Tuesday, 11 March 2014

Ceisteanna (56)

Billy Timmins


56. Deputy Billy Timmins asked the Minister for Finance the position regarding the ESB Retired Staff Association (details supplied); and if he will make a statement on the matter. [11660/14]

Amharc ar fhreagra

Freagraí scríofa (Ceist ar Finance)

The pension fund levy is a matter under my responsibility. I announced in my Budget 2014 speech that the 0.6% Pension Fund Levy introduced to fund the Jobs Initiative in 2011 will be abolished from the 31st of December 2014. I have, however, introduced an additional levy on pension funds at 0.15% for 2014 and 2015. I am doing this to, among other things, continue to help fund the Jobs Initiative.  

The reduced VAT rate of 9% on tourism and certain other services was one of the very significant and successful measures introduced by the Jobs Initiative. It was due to end in 2013. In my Budget 2014 speech I announced the continuation of the reduced 9% VAT rate. I also announced that the Air Travel Tax is being reduced to zero with effect from 1 April 2014. The 9% VAT rate has helped to create 15,000 new jobs as well as protecting existing jobs. Since the Budget announcement about the reduction in the Air Travel Tax, airlines have announced the opening up of new routes resulting in significant increases in passenger numbers with the associated increase in tourism activity and employment.

 The additional 0.15% levy for 2014 and 2015 will also be used to help make provision for potential State liabilities which may emerge from pre-existing or future pension fund difficulties although funds from the levy will not be hypothecated or specifically set aside for this purpose. The Government has decided that such liabilities will be met by the Exchequer as they arise.

 The chargeable persons for the pension fund levy are the trustees or other persons (including insurance companies) with responsibility for the management of the assets of the pension schemes or plans. The payment of the levy is treated as a necessary expense of a pension scheme and the trustees or insurer, as appropriate, are entitled, where they decide to do so, to adjust current or prospective benefits payable under a scheme to take account of the levy. It is up to the trustees to decide whether and how the levy should be passed on and who should be impacted and to what extent, given the particular circumstances of the pension schemes for which they are responsible. However, should the option of reducing scheme benefits be taken, in no case may the reduction in an individual member's or class of member's benefits exceed the member's or class of member's share of the levy.

I am advised by the Minister for Social Protection that in developing the measures contained in the Social Welfare and Pensions Act (No.2) 2013, consideration was given to imposing an obligation on employers to secure a minimum level of funding before a scheme could be wound up and to the provision of a pension protection scheme.

Defined benefit pension schemes in Ireland are set up and maintained by employers on a voluntary basis. There has never been a statutory obligation on employers under Irish law to contribute to their pension scheme (although schemes rules can place some level of obligation). Most defined benefit pension schemes in Ireland were established under a trust deed. As part of the process of establishing each occupational pension scheme, an employer undertakes to be bound by the rules of the scheme and to undertake certain liabilities and duties defined therein. The position around the employers and employees contribution obligation in a trust deed varies from deed to deed.

 Employers have, by and large, made great efforts to support and deliver on the promise made to scheme members. This process is generally managed through dialogue between trustees, employers and members, where efforts are made to reach agreement regarding the steps that must be taken to secure scheme viability which may include a mix of measures such as increased employer/member contributions, longer working and amended benefits. Given the uncertainties as to the overall impact and potential for unintended consequences of applying an obligation on an employer to secure a minimum level of scheme funding in the event of the wind up of a scheme, it was not considered appropriate to make provision for such a legislative obligation.

 I am further advised by the Minister for Social Protection that while some countries with very large defined benefit markets provide pension protection schemes it was considered that such an approach was not appropriate for the Irish pensions market. The Social Welfare and Pensions (No.2) Act 2013, provides that, in the event of the wind up of an underfunded pension scheme where the employer is insolvent, the State  guarantees that existing pension benefits will be protected to a level of 50%, with pensions of €12,000 or less being 100% protected.   The Pension Board is actively engaged with the schemes which do not meet the scheme funding requirement in order to assist these schemes, particularly schemes in a weak funding position achieve a more sustainable funding position.  

The overriding priority in this area is to ensure that pensioners and members of pension schemes are protected and the future viability and sustainability of their schemes is ensured and made safer.  The Minister for Social Protection informs me that it is normal practice for her officials to engage with representatives of stakeholders in relation to any substantial change to the Pensions Act. The consultation process which preceded the publication of the Social Welfare and Pensions (No. 2) Bill, 2013 included engagement with representatives of pensioners, the pensions industry, employers and trade unions. Written submissions were also sought from these stakeholder groups.

 The Minister for Social Protection also advises that any consideration of a restructure of pension scheme benefits under section 50 of the Pensions Act must comply with the provisions in the Pensions Act and with guidance issued by the Pensions Board. This guidance makes provision for the notification of all pensioners in advance of any application to the Pensions Board to restructure scheme benefits. In such circumstances a pensioner will have at least one month to make a submission to the trustees of the scheme in relation to such a proposal. The Pensions Board must be satisfied that all the provisions in the guidance are complied with before the Board will consider issuing a notice to restructure scheme benefits.

The matter of representation by pensioner groups in consideration of a change to scheme benefits might also be considered in a broader industrial relations context. The Minister for Social Protection has written to our colleague the Minister for Jobs, Enterprise and Innovation in this regard.