Amendment No. 9 is consequential on amendment No. 1. Amendments Nos. 1 and 9 shall be discussed together. Is that agreed? Agreed.
Financial Measures (Miscellaneous Provisions) Bill 2009: Committee Stage.
Section 1 agreed to.
NEW SECTIONS.
I move amendment No. 1:
In page 5, after line 40, to insert the following new section:
"PART 2
PROHIBITIONS
2.—Nothing in this Act shall permit the extension of any guarantee under this Act or Credit Institutions Financial Support Act 2008 beyond 31 December 2014.".
A similar amendment was discussed in detail in the Lower House. I want the Minister to comment on this amendment for the record of this House. There should be limitations with this type of legislation instead of it being left open-ended.
Senator Twomey proposes to amend the Short Title and insert a new section 2 to provide the extension of the period of the guarantee under the Credit Institutions (Financial Support) Act 2008 cannot be extended beyond 31 December 2014. I am proposing in this Bill that a provision be inserted into the Credit Institutions (Financial Support) Act 2008 to provide that the Minister for Finance may, by order, provide for the extension of the period of financial support under the 2008 Act beyond 29 December 2010.
As stated earlier on Second Stage, this is an enabling provision to facilitate credit institutions in raising longer term funding. The current bank guarantee scheme cannot be extended using the provision in this Bill unless a new scheme is approved by the Oireachtas under section 6(5) of the 2008 Act. Furthermore, under EU state aid rules, five years is the maximum maturity per debt that will be permitted. An order extending the current bank guarantee cannot be made without EU state aid approval and consultations with the European Commission are ongoing in this regard.
As for the Senator's proposed end date of 2014 for the period of the guarantee, he will understand that a scenario could potentially arise early in 2010 that an institution participating in any guarantee scheme allowing for longer-term issuance may wish to issue a five-year bond, subject to whatever terms and conditions might apply under that scheme. However, were the Senator's amendment to be accepted, this would not be possible without a future change in primary legislation. Allowing the Minister to specify by order the end date for the provision of financial support, as proposed in the Bill, is the most efficient way to deal with this issue from a legislative prospective rather than being obliged to return to the House with the Bill later on this year or early in 2010 to achieve this purpose. It seems sensible, given continuing uncertainty in the financial markets, to retain the flexibility provided by the approach adopted in the Bill. It is important to bear in mind that each extension of the period of financial support must be approved by the European Commission on state aid grounds. The state aid approval will limit any extension of the guarantee for debt with a maximum five-year maturity.
Amendment put and declared lost.
As amendments Nos. 6 and 10 are consequential on amendment No. 2, amendments Nos. 2, 6 and 10 will be discussed together, by agreement. Is that agreed? Agreed.
I move amendment No. 2:
In page 5, after line 40, to insert the following new section:
"3.—Nothing in this Act shall permit the extension of any guarantee under this Act or Credit Institutions Financial Support Act 2008 to any form of Tier 1 or Tier 2 risk capital as defined under the Basel II Capital Adequacy Framework.".
While I do not wish to hold up proceedings, the Minister of State should comment on what is known as subordinated debt, which basically is when investors take a risk when investing in banks. How has this risk been affected by the fact that to some degree, Irish taxpayers are providing guarantees in this regard? Such investments should carry risk like any investment and regardless of whether one invests in a bank or a company, the taxpayer should not be obliged to guarantee such instruments.
Senator Twomey's amendment seeks to restrict the scope of financial support that may be provided under the Credit Institutions (Financial Support) Act 2008, as amended by this Bill. The amendment aims to prohibit the extension of financial support that may be provided under the 2008 Act to any form of tier one or tier two risk capital. As the Senator is aware, regulatory capital comprises tier one capital, which is largely equity and reserves, and tier two, which consists of longer-term instruments that have the capacity to absorb losses, such as subordinated debt instruments whereby the lenders' claims on the credit institution are wholly subordinate to those of all non-subordinated creditors. Current EU state aid requirements set down strict guidelines for the material scope of guarantees or the type of liabilities covered and any scheme providing financial support under the Credit Institutions (Financial Support) Act 2008 must receive EU state aid approval. For instance, EU requirements do not allow in principle for guarantees of certain capital such as dated subordinated debt.
While the Minister accepts the reasoning behind the Senator's amendment which conforms to what would be required under current EU state aid rules, he is wary of specifying in primary legislation any restriction in the scope of financial support, in particular one constructed on imprecise, shifting or potentially conflicting definitions of what constitutes certain types of capital. In such circumstances, there is a clear risk that unintended definitional or other legal issues may materialise in future that might prevent the Government from providing appropriate support under the Act to maintain financial stability in the State. The Minister has stressed any new scheme providing a guarantee beyond September 2010 for longer-term liabilities would require Oireachtas approval under the Act, which includes the scope of the liabilities guaranteed. Finally, the Minister stated in the Dáil that dated debt, which is lower tier two capital, will not be part of any such extension and therefore I cannot accept the Senator's amendment.
Is subordinate debt being covered as matters stand?
Yes, it is eligible for coverage.
Amendment put and declared lost.
Section 2 agreed to.
SECTION 3.
Question proposed: "That section 3 stand part of the Bill."
On section 3, I wish to raise the issue of benefits. The Bill lists a number of bodies, the pension schemes of which have been transferred, including Trinity College, University College Dublin, University College Cork, National University of Ireland, Galway and National University of Ireland, Maynooth. The semi-State bodies concerned include Forfás, Bord Bia, the Arts Council, the Institute of Public Administration, the Economic and Social Research Institute, Fáilte Ireland and so forth. Does this mean the employees of such institutions now will be eligible for the same pension as that which obtains in the Civil Service or in local authorities? Most civil servants, usually when they are 65 years old, receive a full pension of half their salary as well as a lump sum of one and a half times pay, for which they are obliged to serve 40 years. Do special categories exist within some of the aforementioned institutions in which employees may be, for example, on seven-year contracts or may have special arrangements for pension purposes? Does this mean the taxpayer now will take over any special pension arrangements that differ from those which obtain in the Civil Service as I outlined previously? Will such employees now be eligible for a Civil Service pension? Will they be obliged to serve for 40 years and until they are 65 years of age before qualifying for a pension? Alternatively, does this mean the taxpayer will be obliged to fulfil special arrangements that have been made? I refer to cases in which some of those affected may have been paying into pension funds other than those of which we know involving the Civil Service and local authorities.
Section 3 defines terms in Part 3 of the Bill. The section also clarifies that the assets to be transferred do not include assets covering additional voluntary contributions on a defined contribution basis. Following the transfer, the funds of these additional voluntary contributions schemes will be held in a separate trust for the contributing members. As for the Senator's specific question, in general such pension schemes are in line with those in the public service. The Bill specifies that the schemes will continue on the same terms as on the date mentioned.
I do not fully understand that. Does the Minister of State mean that if they had different arrangements, other than a Civil Service pension, these will be honoured by the taxpayer? If that is the case, the taxpayer is being exposed to future liabilities and would it not be desirable to know whether such special arrangements exist? I thought the State would be taking over these schemes and that those concerned would receive benefits that were in line with what the Civil Service provides, namely, half one's salary and one and a half times one's pay as a lump sum after 40 years' service. A number of weeks ago, Senator Twomey asked an important question about seven-year contracts. The Minister of State, Deputy Mansergh, said he would get back to him. What is the position in respect of people in some parts of the public service who get three times their final salary as a lump sum? Will similar situations arise in the case of people on seven-year contracts? If this legislation is providing that the taxpayer will have to make payments to people on seven-year contracts that are equivalent to three times their annual salaries, it will have to be examined more closely. I am not happy with the answer the Minister of State has given. We need information on this matter.
I am not sure the Senator's remarks are relevant to section 3 of the Bill.
Section 3 spells out the new benefit arrangements. We are talking about benefits that will be paid out as pensions.
The existing schemes that cover the people mentioned by the Senator will continue to operate, regardless of whether they are better or worse. A series of orders will be made in 2009 and 2010 on foot of this legislation. One order will be made in the case of each scheme. It will be an open and transparent process. The precise rules and regulations will be outlined in those orders for all to see.
I thank my colleague, Senator Burke, for reminding the House that approximately three weeks ago I asked the Minister of State, Deputy Mansergh, about the issuing of lump sum payments to people on seven-year county council contracts. I remind the Minister of State, Deputy Haughey, and his officials that I have not yet received a reply.
I will look into that.
Is it not like buying a pig in a poke? The Minister of State has said that a series of orders will be outlined in a transparent manner. We do not know what will be included in those orders, however. While I appreciate it will be transparent, we do not really know what is at stake for the taxpayer. That is the problem. The contracts that will have to be honoured could well differ greatly from the arrangements that are in place in the Civil Service at the moment. We could have to honour different contracts altogether. We need to know what we are getting into. We are taking over assets on the basis of last year's prices. This year's prices could be completely different.
I reiterate that an additional liability will not accrue to the State as a result of this measure. The State is officially liable for these funds regardless of whether they are transferred. In this legislation, we are dealing with the principle that is at stake. The orders that will be made in due course will deal with the specifics.
Question put and agreed to.
Section 4 agreed to.
SECTION 5.
As amendments Nos. 3 and 5 are related, they may be discussed together.
I move amendment No. 3:
In page 8, between lines 41 and 42, to insert the following subsection:
"(2) Before making a transfer order, the Minister shall lay before the Houses of the Oireachtas a calculation of the assets, and actuarial assessment of the liabilities and the options which the Actuary indicates are open to the Trustees to close the deficit in the fund.".
This amendment brings us back to some of the points that have been made by Senator Burke. I am not quite sure what the effect of this legislation will be. I have tabled this amendment to ensure the extent of these schemes' assets and liabilities will be made known to the Oireachtas. I appreciate that if this amendment is accepted, the information in question will not be available until this legislation is passed. When I listened to Senator Burke expressing his concerns, I wondered whether it is possible that the Government's figures, which suggest that there are liabilities of €3 billion and assets of €1.7 billion, could be wrong. We do not know whether they are accurate.
The purpose of the transfer order provided for in the Bill is to give effect, on the date of effect set out in the order, to the transfer of the assets of a pension fund to the National Pensions Reserve Fund. As the Minister of State, Deputy Mansergh, said on Second Stage, each of the funds carried out an actuarial valuation of its assets and liabilities at the end of 2008. This has given us an accurate picture of the state of the funds. The funds may have benefited from a slight upturn in asset values over the past two months. Section 10(3) will require a further valuation of the funds to take place on the date of effect of the transfer order. The Minister would like me to advise Senator Twomey that every scheme that is the subject of a transfer order will be required, for FRS 17 accounting purposes, to provide an annual statement of pension liabilities.
The default position for financing public service pensions is that benefits are met on a pay-as-you-go basis. Each year, a contribution equivalent to 1% of gross national product is made to the National Pensions Reserve Fund. The transfer of these pension funds to the reserve fund is in line with this model. The issue of the sustainability of public service pensions, which is of wider application than the extent of the deficits in these funds, is being addressed in the context of the national pensions framework. The Green Paper on pensions, which was published in 2007, sets out possible options for the reform of public service pensions. The Government faces the challenge of striking the appropriate balance between employers, people in employment and the State.
I am not disposed to accepting amendment No. 5. Following the transfer of the pension funds, each of the bodies will be obliged under the FRS 17 system to account each year for their pension liabilities. The liabilities will be published each year in the audited accounts of the bodies. The accounts of the individual bodies will also show the pension contributions and payments made by them. Section 12(4) provides for the establishment of an appropriate mechanism, with the approval of the relevant Minister and the Minister for Finance, to account separately for pension contributions. Therefore, the information mentioned in Senator Twomey's amendment will be readily available without the amendment being required.
Amendment, by leave, withdrawn.
Section 5 agreed to.
Sections 6 to 9, inclusive, agreed to.
SECTION 10.
Amendment No. 4 not moved.
Question proposed: "That section 10 stand part of the Bill."
The Minister of State, Deputy Mansergh, said earlier that the value of the assets in 2008 was €1.7 billion. How much would they be worth in today's terms? Who valued the assets in 2008?
The assets were valued by the trustees at the time. The only thing I can say is that the values are slightly higher at this stage.
Question put and agreed to.
Sections 11 to 14, inclusive, agreed to.
Amendment No. 5 not moved.
Sections 15 to 21, inclusive, agreed to.
Schedule 1 agreed to.
Amendments Nos. 6 to 8, inclusive, not moved.
Schedule 2 agreed to.
TITLE.
I move amendment No. 9:
In page 5, line 23, after "PROVIDED" to insert "FOR A PERIOD UP TO 2014".
Amendment put and declared lost.
I move amendment No. 10:
In page 5, line 23, between "TO AMEND" to insert the following:
"TO RESTRICT THE COVERAGE OF SUPPORT AND EXCLUDE CERTAIN INSTRUMENTS,".
Amendment put and declared lost.
Title agreed to.
Bill reported without amendment.
When is it proposed to take Report Stage?
Is that agreed?
Question put: "That Report Stage be taken now."
The Seanad divided: Tá, 25; Níl, 15.
Tá
- Boyle, Dan.
- Brady, Martin.
- Butler, Larry.
- Callely, Ivor.
- Carty, John.
- Cassidy, Donie.
- Corrigan, Maria.
- Daly, Mark.
- de Búrca, Déirdre.
- Ellis, John.
- Glynn, Camillus.
- Hanafin, John.
- Leyden, Terry.
- MacSharry, Marc.
- Norris, David.
- Ó Domhnaill, Brian.
- Ó Murchú, Labhrás.
- O’Brien, Francis.
- O’Donovan, Denis.
- O’Malley, Fiona.
- Ormonde, Ann.
- Phelan, Kieran.
- Walsh, Jim.
- White, Mary M.
- Wilson, Diarmuid.
Níl
- Bacik, Ivana.
- Bradford, Paul.
- Burke, Paddy.
- Buttimer, Jerry.
- Cannon, Ciaran.
- Coffey, Paudie.
- Cummins, Maurice.
- Fitzgerald, Frances.
- Hannigan, Dominic.
- Healy Eames, Fidelma.
- McFadden, Nicky.
- Mullen, Rónán.
- Ross, Shane.
- Ryan, Brendan.
- Twomey, Liam.
Tellers: Tá, Senators Déirdre de Búrca and Diarmuid Wilson; Níl, Senators Maurice Cummins and Liam Twomey.
Question declared carried.