Penrose Bill to address defined benefit pensions
I’m glad to be speaking today on Labour’s Pensions (Amendment) (No. 3) Bill 2017.
I should say from the outset that the Labour Party will always support the right of every person to have decent pension and a secure retirement.
As a Party, we made this crystal clear at our recent conference in my own county of Westmeath.
Specifically, the Labour Party has committed to pausing the proposed rise in the pension age to give society more time to adjust.
It’s important to reiterate what was said, as often as necessary, given this Government’s failure to listen.
The Taoiseach is on the Dáil record, stating his opposition to stopping the rise in the pension age.
He says, in short, that it is “unsustainable”.
This is despite the fact that Ireland has the youngest population in Europe and the third highest fertility rate in the EU.
Even in 50 years’ time, Ireland will still have the lowest proportion of older people in the EU – nearly 20% fewer than the EU average.
Consequently, the percentage of national income spent on public pensions will only rise by 3 percentage points – from its 2016 base of 8% – over the next half century.
In many respects, we should have one of the lowest pension ages in the EU; but the opposite is true.
The Government intends to push ahead with the increase the pension age to 68 by 2028.
In contrast, the average EU pension age will rise to 66 by the middle of the century.
What happens at present is that many people who have already made 40 or more years of social insurance contributions are being forced to retire at 65 due to their contracts of employment.
They are being forced to sign on as “jobseekers”, when this patently isn’t the case.
Moving the retirement age to 67 in 2021 would create a two-year pre-retirement waiting period, which is simply unnecessary at this time.
This pre-retirement limbo is clearly not what the changes to retirement age were intended to do.
But society needs more time to adjust, so that contracts of employment will more routinely allow people to work beyond 65.
The Social Insurance Fund that pays for pensions will have a surplus of nearly €4 billion by the end of this year. According to the government, it will cost €250 million every year we delay, so in fact we can afford to postpone raising the pension age any further.
***
And we can see this attitude again with the issue of Defined Benefit pensions – an issue of equal importance – which I bring before the House in my Bill today.
There are over 700 defined benefit pension schemes in the State, covering more than 100,000 people.
Yet there is a fundamental problem with the regulation of Defined Benefit schemes, a problem that this Government has failed for nearly four years to legislate for.
The schemes are essentially designed to guarantee pension benefits on the basis of agreed levels of contributions from employers and workers.
However, the regulations that are currently in place mean that employers can unilaterally withdraw from the funding of schemes even in situations where they are financially well capable of continuing to support their operation.
Minister, how can we have a situation where two parties enter an agreement, on an issue as important as a pension scheme, yet one side can just pull out for spurious reasons at a time of their choosing?
***
We all saw the consequences of this back in 2016 with the pension crisis for workers of Independent Newspapers, and I think it’s worth recalling that case.
In 2016 the management of Independent Newspapers informed the trustees of their Defined Benefit schemes that they would cease making contributions to the schemes.
This left the trustees of the scheme in a situation where they might be forced to wind up the schemes leaving hundreds of active members with substantially reduced pension benefits and the real potential for cuts to existing pensions being paid out.
In light of this controversy Government promised to bring forward legislation to strengthen the rights of workers in Defined Benefit pension schemes and the clarify the responsibilities of employers who sponsor them.
While the Heads of a Bill were published by the then Minister for Social Protection, Leo Varadkar TD, we have seen nothing from Government since then despite numerous promises that the required legislative changes were pending.
It is rumoured that a small number of powerful employers are opposed to any change and have been actively lobbying Government to prevent the necessary changes from coming forward.
But Minister, this issue hasn’t gone away.
Just last week we had the resolution of a situation regarding a Defined Benefit scheme at Pfizer, the multinational pharmaceutical manufacturer.
I won’t go into too much detail, but suffice to say there were very difficult pension talks between the workers – represented by SIPTU – and senior management at Pfizer for several years as the company sought to step back from the scheme.
My understanding is that now the company have made a commitment to the respective workers to maintain their core pension benefits.
It shows yet again how workers, represented by a trade union such as SIPTU, can collectively achieve a resolution in the workplace, no matter how big the employer.
But this situation, like the Independent Newspaper case, should never been allowed to develop.
How can we have a case where a highly profitable multi-national company can abandon its commitments relating to Defined Benefit schemes with the sole purpose of boosting their shareholder value through the level of dividends they provide.
Profit for investors should never come at the expense of workers’ future entitlements.
Nor should the State be expected to pick up the tab.
That is why legislation on the matter has been so badly needed.
Not only from an ethical prospective, to protect the pension entitlements of employees who have worked hard to earn it.
Also, on a purely financial level, this legislation is needed to protect the public purse from having to plug the gap in pension pay because profitable companies have reneged on their part of the bargain.
But no legislation has been forthcoming from this government.
It is yet further evidence of this government bowing to the interests of employers instead of legislating to protect the pension rights of thousands of workers.
***
Not only that, yet again this government is sending mixed messages to the public.
On one hand we have the government telling us we need to raise the pension age further and faster than any other EU countries because we apparently won’t have enough money in the pension pot.
But on the other hand, by its failure to legislate on this matter, the government is essentially pushing more and more people into reliance on the State Pension.
Think about it for a second.
Why would any worker, after hearing these cases, take the risk of entering such a scheme when their rights and lifetime saving might be drastically cut at any time in the future?
This government should be seriously worried of the precedent these cases have set, and the potential consequences for the 100,000 or more citizens who are saving for their pensions through these schemes.
Let’s be clear about what your government is doing Minister.
You are deterring workers from saving for their retirement, when you should be doing the exact opposite.
***
Minister, we know how to solve this issue.
We are not trying to reinvent the wheel here.
Look at our neighbours across the water in the UK.
They may have got a lot wrong with the Brexit crisis, but we could learn a thing or two from there with regards to this issue.
In the UK, the law prevents solvent companies from walking away from their obligations to their employees’ occupational pension scheme.
This should be standard practice, but the pensions regulation regimes in Ireland and the United Kingdom have diverged in many respects.
Present accountancy standards (FRS 102) in this country require an employer to recognise its liabilities to a pension scheme in its own financial statement.
Yet removing those liabilities from the employer’s own accounts can have a transformative effect on the company accounts.
The problem here is an employer’s obligation to its pension scheme is not governed by statute law but by the terms of the pension trust deed – which the employer will itself have drawn up.
As a result, it is rarely a binding obligation.
Most Direct Benefit trust deeds in fact allow the employer to wind up its pension scheme, and to cease contributions, while ignoring any deficit in the funding of the scheme and the resulting inability to pay out the benefits originally promised.
As I mentioned at the outset, there are over 700 Defined Benefit pension schemes in the State, covering more than 100,000 people.
And this will only continue to grow Minister, so we cannot allow this uncertainty to continue.
***
The reality is that solution has been sitting there, gathering dust on your desk, for over two years now.
In 2018, the Government Pensions Roadmap promised clear action on this matter.
In particular Government committed that by the first quarter of 2018 they would have advanced legislation to give effect to new controls in relation to funding of these pension schemes.
However, we are now at the end of 2019 and we have had nothing from Government.
I have been contacted by the Irish Congress of Trade Unions who have told me that they support the legislation that I am bringing forward this evening.
They have told me of their frustration with the lack of progress on this important policy matter and that they see my Bill as an effective means of giving workers in Defined Benefit schemes the comfort that their pension savings are protected.
It is time we stopped talking, and finally took some action on the issue.
Labour’s Pensions (Amendment) (No. 3) Bill 2017 does just that.
***
The Bill by its long title is an Act to amend the Pensions Act 1990, and to provide for related matters.
Specifically, section 1 amends Part IV (“Funding Standard”) of the Pensions Act 1990, by inserting a new section 44A, dealing with employers’ obligations in relation to deficiencies in the funding standard.
Under this Bill, the new section will apply to “relevant” Defined Benefit schemes which are being wound up wherein the employer concerned is not insolvent, and the scheme does not satisfy the funding standard.
To clarify, where the section applies, then an amount sufficient to enable the scheme to satisfy the funding standard is deemed to be a contract debt due from the employer concerned to the trustees of the scheme.
In addition, a scheme would be deemed to be wound up where the employer takes any step under the rules of the scheme (other than paying into its resources an amount sufficient to enable the scheme to satisfy the funding standard) that enables the employer, in accordance with generally accepted accountancy principles or practice, to remove recognition of current or contingent liabilities towards the scheme from the employer’s own financial statement.
Finally, the question of insolvency under the act is to be determined in accordance with the Protection of Employees (Employers’ Insolvency) Acts 1984 to 2012.
The section does not prejudice any other right or remedy which the pension trustees may have in respect of a deficiency in the resources of a scheme, and it ensure that the stated provisions applies to Defined Benefit schemes that came into operation before its commencement.
This is the least we should come to expect from employers engaged in such schemes.
And this is what the Labour Party and I are proposing in good faith to finally resolve this issue.
So hope those on across the chamber will listen to our call and take clear action by supporting this Bill’s passage through the House.