Pensions (Amendment) Bill, 1995: Committee and Final Stages.
Sections 1 to 5, inclusive, agreed to.
NEW SECTION.
I move amendment No. 1:
In page 7, before section 6, to insert the following new section:
"(6) The Minister shall ensure that, in guidelines issued by the Board, the precise interpretation of the words ‘misappropriate' and ‘being contemplated' as set out in section 38, shall be detailed.".
The purpose of this amendment is to seek clarification of the words "misappropriate" and "being contemplated" because they are slightly nebulous terms. This amendment would provide an onus for a proper interpretation of those words. Loose wording causes difficulties in any legislation. This amendment is essential to ensure the guidelines issued by the board and the precise interpretation of the words "misappropriate" and "being contemplated" are set in stone. It is a worthy amendment which would avoid any future difficulties resulting from the loose wording of the section.
The amendment proposes that the Pensions Board guidelines should define precisely the terms "misappropriate" and "is being contemplated". Following consultations with the Pensions Board, the Office of the Attorney General and the relevant organisations which made submissions on the Bill, as indicated on Committee Stage in the Dáil, the text of section 38 of the Bill has been amended and the words "is being contemplated" are no longer being used nor is the reference to guidelines. Some concern was expressed about the legality of this approach. In order to remove any doubts in this regard, the reference in the Bill to guidelines was removed. Facilitative guidelines may be used by the Pensions Board under its general powers to make such guidelines.
It is not my intention, and I do not believe, that the board would have the right to interpret the precise meaning of a term used in legislation which is not defined in that legislation. That would be a matter for the courts. As I understand it, there is a misappropriation when any of the scheme's assets are appropriated by any person who is not entitled to them under the provisions of the scheme or under relevant laws, or are appropriated for the use or benefit of any person otherwise than in accordance with the provisions of the scheme and any relevant laws. For this reason I am opposing the amendment.
I appreciate the Minister of State's reply. However, I genuinely believe that for everybody's sake guidelines should be laid down to ensure there is no loose interpretation of the wording. If the Minister of State feels that is not acceptable, we have little option but to press the amendment.
Amendment put and declared lost.
SECTION 6.
I move amendment No. 2:
In page 9, paragraph (d), line 15, after "appropriate." to insert "The trustees of the scheme should be furnished with a copy of any such report or reports, as the case may be.".
The purpose of the amendment is to give the board the power to prepare reports of any investigations it carries out and to have discretion over where and to whom such reports are sent. There is an obvious need for this amendment and it must be accepted. It will create difficulties if it is not laid down exactly who should receive reports into investigations of misappropriations or any misdemeanours. The trustees of the scheme should be furnished with a copy of any such reports because they are the guardians of the scheme. While it is obvious they would receive a copy of any report, I cannot see why that should not be guaranteed in the legislation. I urge the Minister of State to accept the amendment.
This amendment proposes that any Pensions Board report prepared in relation to an investigation should be furnished to the trustees of the scheme involved. The issue has already been discussed in detail with the board. It has indicated that its policy is that, where at all possible, reports will be available to all relevant parties. I am in full agreement with this policy. I am also aware that a case could arise where it would not be appropriate for some reason to furnish such a report to the trustees of the scheme.
Accordingly, I am reluctant to put such a provision in the legislation at this stage. However, I acknowledge the intent of the amendment and, while I am opposing its introduction, I intend to keep the matter under review. If, for example, it transpired that reports were not being made available by the board to the trustees without sufficient good reason, the matter would be revisited.
I think the Minister of State accepts the thrust of the amendment and my reason for tabling it. I cannot see any reason for not accepting it. It would oblige the board to send reports to trustees. I cannot see any reason for withholding a report from the trustees of a scheme if it is to be made available to other parties. I believe that, in the interests of openness, transparency and accountability, the trustees should be furnished with a copy of any report. That would assure the trustees.
As I said earlier, this matter has already been discussed with the Pensions Board. The advice was that it would not be appropriate to furnish reports in all cases, and that there might be situations where it would be better to make the relevant information available at a later stage. In the circumstances, it is not proposed, unfortunately, to accept the amendment — well meaning as it is, as are all such amendments. We have been advised to not accept it.
Amendment put and declared lost.
Question proposed: "That section 6 stand part of the Bill."
The amendments made by the Minister to the original Act deal with the privilege and publication of reports. In light of the experience of the 1990 Principal Act, to what extent have reports been issued by the board? Has there been much activity in this regard? What has been the experience to date which made it necessary to include those amendments?
The general practice of the board is to make reports available as necessary. That practice has been found, so far, to be sound and there has not been any evidence to suggest problems in that area. The practice is long established and the board automatically proceeds along those lines, for obvious reasons. There may be circumstances where it may not be good policy to make available a report at the precise time for reasons that would be obvious only in the knowledge of the circumstances prevailing in respect of a specific case. Such reports are automatically made available and this has been the successful practice for some time.
I presume the Principal Act sets down a procedure for the issuing of a yearly report and that what is envisaged here are separate reports from the overall report of the board. Is that correct?
In the light of the experience of the Principal Act, has a reason been found to make this provision necessary, for example, to make reports privileged? Presumably there is an annual report while this section covers specific reports in individual cases that may or may not be published and ensures that such reports are privileged. Is there provision under the legislation that these reports would be carried in the normal way? They should be made available to the public by way of public documents.
I see merit in the amendment with regard to the issuing of reports to trustees. The word "trustee" worries me. I would prefer the word "members". Should not each member or contributor get the report rather than just the trustees?
Circumstances may differ. From experience gained from difficulties that arose in other jurisdictions one can see where it may not be advisable to make reports available in all circumstances to everybody who may be involved. For example, somebody may have an involvement which would leave them in a position where they would have privileged information at an earlier stage than may be necessary.
There was no reason for introducing measures in this legislation other than to ensure against a repetition of what took place in other jurisdictions. The essential part of our responsibilities must be to safeguard the rights of those who are covered in respect of a pensions scheme and to ensure that at no time should the assets there be put at risk by virtue of the activities of anybody, whether it be at one level or another. To so do would be to create problems, as happened in other jurisdictions.
In today's world of modern technology things happen much quicker than they did 20 or 30 years ago when it was possible to undertake an investigation and have it complete virtually before it became public knowledge. That is no longer possible. For this reason the legislation couched in this section is deemed to be adequate to meet all eventualities. This is based on the best advice available to us. In the event of something happening which may require a further change it can and will be done.
Will the Minister assure the House that pension schemes will not be used as bargaining tools to resolve other problems in companies? It appears that even in Packard Electric, an attempt is being made to use pension rights a bargaining mechanism in order to pay off workers rather than through strict redundancy procedures. This would be a backward step.
We should try to avoid a situation where pensions may be capitalised as a bargaining mechanism to enable companies to evade their responsibilities in other respects. This is why I am anxious to ensure that reports would be published so that we may be satisfied that this practice is not one that will escalate. If this were to be the case we may have to make further amendments to the Bill. However, at this stage I would be satisfied if the Minister could assure me that this kind of practice will not be tolerated. I have seen people sacked and their pensions capitalised on and closed.
I agree with Senator Daly. Pension schemes should never be used as bargaining tools for industrial relations. The Minister has and can give assurances that this will not happen.
The position regarding Irish Steel cost the State £690,000 to ensure that there would be proper tie up to sell off the company at a cost of £37 million — originally it was envisaged that the cost would be £17 million — and to leave 300 fewer people working there. Was there intimidation by some people to the effect that they would not allow certain things to happen unless their contributions were brought up to date? The State had to pay over £600,000 for the protection of 120 staff in Irish Steel.
What protection has the ordinary member against the trustees of a scheme? How are the trustees accountable and to whom? Is there any provision in the Bill to hold trustees accountable where they have done wrong? The Minister is right; in other areas the activities of trustees gave rise to difficulties. For example, in Irish Steel they did not contribute and the State had to pay. However, only 120 gained from it, not the general work-force. We would not want this to happen in every company we wish to sell off.
In the normal course of events reports are made available to everybody.
Are they published in Iris Oifigiúil?
Once they are made available to all involved it is a matter for those concerned; they are no longer secret documents at that stage. Everybody involved in the management of pensions funds has precise responsibilities. These are further emphasised in the context of this legislation. The need for such care and protection arises from issues which occurred mostly in other jurisdictions.
It is in the interests of those who make contributions to a pension fund to ensure that, as contributors, their rights are not eroded. It is also essential that people in a company who are charged with looking after the rights of contributors to a fund have special and particular responsibilities. There should be no erosion of the assets at any stage without the clear agreement of everybody concerned.
Members may have experience of dealing with another point on behalf of constituents. It is not unusual for somebody who, for various reasons, leaves employment mid-term and goes to a different area, to find they have already capitalised or committed their pension entitlements in respect of a business arrangement. This is not good practice because it may leave them and their dependants entirely reliant on the State at a later stage. The practice is common, but it is not in the interest of contributors.
Some pension funds exist on the basis of contributions made by employees, but this is not the case for other funds. Particular care should be taken to ensure that the assets of funds to which contributions are made directly by employees are safeguarded at all times. However, funds to which contributions are not made directly by employees should not be allowed to erode. These employees have an entitlement as and from the time they become subscribers, although the contributions are made by the employer. The purpose of the Bill is to enhance existing legislation with regard to difficulties which have arisen in Ireland and other jurisdictions and it is expected to be effective in that area.
Can the board authorise a person to examine the position of State pensions, such as an Army pension? The Minister is aware from his constituency experience that, in the past, widows of Army personnel complained their husbands opted out of schemes and as a result they were not entitled to pensions when their husbands died. This caused much anxiety. Can the board authorise a person to inspect Army records?
No. It is not provided for in the legislation because State pensions are a different area. One presumes the State looks after that area and the contributions related to it. In the ordinary course of events one would not expect difficulties to arise for contributors in respect of such pensions.
Each pension scheme has an obligation to disclose all aspects of the operation of the fund on a regular basis by way of an annual report. A responsibility is placed on the trustees, management and the contributors to have an ongoing interest in what is taking place in relation to their fund and any interventions which could have consequences for them.
Does the board have responsibility for any category of State pension scheme? Can State pensions be included in its remit or is it confined solely to companies and private arrangements? If so, there is a serious gap in the legislation. Perhaps this area is covered by other legislation but it is important to clarify this aspect. The Minister is aware of numerous cases where women discovered on the death of their husbands that they had opted out of pension schemes. Much concern has been expressed about the fact that people had opted out of pension schemes without telling their families and, following their death, the families found themselves seriously at a loss because they did not have a pension. I want to ensure this cannot happen in the future. People should be able to ask the State or the board whether somebody has opted out of a pension scheme which would leave them seriously disadvantaged when that person dies.
As I said earlier, responsibility for State schemes does not fall within the ambit of the board. There may be cases where people have mixed contributions, State and otherwise, and they could fall between two stools.
The Senator's fundamental point is whether a partner could liquidate their pension without full reference to beneficial advice. Unfortunately, that applies in all pension schemes. A person may decide to capitalise their pension and utilise the resources for legitimate business purposes. This is fine provided the venture survives and flourishes. However, if things go wrong and the venture flounders, it could be said that the advice, if given, in the first instance to allow liquidation was wrong. This can happen even with the best advice in the world.
I am aware of cases — I am sure the Senator also has experience in this regard — where individuals sought advice on the best action to take in respect of such a venture. Invariably, I advised against the capitalisation on the basis that the individual concerned may find themselves in need at a later stage. I also advised people not to capitalise in, total to ensure some provision at least was made for them in later life. I gave such advice on the basis of the number of dependants to ensure they and the State were protected and to give the individual peace of mind. However, if the individual did not follow the advice, a difficulty may arise.
It is possible at any time for people to ask a pension fund what the circumstances are likely to be for them in the event of capitalisation and it is the duty and obligation of the fund, State or private, to make that advice available. However, I emphasis that it is not possible to ensure the advice given is taken, and thereby hangs a tale.
Is the Minister confirming the Bill is of no use to people in State employment? Does the board have any responsibility for the ESB pension funds?
That is correct. We dealt with that point.
Will the Minister indicate if there is any official thinking in relation to bringing State pensions into line with the semi-State area and under the control of the board? Such a move is desirable in view of people's anxieties about pensions generally in terms of retired teachers, gardaí or Army personnel and their widows.
In the Pensions Act provision was made for compulsory preservation of benefits after a minimum period in the scheme. Therefore, since 1991 compulsory preservation of benefits applies. This relates to keeping the scheme intact, which I referred to earlier.
I am not sure what purpose can be served by bringing State pensions under the same heading, because the State must apply rigidly the rules as they apply to other agencies. There has not been any situation in Ireland whereby the pension schemes of the Garda, the Army or teachers or any other pension schemes have been eroded or put under threat from any source.
It is possible, however, to make arrangements of the nature referred to by the Senator individually and that may depend on the needs or requirements of the individual at the time. While it might not be good advice for the person to proceed along the lines I have indicated, capitalising their pension entitlements, there will be situations where people choose that option by virtue of the circumstances at that time and if the necessity arises in the future. It is possible they are right. Only with the benefit of hindsight will anybody be able to prove them wrong. It should also be remembered that individual rights will vary.
Generally, the Senator's suggestion to this legislation is of no benefit to the public sector. It would have a bearing on the semi-State sector but not on State pension schemes. If it transpired that the State mismanaged pension funds there would have to be a rethink of the legislation. I cannot conceive of a situation where the State would misappropriate pension funds any more than it would withhold salaries payments to its employees or whatever the case may be. If there are such situations, we would like to know about them. It was not envisaged in the preparation of this legislation that there was a necessity in that area.
Is section 6 agreed? This is the Senator's sixth time up on this legislation.
This is a serious matter, a Chathaoirligh.
We are becoming repetitive.
We are not. The Minister will be aware that the State does not have pension funds. Pensions are paid out of Exchequer funds. There is not a teachers' fund. I presume it is paid out of Department of Education funds. My point relates to pensioners' spouses where the former, without reference to the latter, has opted out of a pension scheme. Would this board be entitled——
The Minister has dealt with that situation a number of times. He has said that the rights of each individual——
No, he has not. This is to do with other issues. The question has arisen on numerous occasions and it is not a question of the State misappropriating pensions. That is not the issue. The question is where State pensions have been opted out of without the knowledge of the pensioner's spouse and their only discovering it when they claim the pension. Can the wife of an Army person go to this board and have that question clarified, whether her husband is in the pension scheme or has opted out, so that she will not discover it only when he dies? We had a big campaign about this a few years ago.
We are certainly being repetitive now. Has the Minister anything to add to what he has already said?
The Minister lives in Kildare. He should know.
I do. At the risk of repeating myself, this is what I said earlier: there may be instances where one or other of the parties in that situation can withdraw, liquidate, capitalise, etc. their pension entitlements. There are other ways of dealing with that. The courts have a right to deal with it, even retrospectively. The advice normally available to any person wishing to do that is to cater for themselves both currently and hereafter in so far as it can be done.
What the Senator might be suggesting is that in the event of capitalisation initiated by one party in the State sector, the other party be automatically informed. There have been some instances where the other party was informed and forgot about it or it became vague over time.
This legislation deals essentially with private, not State, pension funds. State pensions are currently being reviewed by the Commission on Public Sector Pensions.
We get an answer at long last.
If the situation should arise where changes are necessary then that is the time to do it. That is specific to all State pension funds.
The situation referred to by the Senator and by myself previously would be best handled if it is ensured, in the cases of one or either partners wishing to capitalise or sell their pension entitlements, that both partners are informed of the decision at the time. Under existing legislation you may find that provision is made for that in some cases and not in others. For example, the courts may decide, in the event of separation or dissolution of a partnership, to allocate the potential entitlements to one or either party or to both parties equally. That is a matter for the courts and they have done that on several occasions. The problem may not be as serious as it appears. Advice may be given by the operator of the pension fund, in this case the State, as to what to do in those circumstances; but my advice to those people would always be not to capitalise their pension entitlements. Either way, it can have a negative impact on their livelihoods and quality of life at a time when they may be most vulnerable.
An Leas-Chathaoirleach
I felt that subsection (1) of section 6 should have been applied to State pensions as well as ordinary ones. If the Minister, as he has indicated, proposes to look at the State pension system and see how it can be improved, I hope he takes into account the points we have made on this section. I would prefer to have section 6 (1) applicable to State pensions so that any person who is involved could make inquiries through this board about what is the situation. If it can be done otherwise, hopefully the Minister will do that.
If it is found to be necessary, I am sure it will be done.
Of course, it is needed. There are several examples where widows found they had no pensions when they went to check the day after their husbands were buried.
Question put and agreed to.
Section 7 agreed to.
SECTION 8.
Question proposed: "That section 8 stand part of the Bill."
Can the Minister outline the overall situation relating to oral hearings?
Can the Senator elaborate further?
This section deals with procedures for oral hearings and amends the Principal Act in relation to carrying out oral hearings. What is the general procedure whereby people can have an oral hearing?
The purpose of an oral hearing is to enable an inquiry to be made other than by a strict private inquiry by way of letter. In this situation the oral hearing will allow the inquirer to make application publicly as, for example, with oral hearings pertaining to the Planning Acts and other regulations. In turn, it will enable a response to be given publicly and not by a direct response privately to the inquirer. In such circumstances it is also possible for the inquirer to have advice or assistance which would not ordinarily be available through a private inquiry by way of telephone call or letter.
The quality and impact of the advice emanating from an oral hearing carries considerably more weight than would ordinarily be the case. Likewise, in the event of matters or incidents taking place thereafter which might be referred to in replies, evidence or information given at an oral hearing, such advice would have a greater bearing than if it were merely a simple inquiry and reply.
Question put and agreed to.
Section 9 agreed to.
SECTION 10.
Question proposed: "That section 10 stand part of the Bill."
Section 10 states:
"(2) A member of a scheme, who would be entitled to preserved benefit under the scheme in accordance with the provisions of this Part if his service in relevant employment were to terminate, shall not be entitled to receive a refund of any contributions paid to that scheme after the 1st day of January, 1991.".
If this money cannot be refunded will it go into a further scheme on behalf of the member? If not, why can the member not get it back? Where does the money actually go?
Historically, certain schemes offered marriage gratuities to female members on marriage. Female members of such schemes who joined the scheme after October 1974 may be entitled on marriage to leave the scheme and receive a refund of contributions within the rules of that scheme. This is permitted by Revenue practice, which also allows the payment of a marriage gratuity to female members who joined the scheme prior to that date.
The preservation provisions of the Pensions Act only apply where a member leaves service; accordingly, in the event of a member leaving the scheme but remaining in service, a full refund of contributions could be made. This presents the following problems for such schemes. First, it is a breach of equal treatment legislation and, second, there may be a requirement when the member subsequently leaves service to provide the preserved benefit under the Act to include service for which a refund of contributions has already been made. This section deals with this anomaly by providing that no refunds can now be made in these situations.
There's equality for you.
Question put and agreed to.
Sections 11 to 13, inclusive, agreed to.
NEW SECTION.
I move amendment No. 3:
In page 11, before section 14, to insert the following new section:
"(14) Forfeiture of a member's pension in respect of employers' claims arising out of criminal, negligent or fraudulent acts shall be provided for.".
The problem here is that if an employee was dismissed from a company for criminal or fraudulent activity, the Bill as it stands would leave employers in an anomalous position whereby they would still be paying contributions as if the employee was still retained in employment. The amendment would clarify that position because it leaves employers in a precarious position.
This amendment proposes to allow for forfeiture of a member's pension in cases arising out of criminal, negligent or fraudulent acts. Up to now, under the provisions of the Pensions Act, 1990, forfeiture has been totally forbidden. The provisions contained in the Bill allow for forfeiture only in respect of situations where it would be to the benefit and for the protection of the member that such forfeiture takes place.
The provisions of section 36 of the Act and this Bill are designed with the interests of the individual members of pension schemes in mind. The Senator's amendment proposes to introduce forfeiture in instances when it would not benefit the member. While it may seem reasonable in the first instance in the type of case the Senator mentioned, I would be most concerned that it could be used against individual members where disputes arose with employers. In certain circumstances it could be open to an unscrupulous employer to use such provisions against the individual member of a pension scheme. It is my belief that the matters the Senator mentioned can best be dealt with through the courts but that it should not affect the pension of the individual member which the Pensions Act sets out to protect. Accordingly, I wish to oppose the amendment for the reasons already stated.
This amendment would give protection in the event of a person being laid off for criminal or fraudulent activity. I understand the Minister is concerned from a member's point of view, but surely we must be concerned for everybody's point of view. I cannot see why, if there is protection on one side, one cannot have it on the other side. The amendment is logical because it would protect employers.
The question of protecting the employer does not really arise because we are discussing the protection of the contributor or member, who in this case is the employee. The forfeiture of entitlements because of a criminal act, which might or might not be associated with that employment, would militate first of all against the individual in a way which perhaps had nothing to do with the criminal act. More especially, however, it would militate against that person's dependants and that, in turn, might militate against the State if it had to take the responsibility of catering for those dependants. That could be quite costly in some circumstances where the State had no responsibility in the matter and where responsibility lay solely with the individual who was erring. If that error was committed fraudulently the courts will look after it. It is a matter for the courts to appropriate the necessary retribution but it would not be either desirable or necessary for the State to introduce a system whereby the forfeiture of that person's entitlements, and those of their dependants, would be the penalty applied by the employer or by the State. The amendment has the opposite effect to that which the Senator is seeking.
In view of what the Minister has said in outlining his views on it, I withdraw the amendment.
Amendment, by leave, withdrawn.
SECTION 14.
Question proposed: "That section 14 stand part of the Bill."
Where an employee of, for example, a State company, is accused of fraud, is that company entitled to capitalise pension entitlements and hold them against whatever sum they claim the person has defrauded?
They could. I dealt with a case like this recently. Where a manager of a pension fund or scheme is guilty of defrauding a company or fund, the company can seek retribution. The individual can also seek a decision in the courts in those circumstances. All such decisions would be subject to the approval of the courts. The individual has the right to appeal to the courts. There have been circumstances in the private sector where an individual had a particular arrangement or had made contributions to the pension fund over a period of time. On the death of that individual, the company might review the situation in a way which militated against the dependants. In those circumstances there must always be recourse to the courts to ensure what is done at that stage is not done in an arbitrary or vindictive fashion. It is possible that a person guilty of perpetrating fraud in the semi-State sector would be liable to have their entitlements looked at by the company.
Yes. Any decisions taken would have to have regard to the individual's right of appeal to the courts. Natural justice would have to apply at all times.
This seems to be contradictory to what the Minister said in relation to the amendment proposed by Senator Kelleher. Either a company can or cannot seize a pension. I want that question cleared up. On the one hand the Minister is saying they can and on the other that they cannot. I am interested in the preservation of the pension rights of the person who is in employment. Where there are accusations made against the person, are the company entitled to seize their pension and entitlements even before there are any court convictions? The Minister seems to be saying they can and cannot. Either they can or cannot. I am not talking about a fund but a person who is an employee of a company.
The Senator should not get worried about contradictions like that. It upsets and confuses me. I know he would not like to confuse me and I am sure that is not his intention. I can assure you it is not my intention to be confused.
The Senator is referring to civil servants, which is not the same thing. I can assure the Senator that any confusion that might exist on this side of the House is now firmly over on his side of the House. I do not wish to envelop his side of the House in any confusion.
The Minister is contradicting himself.
There is still a provision for forfeiture in the case of State pensions of the type to which the Senator and I have referred. Any decision is subject to scrutiny by the courts. It has to be that way, because we cannot walk in and say "We have now decided to capitalise your pension, we have taken it away from you and all your entitlements are gone." A civil servant's pension can be forfeited, but only by a Cabinet decision. In the State and semi-State sectors it is possible for the company to move in and seize a person's pension.
Before the person is convicted?
They could after the person is convicted. It must be subject to the decision of the courts. In the event of the State taking arbitrary action, it would automatically be subject to the decision of the courts. Ordinarily, the decision would be taken after the courts had made their decision. The seizure could be sought and attention could be drawn to it beforehand.
Question put and agreed to.
NEW SECTION.
I move amendment No. 4:
In page 11, before section 15, to insert the following new section:
"15.—(1) It shall be prohibited to deduct State pensions from private scheme benefits.
(2) Where it is the case that pensions (other than State pensions) accrue over a 30 year period, the annual accrual rate shall be increased by a factor of 40/30, that is, from 1.66 per cent. to 2.2 per cent., to reflect current labour market conditions.".
In some cases promoters of occupational pensions deduct the social welfare pension from the benefits accruing. A person's typical work life is no longer a 40 year period. The formula used for pensions is 40/60ths. I propose this amendment to bring it down to a more appropriate factor of 45, rather than 60. This would be beneficial in terms of the changes in the typical working life of a person.
This amendment prohibits deducting State pensions from the private scheme benefits and changes the annual rate of accrual where pensions accrue over a 30 year rather than a 40 year period. As outlined in the final report of the National Pensions Board, it is now a common feature of most defined benefit schemes that they are co-ordinated with the social welfare pension. This type of co-ordination is aimed at giving the member two thirds of the final salary, based on a combination of social welfare pension, topped up by an occupational pension. The amendment proposed by Senator Kelleher would be a radical one. Occupational pension schemes are voluntary arrangements and employers do not have to introduce or implement such schemes. The main result of such a proposal would be a change in the rules of each individual scheme, reducing occupational pension entitlement so the situation would remain unchanged. A major survey of occupational pensions undertaken by the Economic and Social Research Institute on behalf of the Department of Social Welfare and the Pensions Board, which will be available at the end of this year, will be significant in considering the development of pension systems and informing us of the present level of cover and current issues arising. In the accrual amendment put down by the Senator, I am informed there is nothing to prevent such a rate of accrual currently applying. It would be a matter for the rules of each individual pension scheme. We do not legislate for benefits in individual schemes, which would be the effect of the Senator's proposal. As far as the Revenue Commissioners are concerned, once there is ten years service, there is nothing in their rules or practice to prevent a person from qualifying for a full pension, subject to the rules of the individual scheme to which they belong. I oppose the amendment.
An Leas-Chathaoirleach
Is the amendment being pressed?
Amendment put and declared lost.
Sections 15 to 17, inclusive, agreed to.
SECTION 18.
Question proposed: "That section 18 stand part of the Bill."
I wish to make a point regarding the last paragraph of section 18, which states:
"(4) In this section ‘employer' means the employer who undertakes the role of principal employer for the purposes of such scheme's approval by the Revenue Commissioners under Chapter 11 of Part 1 of the Finance Act, 1972."
While the Pensions Board is making strong recommendations regarding the protection of trustees and members, there seems to be no policy or incentive provided for employees outside the self-employed, companies, management, staff or semi-State sectors or the Civil Service. The general employees who comprise the vast majority of the PAYE sector do not have any avenues open to them to seek pensions elsewhere. The Pensions Board is not selling anything to ordinary people who want to be well protected in their old age.
Senator Kelleher stated that people may change jobs at least three or four times during their careers and will no longer be in employment for 40 to 45 years. Everyone recognises that reality. My point in this regard is relevant to the Revenue Commissioners, the Department of Finance and the Finance Acts. Is the board recommending that opportunities be provided to PAYE sector employees, as they are to their counterparts in the area of self-employment, to avail of paying an extra 15 per cent of contributions per year? A self-employed person can avail of this provision and obtain tax relief of 48 per cent for doing so. What options are open to ordinary people to do this? Are avenues of opportunity being created?
The Departments of Social Welfare and Finance and the Revenue Commissioners co-operate closely on provision of tax relief and tax benefits. People are now taxed on social welfare payments, and rightly so. There is no reason that such payments should not be taxed. However, we should also avail of the avenues of opportunity which exist in this area. We are facing a situation where, in ten to 15 years, an enormous amount of money will be paid through State pension schemes. Will we be able to carry that burden? Why is the Pensions Board not promoting the idea that people should be allowed to seek alternative pension schemes? Why are people not being given the opportunity to obtain 48 per cent tax relief on by paying contributions to a private pension fund? Why are they not being given an opportunity to make extra contributions to the State pension scheme and receive tax relief as a result?
I recognise that this is a radical suggestion. However, the State is receiving extra money from young people who should be given tax relief in return. At present, a self-employed person earning £30,000 to £40,000 can given a contribution of 15 per cent extra in one year and give a further 15 per cent the following year. They can then obtain 48 per cent tax relief on the entire amount. An ordinary PAYE sector worker cannot do this. I may be finding it hard to sell my point, but people must be given tax benefits if they are to pay extra contributions on their pensions. Under the new Finance Act, such benefits are given to people over 55 years of age. However, this again applies to the self-employed sector.
The Minister of State and the Minister for Social Welfare are responsible for ensuring that the Pensions Board promotes this idea. I am not stating that the board is doing its job incorrectly. However, it should allow people in the PAYE sector to pay extra contributions and obtain tax relief. It has not yet done so.
Senator Cregan made a very important point. The Pensions Board should be in a position to broaden its scope to sell more favourable pension schemes to PAYE employees. Senator Cregan also stated that PAYE workers are not entitled to the same benefits as self-employed people in relation to pensions. He made an excellent point about PAYE employees not being entitled to pay an extra 15 per cent of contributions which can be rolled over from year to year. The Minister of State should consider this avenue closely. PAYE sector employees should be entitled to the same benefits as self-employed people. In many Irish families, husbands and wives are obliged to work to make ends meet. These people pay a similar rate of tax as the self-employed who can avail of the opportunity to invest further money in other pension schemes. PAYE sector employees cannot do so.
The Senators' points will be covered by the survey being conducted by the board in respect of pensions. There are also ongoing discussions between the Minister for Finance and the pensions industry at present which will deal with issues of that nature that have arisen.
Members will have experience of situations where inadequacies emerged in the pension system. When a person approaches me with a query in respect of a particular pension fund, I consider the matter myself and refer them to a specialist in life and pension schemes. In those circumstances the person best placed to give advice is someone who takes full account of investment potential for the future. They give advice based on a series of possibilities rather than simply giving it on the basis that it may be beneficial at a particular time.
Senator Cregan's statement about employees is correct. It is obviously in the interest of employees to be able to avail of the best possible advice at a particular juncture. It was suggested that the Pensions Board should perhaps become involved in that area. That may transpire in the future, but at this stage the board has a presiding responsibility or role whereby it does not become involved in the daily operation of pension schemes. It has an overriding responsibility to ensure that schemes remain within certain general criteria. If it is seen as being necessary to improve, enhance or extend the board's role in the way that was suggested, I am sure this will be covered by the survey currently underway.
There will also be circumstances where disputes may arise between consultants who specialise in particular areas. In such cases an absolute decision cannot be arrived at——
I read about that in last Sunday's newspaper.
——because the best decision will be made with the benefit of hindsight. Anyone who studied markets during the past 15 years will be aware that there were times when it was beneficial to invest in endowment policies and at others it was not lucrative to do so. In those circumstances I believe the survey will meet the requirements set out by the Senators.
I welcome the Minister of State's comments, he is well informed with regard to events taking place. I appreciate that he answers questions without consulting prepared briefs. On Sunday last, The Sunday Tribune informed its readers with regard to a particular committee's actions from a social welfare point of view. During our deliberations on the Social Welfare Bill, I asked whether PAYE and PRSI systems should be amalgamated. The Department stated that this would never be considered under any circumstances because the pension schemes of the PAYE sector would not be protected. Yet, to my surprise, I read in the last issue of The Sunday Tribune that the committee set up by the Minister, Deputy De Rossa, is considering the issue and is split about whether PRSI is needed.
Civil servants and those in the State sector argue they would not have enough protection because their PRSI contributions are different from those made by private sector workers. The Minister of State said it was the board, but the Minister for Finance is now speaking to pension representatives about the best way to protect the State — it must give everyone a pension but there are now more older people so we need to diversify. I welcome that — what is wrong with diversifying? However, the Pensions Board, the Minister and the Department must also ensure that benefits are given to people who are prepared to contribute.
At present not everyone is receiving the same benefits. If a person earning £15,000 a year — only £300 a week — contributes to his pension he should receive 48 per cent tax relief and full contributions at whatever age he wishes to finalise the scheme. However, PAYE workers do not get that, but the self-employed do. I do not say that the self-employed should not get that, because not everyone should be carried by the State pension structure, but the avenue should be open to others.
I am glad that at long last we are prepared to consider whether it is necessary that people should pay both PRSI and PAYE. We should not forget that a person who pays PAYE and PRSI is taxed twice before he makes any contribution. That is not the case in the self-employed sector — tax relief is provided when contributing to a pension. The PAYE sector, which contributes to the State pension, is suffering twice and that is not fair. We should not be afraid to diversify. The Pensions Board, when in discussion with the Department of Finance and the Department of Social Welfare, must look at ways to give every possible opportunity to the PAYE sector.
I am glad the Senator reads all the newspapers. I am offended that he said it was the Minister, Deputy De Rossa, who had introduced a new provision——
It was the Minister who set up the committee
——when it was the body for which I have particular responsibility. If the newspaper in question did not mention that, I shall be mortally offended. However, I assure the Senator that the Minister will be fully supportive of anything which will emanate from that report.
I advise Members against reading too much into speculative reports in newspapers prior to the publication of the report, which will happen shortly.
The Minister should inform the committee of that.
In regard to the Senator's dissertation on pensions generally and the possibility of advice to the PAYE worker as against the self-employed, we had this discussion here before and the PAYE/PRSI issue is not related to it. All I will say is that, whether the deductions are for PAYE, PRSI or something else, they are still deductions and the net amount involved will have to be the amount required before, during or after any changes which may or may not take place. It is true that tax concessions, albeit of a limited nature, are available in respect of pension contributions; but tax applies in respect of the pension when payable. This is not an open-ended measure, although it was once. It is no longer possible to receive a tax concession for contributions to a pension fund and receive payment for the pension regardless of income tax.
I agree with the comments on the PAYE sector but I refer to what I said earlier. The only way one can decide how best to utilise one's contributions to a private pension fund is to have regard to expert advice. Since the introduction of modern telecommunications, the number of such agencies has mushroomed to the extent that advice is available in every town and village and almost at every street corner. The advice may be good or not so good. I suggest, given that the individual concerned is making contributions to a pension fund, that it is in his best interest to cross-check the possible alternatives so that his entitlements will be protected and he will get the maximum benefits available from a particular scheme.
Having said that, with the best will in the world there will be cases where individuals will either not avail of the best advice or may make a decision which is not primarily in their interest. There is little one can do in those circumstances but the guidelines laid down by the Pensions Board should direct people and, one hopes, protect their interests. I think it will be found generally that the concerns expressed by the Senator are met.
Notwithstanding that, I refer again to the review and the discussions between the Minister for Finance and the pension schemes. A multiplicity of such schemes are available, not just a small number, and the benefits vary depending on the degree of contribution — in some cases the employee makes no contribution. Schemes to which the employee makes little or no contribution are often as beneficial as those where substantial deductions are made. In those circumstances it is a matter for the employee to examine carefully, through whatever agencies exist in his company to pursue such matters, the degree to which the subscriber invests in the fund and to which he benefits from the investment. He will thereby put himself in a position to decide which is the better value from his point of view.
Question put and agreed to.
Sections 19 to 22, inclusive, agreed to.
SECTION 23.
I move amendment No. 5:
In page 15, line 21, after "scheme." to insert "The employer must permit any employee who is a trustee to take time off during his working hours for the purposes of attending the appropriate training.".
The purpose of this amendment is clear. Trustees are such an important part of the pension scheme system that it is imperative that time be made available to them to attend training and educational sessions. We put much emphasis on the integrity and ability of trustees and this amendment is designed to encourage employers to give them more time to attend training sessions. It will be of benefit to the employers and the trustees.
This amendment provides that time off for an employee during working hours for the purposes of attending appropriate training should be provided for on a statutory basis. I support the idea of trustees being given time off for training. Most employers realise it is in their best interests to have trustees trained properly and would accordingly make whatever provisions are necessary, including paid time off, to ensure this happens.
However, I am advised there is no particular problem at present in this regard and I do not see the need to put the arrangement on a statutory footing. It would be in the interests of all concerned if people were to make such arrangements. I intend to keep the matter under review and changes will be introduced if they are considered necessary. I note the Senator's points. This matter will be acted upon if it is found that action is necessary.
It is in the interests of employers and employees to ensure the best operational standards are applied. If training is necessary provision should be made to enable that training to take place. I do not propose to accept the amendment.
The Minister of State said he was not aware of a need for this amendment at present. Where did he get the information to that effect? Was it supplied by the board?
The information would come from the board from discussions with the pensions industry.
Amendment, by leave, withdrawn.
Question proposed: "That section 23 stand part of the Bill."
There have been problems in this country with trustees. Senator Kelleher recommends that trustees should be allowed leave the work-place for training but I would see the matter differently. The Pensions Board should recommend a training structure relevant to all trustees who should have to participate in the schemes.
Situations may arise where particular employees would avail of the opportunity afforded by their being trade union or pension scheme representatives to absent themselves from the workplace. If there is a demand for training we should be concerned about the type of training they receive. Who recommends that a person is sent for training? Is it the board or the pensions funds? Who tells the trustees how the structures work?
The board can and does provide the training. It has a presiding responsibility and it certifies particular courses for training and it is for the management of the schemes to make the relevant personnel available for such courses. The training prescribed by the board is made available by the board to a specific audience which wishes to avail of it. It is in its interest to avail of the most up to date techniques in running pension funds. The board has that responsibility and is carrying it out.
Has the board a statutory duty to demand that people avail of the courses? In order to protect the members of pension schemes, can the board demand that the employers or trustees avail of the training? If not, the members are not protected sufficiently.
Not at present. However, it may enhance its role in the future because there is the suggestion that, on foot of the preparation of the annual report, it may direct that those operating the scheme receive training. That is under consideration and the survey referred to earlier will encompass it. The need for those operating a scheme may more readily be seen by those outside the scheme. The outside view would be more informed. In such circumstances, provision may be made along the lines I have suggested.
I welcome the Minister of State's reply. Given our concern for pension schemes and that we have set up the Pensions Board, under no circumstances must we allow the board to be undermined and if it cannot make such demands, the board could be undermined. It may claim it does not have enough authority if its recommendations are not accepted. The trustees of schemes should be answerable to the Pensions Board for their level of expertise.
Employers may have a preference for certain employees and certain employees may be able to intimidate others. If the Pensions Board demands and ensures that people are properly informed about schemes, the members will feel much happier because they have the protection of the Pensions Board. That is very important and I welcome what the Minister has said. I would not have any hesitation in saying that demands rather than recommendations should go out from the board.
Question put and agreed to.
Sections 24 to 28, inclusive, agreed to.
NEW SECTION
I move amendment No. 6:
In page 19, before section 29, to insert the following new section:
"29.—Having regard to the Barber decision in the European Court, the ownership of all existing and future fund assets and surpluses shall be defined as belonging solely to the members of the scheme and such surpluses shall be apportioned between the members by increasing their benefits, subject to revenue limits and any balance shall be treated as a contribution holiday over a defined maximum period of 5 years.”.
The momentous decision in the Barber case in 1990 means that the funds are always in the ownership of the workers. The pensions are looked on as deferred payment. Regardless of whether the worker or the employer pays into the fund, it is exclusively the property of the employees. This amendment seeks to include that in the Bill, otherwise we could have difficulties in the future arising out of the decision of the European Court. The amendment is essential for the purpose of the legislation.
I have taken considerable advice on this issue from a number of parties, including the Pensions Board. The one issue that emerged very clearly from these discussions is that one has to be very clear about the definition and nature of a surplus and exactly how it can arise. One needs to understand the nature of funding in a defined benefit pension scheme to understand how excess assets build up in a scheme year.
Once moneys or other assets have been transferred into a trust fund they cannot be transferred except in so far as authorised by the trust deed or by law or unless all the beneficiaries agree or the trust is wound up. There is a fundamental distinction between an ongoing fund and a fund in winding up. As long as the fund is ongoing no beneficiary has any interest in particular assets. These are vested solely in the trustees and cannot be withdrawn either by the employer or the members unless authorised.
In an ongoing fund the surplus is the amount by which the actuarially estimated value of the scheme assets at a given time exceeds the actuarially estimated value of its liabilities. Valuation on an ongoing basis involves a number of long-term projections and assumptions. The actuary compares the present value of an estimated stream of future income with the present value of an estimated stream of future liabilities. On this basis a surplus exists at any time when the present value of the future income exceeds the present value of the future liabilities. It is as clear as that.
In calculating these values the actuary has to apply a wide range of actuarial assumptions. These include financial assumptions as to earnings increases, price increases and investment returns and demographic assumptions as to mortality rates, rates of entry into and withdrawal from pensionable service and rates of early retirement in good health and in ill health. Since these are long-term assumptions it is highly unlikely that they will exactly match assets to liabilities at any particular point in time.
It follows that a surplus cannot be accurately identified by evaluation on an ongoing basis for reasons of prudence. Given the uncertainties involved, actuaries tend to be conservative in their assumptions and this can be one of the factors which leads to over funding on an ongoing basis. What may be shown as a surplus using one actuarial method or set of assumptions may appear as a deficit if a different method or set of assumptions is used. Moreover, since the value of a surplus or deficit is normally small in relation to the value of the assets and liabilities, it can require only a modest variation in the assumption to make a substantial difference to the asset or liability equation.
It follows therefore that from a legal viewpoint any surplus in any ongoing fund is purely notional. The existence of a surplus cannot be finally determined except at the point when the scheme is wound up and the rights of the beneficiaries crystallised. Unless otherwise provided by the scheme rules or authorised by all the beneficiaries, a trust fund must be kept intact for the purpose of the scheme until it is wound up. The employer cannot withdraw assets from the fund. The scheme member becomes entitled to a benefit only on retirement or after fulfilling other conditions laid down by the scheme documents. In the context of an ongoing fund, ownership of the surplus does not arise in legal terms. There is much more.
I thank the Minister of State for his comprehensive explanation.
The Minister of State lost me at some stage, but I will not ask him to repeat it. I understand from his explanation that a surplus is purely notional.
It cannot be quantified because there are so many variables. In that context, the Barber case would have little bearing on the day to day acknowledgement of a surplus. On the basis that the Minister's explanation is correct, I will withdraw the amendment.
Amendment, by leave, withdrawn.
Sections 29 to 37, inclusive, agreed to.
SECTION 38.
I move amendment No. 7:
In page 26, lines 31 and 32, to delete ", whether in writing or otherwise," and substitute "in writing.".
It is easy to make a complaint if one does not have to put pen to paper. If the complaint must be in writing, people will not make frivolous complaints. They will have to sit down and put it in writing. The Minister should take this on board. It was raised in the other House as well. It is easy to make a complaint orally, but if it is put down in writing there is proof that it has been made and it also takes an extra bit of effort. It could eliminate frivolous complaints.
This amendment seeks to limit the protection for people making reports to those who make such reports in writing. Making reports by means other than in writing relates to voluntary reporting only. If a person makes a telephone call or comes to the Pensions Board office to make a voluntary report and this report is made in good faith — the section specifies that it must be made in good faith — I see no reason why protection should not extend to that person. The amendment seeks to limit the protection.
The objective of this reporting mechanism is to protect the pensions of individual members of pension schemes and encourage the making of voluntary reports where pensions could be in jeopardy. I therefore do not wish to limit it to reports in writing. Any person making a malicious report, whether in writing or verbally, will not be afforded any protection. Accordingly, it is felt that the amendment is unnecessary. Unfortunately, I cannot accept it; I would love to.
It is fair, but since the Minister of State said that he would like to accept the amendment I have to press it.
Amendment put and declared lost.
Under Standing Order 103, I ask the Cathaoirleach to direct the Clerk of the Seanad in section 38 of the Bill, page 26, line 39, to make a typographical change by amending the capital "C" in "Court" from the upper to the lower case. It is a minor technicality. If the Senators had come up with that amendment, I could have accepted it.
Acting Chairman
Is this correction agreed? Agreed.
Section 38 agreed to.
SECTION 39.
I move amendment No. 8:
In page 27, line 42, after "scheme." to insert "The Board must publish guidelines as to the methodology it will employ to form the view as to what constitutes an inappropriate investment for a specific pension scheme.".
This amendment will tighten up the legislation. Sometimes we have loose terminology. If the board had to publish guidelines outlining exactly what inappropriate investment constituted, it would be to the benefit of everybody and the pension schemes in particular.
This amendment seeks to provide that the board must publish guidelines and a methodology of employment in relation to what constitutes an inappropriate investment for a specific pension scheme. These provisions deal with applications to the High Court and it would be my hope and expectation that they would be used only in extreme cases and, hopefully, they may never be used at all.
It would be extremely difficult, if not impossible, to set out in advance what precisely would constitute an inappropriate investment except in very obvious circumstances. However, in most cases it may not be possible to be absolutely precise. The trustee handbook, which will be published in the near future by the Pensions Board, will deal with the proper investment by trustees and should therefore be helpful in relation to the suggestion being made by the Senator in this amendment.
This provision simply gives the board the right to seek a High Court order in relation to an investment. Before the court grants such an order, it must be satisfied that the investment concerned is inappropriate and is likely to jeopardise the rights and interests of the members of the scheme. The burden of proof on the board in this regard is a reasonable precaution in the circumstances and therefore, I must oppose the amendment.
The Minister is being fair.
Amendment, by leave, withdrawn.
Section 39 agreed to.
SECTION 40.
I move amendment No. 9:
In page 28, paragraph (c), after line 53, to insert the following:
"(c) one additional ordinary member shall be a representative of the investment management industry,
(d) one additional ordinary member shall be nominated on the recommendation of the Consumers' Association of Ireland,
(e) one additional ordinary member shall be a pensioner trustee,',".
The purpose of this amendment is to appoint one ordinary representative from the investment management industry, the Consumers' Association of Ireland and the pensioners trustees. That would broaden the scope and knowledge of the board. We referred to the vast sums of money in pension funds and how they could be used in helping create employment and investment in enterprises in our economy. If representatives from the investment management industry, the Consumers' Association of Ireland and the pensioners trustees are put on the board, it would broaden its knowledge and scope and that can only be to the benefit of everybody.
We talk about consumers always being right. It is important that they, along with pensioners, should have representation on this board. We are seeking to ensure that pensioners have guaranteed funds when they retire. This is a worthy amendment and the Minister should accept it.
This amendment seeks to expand the Pensions Board further by an addition of three new members — one a representative of the investment management industry, one nominated by the Consumers' Association of Ireland and one a representative of pensioners' trustees. As the Senator is aware, the Bill already provides for two new board members who will be trustees of an occupational pension scheme, which could, of course, include a pensioner trustee.
I have considered this amendment in depth since it was first proposed on Committee Stage in the Dáil and I still hold the view I expressed then. The board has no specific function in relation to investment policy except for the limits imposed in the funding standard, the level of self-investment and the concentration of investment that can be counted for purposes of funding standard and this is an actuarial issue. Investment policy itself is a matter for the trustees of schemes. I realise, however, that there is a major issue of trustees training in this regard and this is being addressed by the Pensions Board in its trustee handbook, which will be published shortly.
I have considered the proposal for a representative of the investment management industry in detail and have taken account of the representations made by the Irish Association of Investment Managers and the Irish Institute of Pension Managers. I consider that the current make up of the board covers a reasonable spectrum of the pensions industry and that a new representative in this regard is not required. I note, for example, that the Irish Association of Pension Funds, which has a representative on the board, published guidelines recently on investment management agreements for pension funds.
Amendment put and declared lost.
Section 40 agreed to.
Sections 41 to 46, inclusive, agreed to.
Title agreed to.
Bill reported without amendment and received for final consideration.
Question proposed: "That the Bill do now pass."
I thank you, Sir, and the Members of the House for their in-depth and valuable contributions on this technical legislation. I am sorry the Government side did not come up with an amendment which I could have accepted — I would have been delighted to have accepted one which escaped everybody. However, I was glad to facilitate the House by accepting at least one technical amendment, albeit one I produced myself.
Acting Chairman
I think it was a correction rather than an amendment. We would hate to have the Minister bring the Bill back to the Dáil to have it reconsidered.
I thank the Minister for informing the House of his personal commitment to this Bill. The Minister is well aware of what this Bill means, particularly to those who need more protection. This is an important Bill and it covers an area which we must discuss to a greater extent. We must examine what people in the private sector can do for themselves in this regard; and while people working in the State sector should contribute more, they should also get the benefits. The Minister has set up a special committee to examine this matter.
I apologise to the Minister if I gave the impression that the information from the Sunday Tribune came from his committee. It came from the Minister for Social Welfare's committee and I was not aware of this. It may be giving out information of which the Minister himself may not be aware.
This Bill strengthens the protection of people involved in occupational pension trusts. Young people should be encouraged through an educational or advertising programme to have occupational pensions. They currently do not seem to think about the long-term as much as their forefathers.
What both Senators said is true. People in their mid-20s seem to have little interest in pension entitlements, which would be of major benefit to them in their later lives. However, when they person reach the age of 49 or 51, they have a different perspective. Unfortunately, it may then be too late. Publicising the necessity for adequate pension provision for the future is one of the things that needs to be done. It will be attended to in the future, and that applies to the public and the private sectors. It applies in respect of ordinary PRSI contributions for those who, unwittingly, may not have made provision at the appropriate time and, likewise, in respect of the private sector.
I thank the Members for their contributions and my staff for their invaluable assistance.
Question put and agreed to.
Sitting suspended at 12.50 p.m. and resumed at 2 p.m.
