution schemes. Essentially, it is robbing the employees who have paid into these schemes. The companies in question, such as Independent News and Media, INM, and others, are highly profitable. The Pensions Authority pointed out how there are now 628 defined benefit schemes compared to 2,560 in 1992. We can see the direction in which this is going. What is contained in the proposed Bill will move it from voluntary to mandatory. Should it not be made illegal for profitable companies which are not in deficit to be able to wind down their defined benefit schemes? Fundamentally, the Sinn Féin Bill would stop such companies from winding down their schemes. I appreciate that the Pensions Authority has only been recently established. Has it looked at any measures to tackle the winding down of defined benefit schemes? Has IBEC examined the Sinn Féin legislation? If so, will it comment on it? IBEC is critical of what is being proposed but it has not put forward any tangible alternatives in respect of defined benefit schemes. Has it any suggestions to stop these schemes being wound down?

I am not an expert on pensions and I find them difficult. I worked in An Post before I was elected and our own pension scheme was in trouble several years ago. It was hard to understand the way it was run. To my mind, defined benefit schemes were a significant step forward in the 1980s and 1990s from the point of view of the employer and the employee. They were socially integrating, making employers responsible for their employees. It is a terrible indictment that we are witnessing the move from defined benefit schemes to defined contribution schemes. This takes away responsibility from the employer and puts it on the shoulders of the employees. Employees have a role to playing in this. A number of options can be considered, such as an employer increasing liability, the company’s assets or employees increasing their liability.

The idea of giving a year's notice of intention to cease contributions is important. When we consider the cases of INM and Irish Life, it gives people a long time to sit down and work out rather than dealing with it overnight and saying the scheme will implode. I recall what happened during the ESB dispute about its defined benefit scheme. The idea behind it was that the ESB wanted to take the liability off its books to sell itself to the markets. Obviously, that was turned around and the workers maintained the defined benefit scheme.

Mr. O’Brien stated "This Bill will turn a voluntary contribution into a mandatory obligation and potentially jeopardise the viability of businesses which are unable to absorb this extra cost." Will the other witnesses comment on that? It is an important point which should be taken on board. How can the Pensions Authority look at ways of intervening during that period? Mr. O’Brien also made the point that over-regulation kills defined benefit schemes. During the past ten years, however, they have been killed off by austerity, the crash and the 36% reduction in values. It is about what the pension funds invest in. There has to be more of an examination of where the money is invested to protect it.

On the issue of pensions equality raised by Mr. Courtney and Ms Toner, it is straightforward and should be dealt with easily. We should not be fighting over it. If we can get clarity in respect of the matter, it would be important to ensure it is also clear in the legislation. They raised the case of Annette McCabe. Will they send more information to the committee on that case in order that we might deal with it?

Mr. Fergus Courtney


I was a post office clerk and I worked at the counter in the GPO. I made phone calls to Ms Toner and her colleagues to put through international calls in 1982 when people had to book five minutes for a call. We fought for equal pay, equal work and equal value for the telephonists. This issue about pensions is a step on from that and has to be dealt with. The legislation is wrong and we will all put our backs behind it to ensure it is amended.

Mr. Courtney and Ms Toner spoke to the Department yesterday and the committee will get written clarification on the matter in question. They can see the willingness of the committee to resolve the issue. Let us see where we go from there from the point of view of the Department. The case was well put. In particular, it involves such a small and well-defined group.

Will Mr. Kennedy indicate whether the proposed amendments are emanating from the Pensions Authority or from the Department?

Mr. O'Brien heard my questioning of Mr. Kennedy about the cost involved and the impact on business. I was very taken with Mr. O'Brien's statement to the effect that, "IBEC shares the Government’s ambition to protect scheme members, to encourage employers to ensure that schemes are well funded and to prevent employers who will not pay, as opposed to those who cannot pay". My concern relates to how we might bridge that gap in a voluntary system? I have grave concerns regarding the move from a voluntary to a mandatory system, particularly in light of the fact that the costings associated with such a move and the ability of companies to bear those costs have not been ascertained. That is significant work which should have been done. On the other hand, Mr. Fergal O’Brien clearly outlined the will-not-pay versus the cannot-pay scenario. How does he envisage that gap being bridged in the absence of legislation?

Perhaps we will start with Mr. O'Brien. He can address the questions posed by colleagues as well as myself.

Mr. Fergal O'Brien

I will begin with Deputy Brady. I thank him for his comments. His core question relates to what has been happening with defined benefit schemes, why they are in decline and what can be done to stop that. Deputy Collins also mentioned these issues in her contribution. The world has changed dramatically over the past ten or 15 years. A range of financial market issues have put unsustainable pressure on these schemes. The scale and type of financial commitments businesses are faced with are a multiple of what they would have planned for when they established the schemes. There have been significant changes in demographics and life expectancy. There is a mix of other reasons, including regulation, which has made it more difficult for employers to continue to support schemes. The dynamic and the facts have changed entirely. This is a global phenomenon; it is not only an Irish phenomenon. I mentioned the position in the UK and there are similar scenarios internationally.

It is also important to recognise that, from a public sector perspective at policy level, it has been recognised that final salary defined benefit schemes will not be affordable in the future. That change has been made. We no longer have a defined benefit final salary scheme for entrants into the public sector. Even at the level of the State, therefore, the unsustainability of final salary defined benefit schemes has been recognised and, unfortunately, they are in decline for a range of reasons. They have become unsustainable for the State and individual businesses. However, many employers want to sustain such schemes and we should do everything we can to support them and not to disadvantage them. The core of our concerns about the proposed legislation is that it is patently unfair to a particular subset of businesses that have voluntarily entered into a scheme commitment with employees to make that mandatory. They enter into the arrangement on that basis. This is very much a retrospective change to a small subset of employers that, working with their employees, are trying to provide the best retirement option and trying to navigate that in a complex and changing world in the management of liabilities of defined benefit schemes. Other employers have defined contribution schemes and they will not be affected, while many employers have no schemes at all, which is a much broader policy issue. However, for employers that have been trying to support their employees for their retirement in the best possible way, the State will retrospectively impose additional regulation, cost and significant risk into those businesses.

IBEC wants viable schemes whereby employers want to maintain them and work with their employees to do so. We want an environment that can support the schemes for as long as possible but we also have to recognise the obligation on us all to protect businesses and employees who are not scheme members, which is increasingly becoming the reality. The vast majority of defined benefit schemes are closed to new membership. I do not know what are the numbers but only a small number of schemes are open to new members. There is an obligation on these businesses to their deferred members, retired members, active members and non-scheme member employees, who also have to be taken into account. That all has to be seen in the round in the context of what have become unsustainable liabilities.

Deputy Brady asked whether we would support the Sinn Féin suggestion that the winding down of defined benefit schemes should be made illegal. We would not support that suggestion, even where companies are profitable. They could be profitable but there could be a detrimental impact on non-scheme member employees in terms of their future reward prospects and job creation. The company might survive but it would not be able to provide the same remuneration to non-scheme member employees and would be able to increase employment, expand and invest in the future of the business in a productive and competitive way than if it were able to wind down a scheme that had become unsustainable. It would be damaging for those businesses, the employees, and, ultimately, the economy. We do not support the Sinn Féin suggestion.

Mr. O'Brien said IBEC would support businesses that work with their employees to ensure the schemes survive but large companies such as Irish Life clearly have not been working with their employees and they have wound these schemes down. I refer to Irish Life because it has one of the more high-profile schemes. It has a huge surplus and there has been no engagement with employees. The company is proceeding to wind the scheme down. Does IBEC support that?

Mr. Fergal O'Brien

The vast majority of companies will engage with their employees in an extended consultation process around changes to the schemes. That is what is happening every day and IBEC supports many of those members to do that. We are aware of individual cases in the media but the changes proposed in the legislation are not the solution to that. Ms McElwee will comment on the issue of engagement.

Ms Maeve McElwee

It is our general experience that most employers will engage with their staff regarding changes to defined benefit pension scheme commitments. There are significant equality issues in the treatment of staff on defined benefit schemes and those on defined contribution schemes. It behoves employers, therefore, to engage throughout the process and, in general, that is what happens. As Mr. O'Brien said, there may be individual exceptions but it is not the generality because obviously one wants to see a good work environment continuing. Employers that have engaged with defined benefit pension schemes typically provide benefits over and above what they are required to and, therefore, they are keen to ensure they maintain the good working relationship those schemes have generated for the business. However, they have to deal with existing financial pressures on them.

Mr. Fergal O'Brien

Deputy Brady asked if IBEC had specific solutions to the issue. We welcome the suggested changes by the Pensions Authority to support businesses that wish to maintain defined benefit schemes.

Regarding the Chairman's comments, we are concerned that we do not see evidence of sufficient regulatory assessment of the impact of the proposed legislative changes. We would like a much more comprehensive assessment of the unintended consequences of the proposed Bill. It will accelerate a decline in defined benefit schemes. These are voluntary schemes. Why would any employer in their right mind continue to be involved in these schemes when they become mandatory and have excessive regulation associated with them? We are concerned about creating an environment that will make it entirely unsustainable for employers to continue to support defined benefit schemes.

We have made a significant point about a subset of companies and the Pensions Authority has mentioned the accounting standards issues in this context. That reinforces the need for a proper regulatory impact assessment of the proposed changes because this goes beyond the Pensions Act issues and those the authority will examine. They require much more of a whole-of-Government consideration of the proposed changes but if they result in substantial additional debt going on to the balance sheets of companies, that will not be without commercial implications and potential risk to them.

From what we have heard, we do not think the issue has been sufficiently looked at right across Government. That would concern us. At its core, we very much concur with the view that we do not see the evidence of a proper impact assessment here of the implications of the proposed changes.

We may have covered some of the points mentioned by Deputy Joan Collins. The matter is multifaceted and a range of factors are in play as to why we have seen such a demise in defined benefit schemes. It is the reality of the State, as an employer, and it has accepted that it is not affordable to maintain final salary defined benefit schemes. It is the reality of what has happened. We have seen that in other public sector employment cases internationally as well. To force a subset of private sector employers to continue with final salary defined benefit schemes would be absolutely unfair.

The Chairman asked about supporting companies that want to continue to fund defined benefit schemes and the matter of those who cannot pay versus those who will not pay. We continue to urge that regulation and funding standards be made as sensible and as appropriate as possible for the realities of the market we now have, particularly with regard to the measuring liabilities. It is the best way to try to maintain sustainability of the defined benefit schemes we have. We are happy to engage on further legislative suggestions around company obligations but we want them to be properly assessed in advance in terms of a potential impact. We are not bringing further solutions to the committee today.

Is it not part of the problem when a company bucks the trend and will not pay? The negative impact would be seen across a whole sector, which is a problem when it is a voluntary rather than mandatory process. It is a core issue as to how we deal with those companies who have not played ball or been co-operative; they will not pay rather than cannot pay. In a voluntary capacity, that is an out for them. These are the competing issues.

Mr. Fergal O'Brien

In contrast with many other areas that we would deal with in employment law and company obligations, there are no legal requirements on a company to provide for a pension. We have a particular subset of companies who have gone well beyond their statutory obligations to support their employees. We now see that subset of companies being disadvantaged and losing very significant competitive advantage to a company with a defined contribution scheme or a company with no scheme at all.

Mr. Brendan Kennedy

The first and simplest question was asked by the Chairman and concerned whether the initiative to give employers responsibility for shortfalls originated with the Pensions Authority or the Department. It came from the Department and the Minister and it did not originate from the Pensions Authority.

Another question was what we have done in the Pensions Authority to address the reduction of defined benefit numbers over 25 years. To be clear, the role of the Pensions Authority is to ensure the Pensions Act is obeyed, to put it at its very simplest. That Act specifies that if a company has a pension scheme, it must follow certain rules. It does not say that a pension scheme must be set up, and currently it does not specify that a pension scheme cannot be closed. The role of the Pensions Authority, as defined in legislation since it was set up, has been limited to overseeing the pension schemes that exist. More broadly and less formally, it would be fair to say the question of whether employers set up pension schemes, as well as the level of benefits and contributions involved, etc., is seen and understood as an industrial relations issue rather than a pensions legislation issue. It is clearly arguable that if this legislation goes through, that will change. Until now, the question of whether there should be a pension and how much that pension should be has been an industrial relations matter for negotiation between employers and employee representatives. We have not had a role in that. Over the 25 years, as schemes have closed and others have been set up, it has not fallen under our responsibility. There is nothing in the Pensions Act to give us power to intervene in that space.

There is the question of the ability of an employer to absorb the cost if this legislation goes through. Our understanding of the proposed legislation is that the Pensions Authority's role would be limited to ascertaining how much a scheme needs to meet obligations and imposing that as an obligation on the employer. The ability of the employer to afford that amount is not intended to be part of the Pension Authority's remit. I should say two things in passing about that. If it did come within our remit, it would require a change in the way we do things and we would certainly need to acquire more expertise. It is a very complex issue. There is a more general point that would also have to be borne in mind. If ability to pay becomes a feature of the employer's obligation, it would also be necessary to decide that if an employer cannot afford pension scheme deficits, how will those deficits be dealt with? It would not be enough to say the employer does not have to pay the full amount but the pension scheme must be left open in any event. If the pension scheme is going to provide the benefits promised in the rules, the money must come from somewhere. Ultimately, one must make the decision as to whether somebody pays the money or people lose the benefits. There is no third way and it would have to be addressed if we went down that route. Obviously, I am not arguing for or against it but the matters must be taken into account. With the legislation as proposed, our responsibility does not include assessing the employer's ability to pay but rather what is required to pay the benefits promised in the scheme rules.

Should profitable companies be allowed to wind up schemes? This is a question for the Oireachtas and the Government rather than the Pensions Authority. The authority is a regulator. It is a very specific question but I suggest there is a broader question. It is not just about winding up schemes and the question goes to whether employers should provide pensions and if profitability is relevant. There have been various suggestions for mandatory or auto-enrolment universal pension schemes. That question goes to that kind of space. It is not a question for us as a Government agency and pensions regulator. It is a much broader question.

Will Mr. Kennedy clarify a couple of very simple points? He mentioned that the origin of this legislation was the Department and not the authority. As an organisation, has the Pensions Authority ever proposed amendments or legislation?

Mr. Brendan Kennedy

From time to time, we propose amendments to legislation. In the main, they would be technical adjustments where a regulation could be improved with a certain change. As I stated at the outset, we have the role of advising the Minister for Social Protection on pensions matters. For example, currently we are in discussions with the Minister and the Department about changes in general to how defined contribution pension schemes are provided to make the system work better. The issue of who gets pensions and whether schemes should be mandatory or voluntary is a Government matter rather than one for the authority, as a regulator.

Mr. Kennedy clearly indicated that if the legislation is passed, his role is to put these solutions in place irrespective of the ability to pay. He has made that point very clear, that it is not his role and not contained in the legislation. What is the Pensions Authority's view of the proposed scheme? The Pensions Authority did not ask for these regulations to be introduced. How does it view them?

Mr. Brendan Kennedy

The introduction of employer obligations has advantages and disadvantages. I am not trying to avoid the Chairman's question but it is not black and white. There are advantages and disadvantages. I think many of those have been rehearsed. It obviously improves security of members. If employers are obliged to pay in more money, then there will be more money in the pensions scheme for these benefits. On the other hand, there is the issue, as IBEC has raised, about how these were voluntary arrangements. Is it or is it not right to change voluntary into mandatory? I am just saying that is an issue but am not pronouncing on it. There will be an issue whereby some employers will be able to afford their obligations while others will not. It is the Pension Authority's view that there are pros and cons and we have identified them in reports we have produced previously. The decision about whether on balance it is an appropriate thing to do is a Government policy issue and is not for us to decide.

As a regulator, the Pensions Authority must have some view. Mr. Kennedy is clearly able to indicate the number of schemes, the decline of the schemes, and the risk here is that there is a move from a voluntary basis, and there are proposed amendments without any reference to ability to pay. I have made the point to Mr. O'Brien that companies with the ability to pay have walked away from what we would have viewed as their obligations. There is, however, a concern for companies that cannot pay. The viability of those schemes and those companies is an issue. Considering this is legislation that the Pensions Authority did not look for, on balance does Mr. Kennedy view this as a positive or a negative?

Mr. Brendan Kennedy

For clarification, before I answer, it is not legislation that the Pensions Authority sought. I am not thereby expressing a view on the legislation. That is just the practical reality.

No problem.

Mr. Brendan Kennedy

We do not have a view and I do not think it would be appropriate for me to answer that. I do not want to be obstructive in any way but we are a Government agency, this is a Government policy proposal and I do not think it is appropriate for me to express an opinion either on my own behalf or on behalf of the Pensions Authority. I am sorry.

Okay. Are there any additional questions?

On all the schemes, including the defined benefit and defined contribution, can the Pensions Authority give us a breakdown of the gender base of those schemes? I do not mean now but it could be sent on to us if a report is available.

Mr. Brendan Kennedy

We can provide that information. We will circulate it. The source of our information is the Central Statistics Office. It does quite a good analysis. We will forward that to the committee. It is not just about gender but about areas of employment and such.

I thank Mr. Kennedy.

Mr. Fergal O'Brien

I will make one further comment. It is clear from our discussions this morning that there has not been sufficient impact assessment of these proposed changes. It is clear that the ability of businesses to pay mandatory demands will not be a factor in setting those demands. The risks associated with challenging the viability of businesses, threatening jobs in them or threatening the future earnings and career prospects of their employees, even if they do not lose their jobs, are very significant. The reality is that we do not know the answers. In the absence of that information on and understanding of the complexity of all of these issues, these measures and proposals should be dropped for now. They need much more in-depth scrutiny.

Before we conclude, I asked Mr. Kennedy a question at the outset. I am not trying to catch him or anything like that but I want to put it as simply and directly as possible. I asked him whether there was an issue around the timeliness of this legislation. My concern is there is something of a conflict, in that the cost of business has not been analysed. It has come across both from Mr. Kennedy and Mr. O'Brien that the cost has not been analysed and nor has the consequent impact that may or may not have. However, now that the signal has been cleared to the effect that there will be a move from a voluntary to a mandatory situation, does the passage of time cause risk to the existing scheme? In other words, could operators of schemes start winding them down or so forth in this period where there is a proposal for legislation but not enactment? If we prolong the process, does it create additional risk?

Mr. Brendan Kennedy

I think it potentially could. I know of no specific issues but then people would not necessarily tell me. If an employer sponsoring a scheme that currently has a deficit thought that this legislation, for whatever reason, was going to impose an obligation it did not want or could not afford to bear, it might consider taking the steps to wind up the scheme or withdraw its support from the scheme. The details would depend on the specific scheme rules before this legislation came into place. That is a step some employers might be considering.

I thank Mr. Kennedy and call Deputy Brady.

The point to take from the meeting is that the assessment is that because the proper information is not available and there has not been a proper costing or that level of detail, we should do nothing at this point. From my perspective, I do not think that is a fair assessment of this morning's proceedings. There is clearly a huge issue here. Irrespective of delay in this or in any legislation, defined benefit schemes have been plummeting since 1992. We have the figures to hand. Doing nothing is simply not an option in my book. A number of legislative items have been brought forward, this being the most recent. Again, I have put forward the proposition that the Sinn Féin legislation that was brought forward clearly has the mechanisms to stop the profitable companies from winding down their schemes. I have outlined many examples that are in the media, including the examples of Irish Life, Independent News and Media and many others that unfairly, with no consultation with their employees, are winding down their schemes. Doing nothing is not an option. There may be some concerns around this. Giving 12 months' notice, as this Bill currently outlines and proposes, is fair enough.

I put it to IBEC in particular - because there was not a clear "Yes" or "No" in response to the question that I put to IBEC - that if it is opposed to this legislation going forward, would it support the Sinn Féin legislation? If the organisation has not seen it, I would gladly pass it along. It makes amendments to the Pensions Act, specifically where a healthy sponsor shall not be allowed to close a defined benefit pension scheme except where the scheme has reached a minimum 90% funding standard. Second, it provides that for these purposes, a healthy sponsor means an employer that either has positive net revenue or has a parent company with positive net revenue. Its clear intention is to stop the profitable companies from walking away from their employees that are engaged in a scheme. We are not talking about future schemes or curtailing those but about current schemes that are in operation and stopping profitable companies from walking away. I put that question directly to IBEC, because I take on board what the Pensions Authority is saying.

Just before that is answered, Deputy Kenny had a point.

I apologise for being late; there were circumstances out of my control. I have a question for Ms Lily Toner and Mr. Fergus Courtney. How long was Ms Toner paying into her pension scheme? I will be honest and say that I do not know much about this area. On reading about it, however, it is quite unjust to say the least.

Perhaps the witness would tell me the mechanics of that. She obviously paid into a pension scheme and cannot access it now because of this-----

Ms Lily Toner

Not specifically that. I started in 1973 when I was 20 or 21 years of age. It was explained to us that the pension scheme was built into our basic pay. I cannot remember off the top of my head what the percentage was. It was never a physical thing that could be seen on the payslip that this contribution was for the pension. Things started to change in 1981. It was put to everyone whether they would or not. I knew I was gay so there was no way that I was going to pay in or that I wanted to stay in this scheme. It was not until 1984 that it was again put to us whether we wanted to stay in the scheme and pay the contribution. For us at that time, however, there was never going to be marriage or children so what was the point? In answer to the Deputy's question, the pension was built into our basic salary without us knowing exactly what it was. It was never physically on the payslip, if the Deputy knows what I mean.

For how many years did the witness pay into that indirectly from her wages?

Ms Lily Toner

From 1973 until approximately 1984.

Eleven years.

Ms Lily Toner

Until I retired, actually, which I think was in 2001.

It is possible, then, that the witness was paying this for 28 years.

Ms Lily Toner


Is it the case that she can never access that?

Ms Lily Toner

I get a pension but my spouse will not. It will die with me. We say we have equality but there are a few people who will just die away and that is it, they are gone - what the Civil Service used to call "wastage". There is a fundamental injustice for people like me or my spouse that there will be no benefit.

Mr. Fergus Courtney

The problem is that if Ms Toner and others in our organisation had been able to marry before they retired, they would have got the spouse pension. However, because they were prohibited from marriage, they could not do that simple thing. All we ask the committee is to recommend that we be given an exemption from that, taking into account that we could not marry. All of us have had long-term partners for a long time. We could have married our partners if the right to marriage had existed, but it did not, it is so new. We were caught twice then. We are just asking for a little break.

I will try to give that to the witnesses.

I will intervene in a bid to help Deputy Kenny, as he missed the start of the meeting. This committee previously received a written submission from Mr. Courtney which we sent on to the Department. We got a response which we then sent to Mr. Courtney. Yesterday, Mr. Courtney rang the Department and discussed this issue. We as a committee will get a written response from the Department subsequent to that discussion. I will circulate it to all members in order that we are up to date on the Department's position. That is not necessarily the Deputy's position but rather how the Department is looking at it. We will circulate that as soon as possible. Mr. O'Brien, Deputy Brady had a direct question about a piece of legislation.

Mr. Fergal O'Brien

We have not had sufficient time to review Deputy Brady's proposals in detail but we are very happy to do so and to engage with the Deputy bilaterally.

That concludes the questions unless any of the witnesses would like to make further comments. I know that some of them have not been addressed directly but they are free to make a comment if they wish to do so.

Ms Lily Toner

There is one thing of which I am very aware, Chairman, and that is to express our condolences today to the Minister for Children and Youth Affairs, Deputy Katherine Zappone, on the loss of her life partner and wife. In view of what we are speaking about today, I am very conscious of this.

Those comments are echoed by all the committee members present. I thank Ms Toner for mentioning that.

Mr. Fergus Courtney

I thank the committee for giving us an opportunity to come here today. We have been fighting this campaign for six years and this, believe it or not, is the first time we have had an opportunity to discuss this in public. We are very grateful to the Chairman and to all the members for the indications of support we have received.

I do not mean to be flippant, but Mr. Courtney made a comment at the start that if things go well, his organisation would be out of business.

I would not wish retirement on anyone but I think Mr. Courtney said he hoped to retire from this campaign.

I thank all the witnesses for their presentations and for their direct responses to the questions we asked today.

The joint committee adjourned at 12.16 p.m. until 10 a.m. on Thursday, 29 June 2017.