Pensions (Amendment) Bill, 2001: Second Stage.

Thursday, 4 October 2001

Seanad Eireann Debate
Vol. 168 No. 3

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Question proposed: “That the Bill be now read a Second Time.”

Minister for Social, Community and Family Affairs (Mr. D. Ahern): Information on Dermot Ahern  Zoom on Dermot Ahern  The Pensions Act, 1990, was introduced over ten years ago and the first reform cycle regarding this legislation was completed with the Pensions (Amendment) Act, 1996. Over the past five years there has been considerable research and debate about the new and emerging challenges for pensions policy, and the culmination of this process is the Pension (Amendment) Bill, 2001. This Bill, which begins a new cycle of reform, is one of the Government's top priorities and a specific commitment of the PPF. In keeping with the underlying philosophy of the PPF, its overall objective is to ensure that all retired persons have an adequate income to [118] enable them to live with dignity and to share in the benefits of economic growth.

Given the overall aim of developing pensions policy the legislation has a number of key objectives, which briefly are as follows: first, to increase overall occupational pension coverage, which is currently less then 50% of those at work – the main mechanism addressing this is the personal retirement savings account – PRSA – framework which is provided for in Part 2 of the Bill; second, to provide a right of redress for those who have a dispute or complaint in relation to an occupational pension scheme and, in due course, a PRSA through the introduction of a pensions ombudsman – this is provided for in Part 3 of the Bill; and third, to enhance the current provisions of the Pensions Act so as to improve the position of existing and future pension scheme members in terms of the security and quality of their pensions entitlements, allied with providing increased flexibility – these improvements are set out in Part 4 of the Bill. I will outline the main provisions in more detail shortly. There are currently 630,000 members of occupational schemes and pension fund assets amount to £41 billion –€52 billion – which is equivalent to 54% of GNP.

The purpose of the Pensions Act, 1990, is to regulate occupational pension schemes, to ensure that they are properly administered and, above all, to ensure the pension rights of members and their dependants are safeguarded. The Pensions Board was established under this Act as the statutory regulatory authority. The role of the board is to promote the security of occupational pensions by monitoring and supervising the administration of schemes in line with the Pensions Act; to provide guidance to trustees and scheme administrators on compliance; and to provide information on members' rights. The board's role also includes the promotion of the future development of pensions in Ireland through the provision of policy guidance and advice on pensions issues generally. In this regard, the board has a statutory role to advise me, as Minister. The aim is to encourage the wider application of adequate, secure, flexible and cost efficient pensions to meet the challenges in the coming decades of pension provision for an ageing population.

The board comprises a chairperson and 14 members who are representative of trade unions, employers and various professional groups in the pension industry, together with departmental representatives and three nominees of the Minister. It is widely accepted that the board represents partnership in operation and that the current arrangements work well. The current board was appointed last December for five years.

The provisions of the Bill are based on a detailed examination of the proposals of the National Pension Policy Initiative – NPPI – set out in the board's report Securing Retirement Income, of various other policy reports received from the Pensions Board and of experience of the operation of the Pensions Act to date. All the [119] reports to which I refer are from the previous board and I want to take this opportunity to pay tribute to hard work and commitment of that board under the chair of Eamonn Heffernan.

The current system of pensions coverage in this country comprises a compulsory social insurance pillar and voluntary occupational and personal pension pillars. In meeting the objective of adequate provision for people in retirement, the strategy is one of a reasonable social welfare pension on a flat rate basis supplemented by an occupational and-or personal pension to give an earnings related pension. There is considerable ongoing debate on the pros and cons of voluntary versus mandatory second pillar provision. The unanimous view of the Pensions Board in its NPPI report was that pension coverage should be extended on a voluntary basis in that while employers would have to provide access to pension schemes, contributions would not be mandatory. In the board's view it is essential to balance the risks and costs of compulsion with the benefits it can achieve, and to go no further down the road of compulsion than is necessary. The board considered that full mandatory provision should be held in reserve but could be introduced following a review of the effectiveness of the measures adopted. It saw this review taking place five years after implementation of the proposals.

I have considered this approach, which is fundamental to the coverage issue and how I proceed, in detail and on balance, given the partnership basis of the board, I have accepted their views in this area. However, it will be necessary to monitor the impact of the new PRSAs, as is required under the PPF. In this regard, the Central Statistics Office has piloted questions in relation to pensions coverage with a view to asking these in its Quarter 1 National Household Survey next year. The results of this will provide a benchmark coverage rate against which changes could then be measured.

All are agreed that if the proposed PRSA arrangements on a voluntary basis provided for in this Bill do not succeed the position regarding mandatory provisions would have to be reviewed. While I have no definite views at this stage on the review period, I consider that it should be sooner than five years. In considering the reports of the board, I was conscious, as the board was, of a number of underlying principles. These include first, the need to extend coverage without undermining existing provision, particularly defined benefit provision and, second, the need to ensure a balance between protection and equitable treatment on the one hand and over-regulation on the other.

Next to the debate on voluntary or mandatory provision often comes the debate on defined benefit versus defined contribution arrangements and which is better. This is probably the wrong question. I am aware that while the majority, over 71%, of current pension scheme members are in defined benefit schemes, there have effectively [120] been no new defined benefit schemes established in the last decade and that some major employers have introduced defined contribution arrangements for their new entrants. The key issues relate to the level of contributions and the fact that the investment risk is borne by the employer in a defined benefit and by the employee in a defined contribution arrangement. Defined contribution arrangements are argued to facilitate the current more flexible mobile workforce. They give the employee ownership of his or her pension fund and allow the person to share in the benefits from the fund performance. The modern employee profile of many firms is changing with the “same job for life” scenario being replaced by a high turnover of employees at a number of age groups. Various remuneration type arrangements are often linked to performance, which is usually not pensionable. We have a more educated workforce nowadays and a desire for early retirement.

The labour force position and the desires and values of employees are obviously related to the economic climate. Against this climate, social partners and employees must take a view on their work environment and whether the shift from a more to less paternalistic approach to a totally individual choice is desirable. If so, what are the implications and are there any unintended outcomes looming? Like defined contribution schemes, PRSAs will be money purchase arrangements and will have the same flexible characteristics.

I referred earlier to this Bill being the start of a new cycle of reform and I consider that the completion of this cycle will take a number of years as various impacts are measured against economic cycles. There is no doubt that one pension arrangement does not fit all and that pension reform is an ongoing process which must be monitored, evaluated and the course corrected, as necessary. I assume these issues will be addressed in the partnership process going forward.

I would now like to turn to a brief description of the main provisions of the Bill. Under the PRSA framework we wish to increase the level of occupational and personal pensions coverage from its current position of less than 50% to 70% of the total workforce over the age 30. To do this we are setting up a new type of pension – the personal retirement savings account – PRSA – as provided for in section 3. The PRSA will be a low cost, easy access, long-term personal investment account designed to allow people to save for retirement in a flexible manner and it will complement the social welfare pension. The PRSA will be a contract based product between the individual and a PRSA provider.

The Bill provides that PRSAs will be regulated by the Pensions Board who will license the PRSA provider, which is required to be a private company, registered in the State. This decision that the board would be the regulator was taken to ensure that regulatory and policy issues in relation to pensions, especially issues relating to [121] increasing pensions coverage, are dealt with by one body. PRSA products will be approved by the Pensions Board and the Revenue Commissioners. The Bill includes provision for standard PRSAs, which will be “off the shelf” products with charges capped at 5% of contributions and 1% per annum of the assets. Any person will be able to make contributions to a PRSA irrespective of employment status. Employees can take PRSAs with them when changing jobs. Contributors will be able to take benefits from a PRSA from the age of 60.

The Bill also sets out disclosure requirements on PRSA providers including statements of reasonable projection to signed-up contributors showing, at various intervals/times, on an individualised basis, the level of benefit which can reasonably be expected. The functions of the Pensions Board are set out in relation to its regulatory role as regards licensing and approval of providers and products as well as their ongoing supervision.

Given the commitment of the social partners to promoting pensions coverage, I hope that PRSAs will lead to a significant increase in coverage, especially for those with no cover at present. Under the Bill employers will have to provide access to at least one standard PRSA. While employer contributions to PRSAs will not be mandatory, I hope employers will contribute, where possible, so as to enhance the quality of the pension benefit for the employee.

As I said earlier, a second objective of the Bill is to provide a right of redress for those who have a dispute or complaint in relation to occupational pensions and, in due course, PRSAs through the introduction of a pensions ombudsman, which is provided for in Part 3 of the Bill. This proposal was made by the Pensions Board on foot of its experience of disputes and complaints by scheme members. The board is a regulatory authority and does not, therefore, by definition, have a dispute resolution role. The ombudsman will be set up on a statutory basis and his or her decisions will be binding subject to a right of appeal to the High Court. The scope of the ombudsman will relate to complaints regarding maladministration of schemes and disputes of fact or law between beneficiaries and those responsible for the management of the scheme or PRSA.

The time limit for bringing cases will be three years from the date of action giving rise to the dispute or longer than that if the ombudsman decides it would be reasonable to extend the period. There will, however, be an absolute limit of three years prior to the establishment of the office. The office will be financed by the Exchequer and the ombudsman will be appointed by the Minister for Social, Community and Family Affairs.

Part 4 of the Bill provides for a significant number of improvements to the existing provisions of the Act, which on enactment will be of significant benefit to a large number of pension scheme members. These include a reduction in the vest[122] ing period from five to two years and a preservation of and revaluation of benefit will be extended to pre-1991 service. We will provide new options on transfers of preserved benefits. We will introduce a minimum value of contributory retirement benefit equal to 120% of the member's contributions which will mitigate the effect of integration with the social welfare pension for low income earners on reaching retirement. There will be mandatory review and disclosure procedure relating to indexation of pensions in payment. It will also provide for mandatory disclosure and consultation with members regarding the treatment of surpluses in cases of scheme wind-ups and bulk transfers. Finally, there will be a statutory requirement on employers to remit employee pension contributions within a specified period.

I now wish to refer to the composition of the board. To enhance the composition of the board and mindful of its increased regulatory responsibilities with the introduction of PRSAs, section 47 provides that it will be extended by the addition of a representative of consumer interests.

As I indicated at the time of publication in July, I welcomed the reaction and comments to the Bill and said that these would be considered in detail during the passage of the Bill. I think this is a reasonable and practical approach given the complexity of the Bill and the need for specialist input. The deadline for receipt of comments was last week and there was a considerable response, which is not unusual given the size, scope and technical nature of this legislation. All the responses will be examined by my Department in consultation with the Pensions Board and the various bodies, as necessary, with a view to bringing forward any required amendments on Committee Stage. In addition to any such amendments, I also intend, as I indicated on publication of the Bill, bringing forward further improvements during the passage of this Bill, probably on Committee Stage, relating to the operation of the Act. These include the following proposals: an amendment to take account of the provisions of the Employment Equality Act, 1998, in so far as these should apply to pensions; an amendment to ensure compliance with the EU mobility directive and the setting up of a limited pensions compensation fund. In addition, as agreed with my colleague, the Minister for Finance, amendments to the Taxes Consolidation Act, 1997, to provide for the tax treatment of PRSAs will be brought forward as part of this Bill.

I mentioned at the beginning of my speech that I saw this Bill as the start of a cycle of reform and I would now like to outline briefly what I meant by this. As I have already said, an underlying principle of the Bill relates to achieving improvements on a voluntary basis. While mandatory disclosure is introduced or enhanced in many areas, it is still in a voluntary environment. The success of this approach in achieving the overall objective will have to be monitored closely.

[123]There have been a number of economic cycles since the current pensions discussions – which culminated in this Bill – began in 1995. The pensions strategy going forward has to be, at the same time, robust and flexible enough to accommodate external shocks and circumstances while keeping a clear focus on the target objective. Changes in working patterns and people's values and requirements will have to form part of the strategic objective. A balance has to be struck between perhaps the inefficiencies of an over-paternalistic approach and the poverty risks of an over-individualistic approach. These issues are not black and white but shades of grey and our views of what is desirable are always open to challenge and debate in our democracy.

At a more practical level, we have to ensure that whatever the underlying philosophy, the overall pension system in place does lead to an adequate pension on retirement. There is a danger, especially in DC and PRSA arrangements, that a person may consider any pension to be “a good pension” and this of course is not true. The provisions in this Bill through, for example, “statements of reasonable projection” of pension value, will help to address this issue but we need to be vigilant in terms of issues that may arise in this area. In this regard, we must be prepared to accept that at the end of the day the amount that can be put aside by a low paid worker for a supplementary pension and the possibility of intermittent contributions and lapsed policies is unlikely to result in a pension fund of sufficient value to deliver an adequate second pillar pension on retirement. If the situation unfolds along those lines there may be a need for the State to get involved in some way in supplementary pension provision particularly for those people whose savings are insufficient for the market to deliver an adequate income on retirement. This is an issue for the future.

This leads, finally, to the key area of information on pension provision to raise overall awareness among the public of the issues involved. The Pensions Board recommended a national pensions awareness campaign as a prerequisite to improving coverage. The Government fully accepts this recommendation and my Department will discuss this further with the board early next year.

I commend the Bill to the House.

Mrs. Ridge: Information on Therese Ridge  Zoom on Therese Ridge  I welcome the Minister and thank him for his most informative speech. I welcome the Bill which is timely and necessary and perhaps overdue in some people's eyes.

I have seen these proposals described as prudent and far-seeing in some newspapers and one could not disagree. By 2025 – I will not say how old I will be then, but the Minister and I could both qualify for a pension – there will be one million citizens over 65 years of age. By that stage State pensions will cost over 12% of GNP. There[124] fore, it is proper at this stage that we set the ship of State on a steady course.

The Minister outlined the provisions in the Bill, the new framework for the personal retirement savings account, which will be referred to as PRSA as distinct from PRSI, and the establishment of the pensions ombudsman. These are positive and welcome, but I urge the Minister to reflect on the amendments which will be tabled. This is a very important process given the figures I have quoted and the need for personal retirement savings accounts. I do not think anybody will disagree with the provisions, which have the support of the Pensions Board. The amendments Fine Gael will propose will be based on making the new deal even better. As with most proposals, there are glaringly obvious omissions. Also, some of the provisions will have to be disregarded in the interests of consumers of the new savings account. One could use the analogy of a visit to a dentist which involves a thorough examination resulting in some extractions and some fillings so the result is not just beautifully presented but beautiful in every way. If I was to be difficult I would suggest this is something the Minister should get his teeth into.

I ask for a reassessment of some of the provisions. I am a little perturbed by the lack of a real requirement on the part of employers to contribute in a real way to PRSA as taken out by their employees. It would appear that their sole duty is to collect contributions and pass them on. We are all aware of the non-take up of pension schemes, and I certainly agree with the proposal by the Pensions Board about an awareness campaign, to which the Minister has agreed. Lack of information must be addressed and this excellent and most positive amendment – anyone who says otherwise is spectacularly wrong – to the Pensions Acts must be broadcast widely. As with many things, many heads working together are better then a few, and we might come up with an even better deal if everybody put their heads together.

We should come up with a better deal for consumers. The Minister said that 46% of people avail of pensions, and that the figure is decreasing. I am fearful that if it is not adequately advertised and that if there is not a greater role for employers, the take-up rate for the new savings accounts might falter. There appears to be an opt-out for employers in the scheme as currently drafted, and I wonder if by amendment we should make provision for a review of the scheme after three years. If the take-up rate is not as projected, would it not be imperative to provide a compulsory role for employers at that stage? I do not like compelling people but we are notorious as a nation for making all the right sounds and then failing to deliver. We have seen this in so many aspects of our lives, and I am concerned it might happen in this context.

Why is the taxation aspect not included in the Bill? I am sure the Minister will give a good reason we must wait until Committee Stage for [125] this to be addressed. I suggest tightening up is needed in the provisions for trustees and employers who will only have to consider increasing pensions after retirement. I also have difficulty with the exclusion of workers' rights to any surplus built up in the pensions fund. I do not understand this, particularly where a firm may collapse or close, and I would like the Minister to elucidate on this in his response. Why is a separate contract for death benefit necessary? Maybe it is staring me in the face but I am sure the Minister will provide a good reason.

I do not want to be totally negative and I must recommend the advantages and benefits as outlined in the Minister's speech, in particular the change from five to two years. I heartily welcome, as everybody would, the proposal for an insurance ombudsman. If I were in some parties, I would have to say ombudsperson. Regardless of the gender, the role in other areas has contributed greatly to people getting their rights and this is a most welcome provision.

As I am sure the Minister also does, I personally know of “chancers” in some schemes – to use the old Dublin saying. Because I knew some of the people affected, I particularly remember people who contributed to schemes that turned out to be, if I am charitable, inadequate or, if truthful, total disasters. Although the Minister is younger than I, he might remember as I do the tontine trust for retired CIE workers which crashed completely, leaving people with nothing. I acknowledge all that is prudent in these proposals to protect the savings of people who in most cases will never be in the Ansbacher league.

A freer hand for the ombudsman would work very much in favour of the workers who will take up PRSAs. We should not have limits to the power of the ombudsman's role and that should be reviewed again.

I am somewhat confused over the three-year limit for a complaint. Is it three years from the time the act giving rise to the complaint occurred, as the explanatory memorandum states, or is it three years from the time it came to the notice of the complainant? They would not necessarily be the same. We are tying the ombudsman's hands by putting in such tight time restrictions.

There are many laudable provisions in this Bill. Probably the most popular aspect is that for the first time many of our citizens, who in effect were barred from access to pension schemes for various reasons, now have mobility and will be accepted as people who can take out a retirement savings account. The ability to move pension with job will make it particularly attractive to younger people who, up to now, have had the ability to change jobs as frequently as three times in five years, usually going for a better deal. I hope that continues, but it is unlikely. The fact that they will be able to take their pensions with them is to be greatly welcomed.

In doing my research at 6 a.m. this morning – I did not do it last night when I should have – I noticed that there seems to be a difference of [126] opinion regarding the effects of the special savings initiatives introduced by the Minister for Finance, Deputy McCreevy, and as to whether people might opt for that scheme when in effect they should be going for the new retirement account. I am sure the Minister will tell me that will not happen, but I have a concern about that.

In view of the submissions received from many providers and the need to produce the very best options – as the late Hughie Green said, I mean this most sincerely – I suggest that we do not rush to the next Stage. I appreciate I have expressed the view that this measure is slightly overdue, but the ball is well and truly rolling now. What is proposed is so good that a little further time for reflection and adjustment could only enhance what is in effect a very positive proposal.

I am delighted that somebody with the consumers' interests at heart will be on the board. The Minister said there would be people from the various professions associated with pensions generally. However, I think there is no representative of the professional insurance brokers. Perhaps my information is not correct. They have the expertise and hands on knowledge of different insurance and pensions schemes.

I have already referred to the necessity to promote and advertise this campaign everywhere because it can only benefit the users of the savings accounts in the long run. I would not like us to reach the stage where 12% of our gross national product was going to pensions. I respectfully ask the Minister to consider the improvements that could be made. We all wish this to be a very saleable product which will take away some of the fear and apprehension as to how people will survive on State incomes. That is not to say there is anything bad about State incomes but it would be nice to know that one will not always suffer a drop in income on retirement.

I thank the Minister for listening to me so carefully and I look forward to his taking on board some of what I have said. I am interested in his response on when we will take the next Stage.

Ms Leonard: Information on Ann Leonard  Zoom on Ann Leonard  I welcome the Minister to the House. This is very important legislation, which will not necessarily show immediate effect but will do so in the long term. While it was agreed within the Programme for Prosperity and Fairness, it shows a forward thinking approach by the Minister and the Government. It will work along with the pension reserve fund, which the Minister for Finance, Deputy McCreevy, announced earlier this year. As Senator Ridge said, this shows we are not thinking of now but of 25 years ahead, when many of us will approach the pension age and may worry if there will be sufficient funds for each of us to receive a steady income.

Statistics show there are five people working for each person receiving a pension but demographic changes mean that by 2025 only two people will be working for each person receiving a pension. It is only right and proper, therefore, that we look towards the future. Governments [127] are often criticised for only thinking towards the next election, but I commend the Minister for Finance, Deputy McCreevy, and the Minister for Social, Community and Family Affairs, Deputy Ahern, for thinking ahead in terms of dealing with all of us as we get older. The main objective of the Bill is to develop a policy that will ensure that all retired persons will have an adequate income on which they can live comfortably. That is what we would all desire, not only for ourselves but for future generations.

I welcome the personal retirement savings account scheme. Gone are the days when a job was permanent and pensionable and we have to look towards addressing the needs of the people. It is imperative, therefore, that the scheme be extremely flexible because statistics show that, on average, individuals make three major job changes in their lifetime. It should also be easy to transfer from one PRSA provider to another, depending on what is available through each employer.

I share some of the concerns of Senator Ridge in relation to employees who take up the PRSA scheme. While it will be mandatory for employers to provide access to the PRSA, it is not mandatory for them to provide contributions towards it. That will cause a difficulty because people are very mobile within the workplace and employers will be using many different PRSA providers. I take some consolation, however, from the Minister's statement that if the PRSA arrangements, which are currently on a voluntary basis, do not succeed, the position regarding mandatory provisions would have to be reviewed. We can be reassured, therefore, that this measure is not set in stone. If the arrangements do not prove satisfactory down the road there will be some come-back, particularly for employees.

The onus must be on employers to inform new employees of particular PRSA schemes they provide. Some employers provide excellent pension schemes for their employees but others leave it to the individuals concerned to provide them. We all talk about providing pension plans for the future, but that is something we tend to put on the long finger. There is an onus on employers but, ultimately, the responsibility rests with the employees to ensure they participate in a pension scheme.

We must make it easy for individuals to transfer between PRSA providers. In regard to lending institutions or mortgage companies, history shows that we tend not to move from one to another or even to check their rates. We are happy to simply get a mortgage rather than check for a better rate on an annual basis. Individuals can and should move between different providers because if one were to shop around, as we do with insurance costs etc., we would find many changes in the small print. I have no doubt that will be the case with the PRSA providers also.

I agree with Senator Ridge in relation to the publicising of the personal savings account [128] scheme. Reference was made to the special savings incentive scheme announced earlier this year. The popularity of that scheme is due not only to the possible return one will get when a number of years have elapsed but to the fact that it was explained in layman's terms using straightforward language. A similar approach must be taken in relation to the PRSA scheme. There is often a disincentive in dealing with banks or any lending institution because as soon as one talks facts and figures and examines the small print, it can be a little off-putting. Simple language is the key to this improvement.

I want to raise a general query about the special savings incentive scheme. I come from a Border county and I wonder if that scheme will be open to individuals who live in Northern Ireland but work in the South. I found out recently that some individuals who have been working all their lives in the South are not entitled to avail of the special savings incentive scheme because of their residency in Northern Ireland. I would be grateful for some clarification in that regard.

Like everyone else, I particularly welcome the establishment of the pensions ombudsman. In other facets of life the ombudsman has proved extremely successful. It is not something that should be widely used but it should be available as a last resort. The ombudsman, male or female, would have the power to investigate complaints about occupational pensions and the PRSA.

While I know that personal pensions come under the remit of the insurance ombudsman, will it be the case that over time all pension schemes would come under the remit of a pensions ombudsman? There is nothing wrong with the way that is done currently but we are going down a road that will expand as the PRSA comes on board and perhaps we should examine the possibility of bringing all pensions under the one ombudsman.

We tend to think of the ombudsman as being in favour of the employee or the individual who participates in a PRSA scheme but it is important to note that the establishment of a pensions ombudsman would benefit PRSA providers also because the Bill states that if there is any financial redress, it cannot exceed the actual loss of benefit. In going down that route, we might be fearful that there will be no end to the financial redress so it should reassure employers that the measure is not designed to get at them. I particularly welcome the development of the ombudsman's position because its success has been proven in the past and I have no doubt it will be of benefit both to the employee and the providers.

I welcome also the extension of the role of the Pensions Board, which to date has been seen to work extremely well in conjunction with the Minister and the Department, but I would welcome the inclusion on the board of an individual who would represent the interests of the consumer. We are living in a consumer society and if consumers are represented on this board, it can [129] only improve the work of the board. While the board has not encountered problems in the past, this measure will enhance its position.

It is proposed that there will be a low or no entry fee to applicants for a PRSA. However, charges and penalties will be incurred by those who wish to transfer from one scheme to another or increase their scheme contributions. These should be kept to a minimum and terms and conditions – the small print – should be clearly explained so applicants will be aware of the ongoing costs they may incur.

The Bill is welcome. It arises from a commitment involving the social partners. In the past social welfare has been neglected, to be dealt with by a few individuals. Often people did not get involved. This development addresses that neglect. It is a product of social partnership.

The Government must look forward to developments in the next 20 years. This Bill and other initiatives it has taken will help to ensure that this and future generations will be entitled to a pension and will be assured of some income on retirement. Given anticipated demographic developments, there is a fear that the State will have insufficient funds to make pension provision. This Bill attempts to address that concern and I welcome it. I also compliment the Minister on the steps he has taken. Doubtless there will be amendments on Committee Stage but a broad welcome must be given to this legislation. It will benefit all individuals and workers, regardless of their income. I congratulate the Minister on introducing it.

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  Not for the first time I am staggered by the reaction to a Bill of this kind and I question whether Members have deserted their critical faculties. The overall welcome for the Bill appears to miss the point. What happens to the money? Members have said how good the legislation is – Senator Leonard said it is good for everybody. It is good for some people but that misses the point.

The point about pensions is what happens to the money, the consumers' and pensioners' money. That is what is important. It is appropriate that this measure should be debated today, given that over the past couple of weeks any newspaper reader will have found that pensioners' money has taken an appalling dive in the last quarter. According to a report today pensions funds have fallen by 14%. A couple of weeks ago they had fallen further following the attacks on the World Trade Centre but they had also fallen before then.

The question that should be asked is whether Irish pensioners are being properly looked after overall. I understand what the Government is doing. It is worried that only 50% of the population has pension provision and that this should be increased to 70%. Nobody disagrees with that laudable objective. The Minister told the House [130] the Bill was the result of six years' work, what he calls research and development.

Ms Ormonde: Information on Ann Ormonde  Zoom on Ann Ormonde  That is all right.

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  His speech is full of such euphemisms. Why did he not tackle the real problems in the pensions industry? While some of the detail in the legislation is laudable it represents a great missed opportunity to tackle some of the abuses in the Irish pensions world. Nobody seems to be aware of them, which is extraordinary. The Irish pensions world is a mystery to almost everybody in the country which the Minister did nothing to address. His speech was mostly gobbledegook, much of which I did not understand. I do not believe anybody else understood it and I am not sure the Minister understood it, but he will by the time Committee Stage is completed.

The Minister's speech was full of tributes to the PPF, the social partners, the Pensions Board and how it has worked so well. He said: “It is widely accepted that the board represents partnership in operation and that the current arrangements work well.” By “widely accepted” is meant that officials in his Department have written the brief and cannot find anybody to support his contention. What is meant by the term “partnership in operation”? There are at least three assertions in the Minister's remark with no supporting evidence, yet the House appears to accept and welcome the Bill.

We should welcome the fact that the Government wants to ensure that more people get pensions when they reach retirement age, provided the Government does not have to pay. That is the simple, worthy and sensible principle behind the Bill. The principle that people should be regarded as mature enough in some instances to make decisions about their own pensions is also welcome.

However, what is not in the Bill is extraordinary. I was staggered that the two previous speakers welcomed the fact that a consumer interest representative – one member out of 14 – was to be appointed to the Pensions Board. Why is it not 14 out of 14? I cannot believe it.

Ms Leonard: Information on Ann Leonard  Zoom on Ann Leonard  It is concerned with the representation of interests.

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  In his speech the Minister stated that the board consists of trade unions and employers. What are they doing on it?

Ms Ormonde: Information on Ann Ormonde  Zoom on Ann Ormonde  The concern is with representation.

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  It will also consist of various professional groups—

Ms Leonard: Information on Ann Leonard  Zoom on Ann Leonard  They are all consumers.

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  They are not appointed because they are consumers but because they are members of trade unions, employers and professionals. They [131] are appointed with the consent, by design, of the Minister. They are all in the same cosy partnership. This is the cosiest of all industries. In addition, the board will comprise of various professional groups in the pensions industry. What are they doing there? They have vested interests and are not independent. The board will also consist of three representatives from the Department and three nominees – here we go again – of the Minister. These will be political nominees, a few hacks appointed to see that things are done correctly.

Ms Ormonde: Information on Ann Ormonde  Zoom on Ann Ormonde  They are consumers also.

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  I doubt if Senator Ormonde has read the Bill.

Ms Ormonde: Information on Ann Ormonde  Zoom on Ann Ormonde  The Senator is offending the public.

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  With regard to the consumer interest, section 47(c) states: “The member of the Board representing consumer interests shall be a person nominated for appointment thereto by the Minister”. What a surprise. It goes on: “. . . or such organisation or organisations as the Minister considers to be representative of consumer organisations.” They cannot even leave that to consumer organisations. There has to be political approval, political consent and political blessing. We know, as does everybody else, that in Ireland that means party political.

Ms Ormonde: Information on Ann Ormonde  Zoom on Ann Ormonde  Is that so bad?

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  It is of course. This is an abuse. The consumer organisation, the CAI, could easily appoint someone—

Ms Keogh: Information on Helen Catherine Anne Keogh  Zoom on Helen Catherine Anne Keogh  Perhaps a university graduate.

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  —but they could not be trusted by the political parties because they might come up with ideas the parties did not like. The people on this board should not be representatives of the social partners or representatives of the pensions industry. They should all be representatives of the pensioners. If they need expert advice, bring the experts to the board meetings and let them give the advice, as happens on a large number of boards and is the ideal. Do not, however, let them make the decisions. Do not let those who have no independent advice to offer make the decisions.

The reason pensions are such a mystery lies with the Pensions Board. Why is it that you or I, as pensioners, do not know where our money is? I challenge anybody in this House to tell me where their money is. The silence is deafening. Do Senators know why?

Mr. Lydon: Information on Don Lydon  Zoom on Don Lydon  We are not pensioners.

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  The Senator is a pensioner. He is paying into a pension fund here, but he does not [132] know where his money is. Does he know why? It is because they will not tell him. That is an absolute scandal. It is a secret society. If you ask where your money is, all they will give you is a geographic breakdown. That is what happens with pension funds. They may give you a sectoral breakdown, but you cannot be trusted to know that your money is in certain stocks. Why is that? It is your money. It is an appalling state of affairs that there is no transparency in this industry.

Let us look at transparency in terms of charges. How much are you charged by your pension fund manager? Nobody knows, very few people ask and virtually nobody knows how to find out. You are told you get a fantastic tax break and that is why you should put a large amount of money into AVCs, other pensions and contributions of that sort. Therefore you do it, but how much are you charged? You do not know, nor does anybody else, but I tell you that they are living very well indeed on whatever it is. That money is the only money which is certain in the pensions industry. They do not have to explain to you; they have to explain to trustees.

How do you find out how these managers are doing with your money? You can talk to your trustees and, indeed, the pension fund managers. They do actually give some indication of how they are doing because they publish a table every quarter, or somebody else publishes a table for them. They are due out tomorrow – some are out already – and it will be very interesting to see them. The table measures them and that sounds fair enough. The only problem is they do not measure themselves against any recognised benchmark but only against each other. Every year it is buggin's turn. One year such a one is top and the next year someone else is. They do not measure themselves against the ISEQ index, Wall Street or a basket of currencies. They measure themselves against each other, which means they all come in very close to each other because they nearly all invest in the same things. There are usually very marginal differences between them, with one or two exceptions.

They invest, as a rule, in equities. I do not know why and I suggest that nobody else knows either.

Ms Ormonde: Information on Ann Ormonde  Zoom on Ann Ormonde  Maybe they are better off.

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  They are not better off. Senator Ormonde is absolutely wrong. They are worse off. What they should have done in the last three months had they been any good – and this is what they are paid for – was be in cash. They were not in cash and they did not even have large proportions in cash. They are paid, with your money and mine, to make good investment decisions, but they continually make bad ones, again with our money.

Ms Ormonde: Information on Ann Ormonde  Zoom on Ann Ormonde  That is a matter of opinion.

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  It is not opinion, it is fact. I challenge the Senator to produce any reputable indices [133] which they have beaten over a regular period of time. You can always do it from time to time. A lot of these figures are disguised by the fact that markets have gone up for seven or eight years non-stop and they have been sitting in the market benefiting. Beating indices they find, for some reason, impossible and these people are paid vast sums of money. Why were they not in cash for the past three months? That is what they are paid to do with your money and mine. They were sitting in the equity market with a recession in the USA staring them in the face and they did not get out.

Mr. Lydon: Information on Don Lydon  Zoom on Don Lydon  How does the Senator know this, having said they will not tell?

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  You can tell geographically where they are, but you cannot find out what stocks they are in. I am very much looking forward to Senator Lydon's contribution, because it will not be the first time he has made a contribution on a subject with which he is not particularly au fait.

Ms Ormonde: Information on Ann Ormonde  Zoom on Ann Ormonde  That is not fair. Senator Ross is trained.

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  It is very important that we are not uncritical of where the money has gone. It is very easy to say the principles of this Bill are good, as they are. However, it appears we are never to have the transparency which we should have from the pension fund industry. We are never to find out what charges we pay or to find out where our money is invested. That is what the Minister refers to as the paternalistic ethos in this industry.

I make concessions. There are mechanisms in place which work in theory, but not in practice. There is a mechanism whereby there are trustees to protect the interests of pensioners and they might meet every quarter to consider where the money is and whether it is in the right place. However, trustees now seem to be bound by rules of confidentiality as well. Almost inevitably, they get sucked into this loop, which is mostly employer driven, not employee driven. They switch the pension fund from one manager to another very occasionally, though that rarely works. You find that they all come up with a very similar performance because they all invest in the same things. They are all frightened of making decisions that would put them out of line and they are all frightened of anything performance related.

What I would like to have heard from the Minister today was not what he introduced. He ought to have said that pension fund managers, whose performance has been lamentable, should be paid on the basis of the returns which are given to the pensioners themselves. This Bill is not pensioner driven. It is driven by those who are in the loop. It is driven by the pensions industry and that is the problem. Quite obviously that is who the civil servants and the Minister have been listening to. Otherwise, he would have gone hell for leather to [134] regulate properly and to make demands of those who are managing these vast sums of money. They are doing very badly. That is not what the Minister did. He came here with a hotch potch. He brought us a diluted Bill containing a couple of very good proposals and he promised to monitor it over the years ahead. Everybody in this House knows this means absolutely nothing.

He said he hoped to launch a pensions awareness campaign. That is a welcome promise, but why is it not done now? I think he said it would be done next year. What will happen with that pensions awareness campaign? Will people be told that the board has only one nominee of the consumer, in other words the pensioner, who happens to be nominated by the Minister? He could happily nominate a member of a Fianna Fáil cumann in Kiltimagh. That would be a consumer nominee—

Ms Ormonde: Information on Ann Ormonde  Zoom on Ann Ormonde  What is wrong with that?

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  —and he would be as good as anyone else.

Ms Ormonde: Information on Ann Ormonde  Zoom on Ann Ormonde  There is nothing wrong with Kiltimagh.

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  I see no problem with it in the context of this board—

Ms Ormonde: Information on Ann Ormonde  Zoom on Ann Ormonde  There is nothing wrong with Kiltimagh.

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  What he ought to have is 14 consumers, not 13 and one, 14 people who can make independent decisions.

Ms Ormonde: Information on Ann Ormonde  Zoom on Ann Ormonde  They are very responsible people.

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  I am as happy about the ombudsman as everybody else in this House. We had a very unhappy experience with the insurance ombudsman, Paulyn Marrinan Quinn. She was appointed to ask particular questions, which certainly ruffled the feathers of the industry. Having ruffled the feathers of the industry, Paulyn Marrinan Quinn was frustrated and obstructed—

Mr. Lydon: Information on Don Lydon  Zoom on Don Lydon  Had she a pension?

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  —and she left. Why did she leave? She left because she was disillusioned. There are ways within these industries for people to frustrate people like Paulyn Marrinan Quinn, and there will be ways within the pensions industry to frustrate an ombudsman of that sort. When she left the insurance ombudsman's position, she was replaced by somebody else.

I do not wish to cast aspersions, and I will not do so, on her successor, but that particular post has become quieter in its public pronouncements and less noticeable in its interference in the wrongs of the insurance industry recently. I regret that. I dread that an ombudsman appointed to the [135] pensions industry may be caught up by the culture, secrecy and lack of transparency in the industry and may not be able to perform his duties. I warn the Minister that it will take a very strong personality in the ombudsman's position to be independent of a strong board which is not representative of pensioners, but is representative of a very cosy and secretive industry.

Mr. Lydon: Information on Don Lydon  Zoom on Don Lydon  Senator Ross made a speech typical of that by a shadow spokesman on finance on the day of a budget, stating that the Minister missed a golden opportunity or scored an own goal or something like that. I do not think the Minister overlooked anything. The Bill is excellent and much thought has gone into it. It will do much good.

Is Senator Ross suggesting that nobody takes out a pension? I am sure he would not agree to that – I am sure he has a pension himself. In July when the Minister announced this Bill he said that it was one of the Government's key commitments under the Programme for Prosperity and Fairness, and it was. If anybody in the House wishes to look at the programme that was set out by the Government when it came to office, not just concerning pensions but also every aspect of human endeavour, he will see that it has delivered on practically everything it set out to do. By the time of the next election in June, we will have delivered upon everything upon which we said we would deliver. When the Government resumes after the next election, it will do the rest.

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  The Labour Party will not let you do so.

Mr. Lydon: Information on Don Lydon  Zoom on Don Lydon  We worked well with the Labour Party before and we can work well with it again. These matters do not pose problems.

Mr. Costello: Information on Joe Costello  Zoom on Joe Costello  That will be in 2020.

Mr. Lydon: Information on Don Lydon  Zoom on Don Lydon  The overall objective of the Bill is the development of the pensions policy agreed with the social partners. It will ensure that all retired persons have an adequate income to enable them to live with dignity and share the benefits of economic growth. What could possibly be wrong with that? Nothing, it is a very admirable aspiration.

The Bill, as the Minister said in his speech, will include a framework for personal retirement savings accounts, the establishment of an ombudsman, the expansion of the role of the Pensions Board and the enhancement of pension regulation.

The Bill is important for the following reason. A few years ago, I was invited to a meeting at the ESRI—

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  Was the Senator invited to this?

Mr. Lydon: Information on Don Lydon  Zoom on Don Lydon  I was, many times.

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  I doubt it.

[136]Mr. Lydon: Information on Don Lydon  Zoom on Don Lydon  The meeting was important because the press was excluded. There were members present from various representative groups and there was a speaker from the Belgian Government – I cannot remember the man's name because it was about ten years ago – who said that in a few years' time, most of the European Governments would not be able to pay pensions, even old age pensions. He said we were entering an era with a huge elderly population, being supported by fewer and fewer wealth producers. In this country there was at the same time a large young population. I think it is a remarkable achievement and very laudable of the Government that it put in place something that will help redress this problem to some extent.

Perhaps Senator Ross could help me because he is an expert in this area, as in most other areas. I often listen to him in the evenings when he is talking on Eamon Dunphy's radio programme. I do not follow his advice on shares but I do follow Eamon Dunphy's advice on football. I understand that the capital of the pensions is paid back in Germany, but not in any other country. If one put all this money into a pension scheme, why can one not get the capital back at the end as well as the interest? It would be great if that could happen. Maybe it does happen in Germany, but somebody told me it does not. Germans are very efficient people – they always were in all kinds of endeavours.

The framework of the Bill provides for an increase in the level of occupational personal pensions from 50% to 70%, a laudable objective, as Senator Ross said. The PRSA will be a low-cost, easy-access and long-term investment account designed to help people save for retirement in a flexible manner. It will complement the social welfare pension, again a laudable objective. Employers who do not provide a pension scheme for employees will have to do so when this Bill comes into effect. They will have to provide access to at least one standard PRSA. The employer and employee contributions to PRSAs will be voluntary.

The Minister said: “There is no doubt that one pension arrangement does not fit all and that pension reform is an ongoing process which must be monitored, evaluated and the course corrected, as necessary.” The Minister is always open on Committee Stage and amenable to reviewing matters. He proposes a review of the Bill in a few years' time. He is also open to reforming anything that needs to be reformed and setting up a system of checks and balances so that the Bill will not be left without further changes to it. Most Bills should be subjected to such review. Many pay lip service to the idea but do not always act on it.

I do not want to go into all the procedures and pillars of the Bill because it is unnecessary to repeat what the Minister said when he spoke about the pensions ombudsman and the Pensions Board enhancing current provisions. The Bill is a very good attempt to help people provide pensions for their old age. Costs for elderly people [137] increase constantly. A rising tide may lift all boats but some appear to rise more than others. The cost of health care, insurance and many other things increases when one is old. People need pensions and, if this Bill assists in this regard, it is laudable and should be supported.

Mr. Quinn: Information on Fergal Quinn  Zoom on Fergal Quinn  I appreciate the opportunity to speak on this Bill. It is difficult enough to follow Senator Lydon but it is even more difficult to follow Senator Ross and make an impact. It is said that one should never go on a stage after animals or children, and I would add Senator Ross to that.

The philosophy of the Bill is to be approved of. I agree with a great deal of what Senator Ross says most of the time and I occasionally disagree with him. On this occasion, there are things we have to support. Senator Ross said the principles are good and I agree.

Ms Ormonde: Information on Ann Ormonde  Zoom on Ann Ormonde  Did he say that?

Mr. Quinn: Information on Fergal Quinn  Zoom on Fergal Quinn  Yes, he did. I wrote it down because I was not sure I heard it correctly. The objective of the Bill is that more citizens can make decisions about their pensions and income when they retire. The objectives are to increase the coverage, as Senator Lydon said, to create an ombudsman and to produce flexibility. They are all very worthy and I welcome the Bill as a useful step in the modernisation and diversification of pension provisions through the personal retirement savings account. The establishment of a pensions ombudsman is also a worthy step which improves the balance of power between those who provide pensions and those who benefit from them.

Ultimately, however, the value of a pension depends not only on the legislative framework such as we are putting in place but just as much on the success of the economy. If I stress this for a while, and the Minister referred to it in his speech, it is because it is the most important element, along with the state of the economy when the pension is drawn. No matter how tightly we draw the legislation or how worthy it is, the eventual pension benefit is determined largely by the success of the economy over that period in future. For that reason, I make no apologies for focusing in this contribution on matters that affect our economic future and that will impact on pensions in future and on other things in the meantime.

Every so often there is a decisive turn in economic events. We have all seen it on occasions. It is vitally important if we are to cope properly with such turns that we see change coming as soon as possible and that we react to it appropriately and as quickly as possible. This year we are experiencing such a decisive change and all the signs suggest we are not reacting as quickly as we should. If I am right, we are going to pay very dearly for this slowness. As so often happens, it is a combination of factors which, taken together, add up to a major change.

[138]I single out three factors in particular which have in common that none of them could have been foreseen as recently as 12 months ago or less. While we can be forgiven for not having foreseen them, we certainly do not deserve to be forgiven if we fail to respond to them as they happen. The three factors which have combined into a single decisive change in the economic conditions that affect us are foot and mouth disease – and I know the Minister comes from an area which was particularly affected – the downturn in the technological sector and the knock-on effect of what happened on 11 September in the United States.

As each of these happened, we were slow to realise the full impact they would have on our economy and we are now compounding our mistake by failing to realise the full cumulative impact of these three factors. The danger of this failure is that we do not and often will not respond accordingly to the changed circumstances and those changes catch us unawares on occasions. They are happening and I am not sure that we are protecting ourselves against them.

For a number of years our entire policy was geared to the fact that we were experiencing a boom. We had more money than we knew what to do with and, as a result, we quickly became careless about what we did with it. It is only in boom conditions which people are convinced will never change that we could seriously contemplate spending more than £1 billion on a stadium when there is no obvious need for it except the whim of a single-minded Taoiseach. We think it is very worthy in boom times.

Mr. D. Ahern: Information on Dermot Ahern  Zoom on Dermot Ahern  No obvious need?

Mr. Quinn: Information on Fergal Quinn  Zoom on Fergal Quinn  There is a single-minded Taoiseach and it was perhaps correct at the time of the boom.

Mr. D. Ahern: Information on Dermot Ahern  Zoom on Dermot Ahern  The Senator obviously does not play sport.

Mr. Quinn: Information on Fergal Quinn  Zoom on Fergal Quinn  I certainly go to sport and play it as well. It is only in boom conditions that people forget the need to keep a close eye on the cost of a construction project, thus leading to incredible overruns, such as in the CIE signalling project which is the subject of an Oireachtas inquiry. It is only in boom conditions that people think they can solve the problems of a health service by throwing money at it instead of investing in the structural reform the service clearly needs.

I single out these areas because such things are never forgivable, but when there is a boom one can get away with them because there is no problem with the amount of money available. Things change when the money begins to dry up, as is happening now. It is important we return quickly to watching carefully every penny spent. It is time to return to taking hard decisions and making painful choices between what we can and cannot afford to do. We all do this in our home lives and [139] it is definitely done in business. We have already reached that point and I am concerned that we are slow to realise it. I can understand to some extent the reluctance of politicians to face up to what is perhaps a new reality because it would obviously suit many of them, and always those in the Government parties, to lead into a general election while we are still in a boom.

What alarms me even more is the apparent reluctance of the Department of Finance, which sponsors this Bill, to see the reality and to begin to prepare for and cope with it. Three times already this year the Department has reduced its forecast of the budgetary surplus for 2001, but it is clear to anyone with an eye in their head that even the latest forecast is hopelessly and helplessly optimistic. It is true that the Department of Finance has always been regarded as inaccurate in its forecasts, but that did not matter much when it was behind the wheel and things were on the way up. It was of no great consequence that it consistently underestimated the yield from tax year after year. However, when the cycle turns the other way, as it is doing now, wrong forecasting can become very dangerous. It provides a fig leaf of support for continuing policies long after the changed reality has proved them to be wrong.

The latest figures for tax returns show that, in the last quarter, it was not just a question of growth slowing. The tax yield reduced by nearly 5% on the same quarter last year. That is a dramatic change. During the first two quarters, with all the problems they presented, the tax yield slowed but was still in growth mode. That encouraged many to think that we could have a soft landing for the economy. The latest figures give the lie to that expectation. Suddenly we are in negative growth and, if anything were to set the alarm bells ringing, that would be it. However, the reaction of the Department of Finance is to forecast an increase of 15% in tax yield in the final quarter which we have just begun.

There are two things wrong with that. It is a hopelessly optimistic figure which I believe will not be realised. What is worse, the reasons put forward for this optimistic outturn rely on one-off factors such as the take from the tax amnesty and the self-employed tax on last year's profits. Even if these factors filled the gap, they should be discounted as one-off factors that mark the underlying trend. It is the underlying trend that we should watch and respond to and on which we should build our future policies.

I am sure we all remember the dark decade of the economic struggle when we continually said that our problems were due to causes over which we had no control. That was sometimes true. Now we face an economic challenge where it is entirely up to ourselves how we emerge from it. If we refuse to recognise the new emerging reality and to readjust our policies quickly to the new situation we will pay a severe economic penalty from which it may take years to recover. If we react quickly [140] and appropriately to the downturn occurring now we can limit the damage. It would be living in cloud cuckooland to expect that we could escape altogether but we can do something about it by taking action now. That would be an infinitely better outcome compared to the damage we can do to our economy by sailing into the downturn in the belief that we can still behave as if we were in a boom. The pensioner of the future will thank us all for it.

This Bill is worthy of support. It is a step in the right direction. I use this opportunity to remind ourselves that it is only a step. If we take that step without being aware of the problems facing us and if we do not consider how things have changed in the past year, we are leading ourselves into cloud cuckooland and we are not doing our pensioners a favour.

Ms Ormonde: Information on Ann Ormonde  Zoom on Ann Ormonde  I welcome the Minister and am sorry he was not here for the negative approach and presentation of Senator Ross. I did not expect to speak on this and am sorry Senator Ross is leaving now before he hears what I will say.

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  I gave the Senator plenty of material.

Ms Ormonde: Information on Ann Ormonde  Zoom on Ann Ormonde  Four words from the Bill struck me this morning as very interesting. They are personal retirement savings scheme. Some of us will reach retirement sooner than others but this is worth reading for all of us. As I came in I had a philosophy in my mind but having listened to Senator Ross I became bogged down with confusion. He saw nothing right with pension schemes. He felt that anybody who paid into a pension scheme was a sucker and got nowhere. He planted doubt. I wanted to tell the public that this was a new concept and an agreement by the Government that we would have a scheme that allowed everyone retire with dignity. Who would knock that? I was flabbergasted when I heard the negative approach of Senator Ross. The simple philosophy is that we all must save for retirement.

Here is a new opportunity for us. We live in times of fluctuation and do not know the future pattern of jobs. This opportunity allows us enter a scheme and bring the scheme with us when we change jobs. In the past people paid into schemes but could not bring their contributions with them when they moved. Often they had paid a lot but had to start again with a new pension scheme. What could be wrong with this new scheme? I compliment the Government on its foresight in recognising the trend in job patterns and the opportunity to provide such a scheme. What could be wrong with it? It is a great idea. I do not know enough about it and am not a financial wizard but my philosophy is that we must protect our citizens and offer them a dignified way of life.

Research has been brought into this through the Pensions Board. It is a new approach and there will also be an ombudsman appointed. This will give an opportunity to anyone ill at ease with [141] the scheme to pursue their unrest. That is a major plus. I notice that Senator Ross criticised at length the composition of this new board. He said that perhaps a Fianna Fáil hack from Kiltimagh might be on it. What is wrong with any consumer being on the board? I do not care who is on the board as long as he or she reflects my interest as a person interested in this scheme. What is wrong with a scheme that has an ombudsman in the background and a board monitoring it? I will say no more. It is a great concept and a new philosophy. I say well done to the Minister. There is a lot of work to be done in teasing out the problems. I welcome the approach of an awareness campaign. It will be very welcome by the public at large.

Mr. Costello: Information on Joe Costello  Zoom on Joe Costello  I compliment the Minister on producing this legislation. I disagree with Senator Ross's perception of it. Very often his perception is that private is good and public is bad and anything to do with partnership should be looked at with suspicion. The PRSAs being provided would be set up on a private basis so he should have been happy with that development. Senator Quinn was concerned about the three factors bringing about a downturn in the economy. I would take the opposite position. With a downturn in the economy there is a likelihood of more fragmented employment leading to greater mobility and greater need for a flexible response in terms of transfer of contributions to pension schemes.

None of us could criticise the principles of the Bill. We are becoming an ageing society and it is important that we ensure people can live with dignity, not in poverty, when they retire. Often young people never expect to grow old and do not see a need for a pension fund. All professions should have mandatory membership of a pension scheme rather than the voluntary situation that exists in many areas. Part and parcel of the 40 or so years that people spend working is preparation for retirement so a pension scheme should be an essential part of every profession. I laud the national awareness campaign. It is important that it takes place and that the maximum number of people become involved in some form of pension scheme.

The figures mentioned by the Minister are very alarming. Only 50% of the workforce – 630,000 people – are involved in a pension scheme. Since the beginning of the last decade that number of new employees would have been added to the workforce. There were about 1.1 million people in 1990 and now the number is 1.75 million. It appears that many of the people added to the workforce have no pensions. I am concerned that we are doing badly in that respect.

Perhaps the Minister can comment on the extent to which the Celtic tiger has bred a type of employee who is either operating in the black market or in some self-employment scam. This particularly affects the construction industry, as well as certain other industries where no pension [142] contributions are made. Have we had a decreasing number of people in pension funds over recent years? I would like to know the figures. There seems to have been a sharp decrease in the membership of pension and superannuation schemes over the past decade.

The Minister says that he will look at the current situation, and the mandatory side of it, and that he expects the voluntary factor in this Bill will increase from 50% to 70%. I do not know if there is a timescale for that increase and would like to know how long it will be before this area is reviewed.

I am concerned about community employment schemes. Is a person working on such a part-time basis entitled to be involved in the investment and the PRSAs that the Minister speaks of? What of part-time workers and students? How does the Minister intend to bring them into an investment scheme? Will such a scheme be attractive enough? The Minister's speech describes the scheme as a low-cost, easy access, long-term personal investment designed to allow people to save for retirement in a flexible manner, and that will complement the social welfare entitlement. At the same time, the Minister is capping the charges at 5% of contributions and 1% per annum of assets. That seems quite substantial as it is not a percentage of contributions or assets but contributions and assets.

Some £41 billion is in the existing fund so there is clearly quite an amount to be got by the providers of these personal savings accounts. I wonder how attractive this will be. If it is being capped at 5%, everybody will go for 5% and nobody will start on 3%. Does the Minister expect sufficient competition in the market to reduce the charges? Is it expected in relation to the 1% that everybody who is involved as a provider will automatically get 1% of the assets that they hold?

The biggest problem in relation to pensions, and the greatest irritation to those on pensions, is that there is no indexation in terms of the national agreements of recent years. While workers get an increase, that does not carry on to former workers now retired. There is huge dissatisfaction, especially as today's worker will be tomorrow's pensioner. Could that not be addressed? Any national agreement made between the social partners should automatically provide for the needs of former workers, who should benefit from indexation. That should be looked at in any future deal.

The Minister is leaving the question of taxation and PRSAs for another day. He says these matters must be dealt with in conjunction with the Minister for Finance. That is true, but surely the Minister has an opinion at this stage as to how PRSAs will be taxed. That will be a relevant matter if they are to be seen as an attractive investment vehicle. The Minister should tell the House his thinking on that and how he intends to advise the Minister for Finance, who is currently framing [143] his next budget, on which I presume he has already done much work.

I am perplexed that amendments to the Bill, in terms of the Employment Equality Act, 1998 – which allowed for compliance with European directives – are to be left to Committee Stage, along with any question of a pension compensation fund. Should this have been included in the substantive legislation now rather than bringing it in at a later stage? These are important issues. Obviously, we must conform to the European directives relating to it and there is no reason it should not be part of the legislation. Anything to do with the Employment Equality Act, 1998 is set in statute and should be included in the legislation.

The consumer has come in for much criticism, a matter on which Senator Ross was particularly strong. There is only one customer representative, although that is not the full case as other bodies are represented, particularly the trade union movement. However, it would be more appropriate if there were more people on the board representing the consumer directly. That would satisfy people that there is a large consumer voice.

That these will be private investment schemes begs the question as to the controls that will be in place on the manner in which the money will be invested. The money will not simply be put in a bank and sat on for an indefinite period. This will obviously give considerable employment to the various investment funds and investor professionals. Will the Minister place any requirement in the legislation to ensure that the money will not be invested in armaments or in the nuclear industry, both of which are a major threat to this country and the world? We should have a benign investment policy enshrined in the legislation.

I welcome the Bill, which is a step in the right direction. I hope it will encourage other people on a voluntary basis to become part of a superannunation scheme and that we will move away from the current situation where an alarming number of people are not involved in any pension scheme. If necessary, it would be desirable to make membership of a pension scheme compulsory in any employment and to have heavy penalties for employers who do not pay their social contributions, as many have not done. Every worker, no matter how temporary or short-term the work, should be involved in a pension scheme.

Minister for Social, Community and Family Affairs (Mr. D. Ahern): Information on Dermot Ahern  Zoom on Dermot Ahern  I thank Senators for their contribution to this debate. A number of Senators asked why certain matters are being left over until Committee Stage. The difficulty is – as I accept – that this Bill is overdue. It is an extremely complex Bill, as those who examine it in detail will know. It needed specialist examination in the parliamentary counsel's office which [144] took a long time. With all the other priorities in that office, it was not possible to bring everything forward.

That is why we issued the draft Bill to allow the various interests look at it some months before we published the Bill. That is one of the reasons, as I outlined in my speech, there were a number of Committee Stage amendments in regard to the taxation proposals. This was raised by a number of Senators, including Senator Costello. At that time we issued the draft Department of Finance proposals in regard to the treatment of PRSAs. They are available and we can ensure that the Senators who have spoken receive a copy of those. In regard generally to the taxation of PRSAs we will be endeavouring to make better arrangements to encourage as many people as possible. We believe the treatment of the PRSAs from a taxation point of view will allow and encourage many people to participate in the scheme.

In regard to a number of points made by Senator Ridge about employers opting out of paying contributions, I addressed this in the Bill. I agree it is something we will need to monitor. Employers need to contribute so that their employees' pensions on retirement will be worthwhile. The Senator raised the matter of taxation provisions and these are available. She also referred to the issue of the separate contract for what she called death benefit. The separate contract applies to standard PRSAs as the view was taken that there was a need for transparency. We wanted no fudging on the issue of charges because if a company was providing standard PRSAs and other pension policies there could be cross-fertilisation, so we insisted on a separate contract for standard PRSAs.

With regard to the question of the ombudsman, we looked at the experience in other countries, particularly the UK, of the three year time limit and decided that it seemed to be reasonable. Personal pensions are not in, but may well be in the long term.

Senator Leonard raised a number of issues, including the matter of employer contributions. We may ultimately need to make this more mandatory. She also raised some issues that I have already dealt with such as that of publicity. As I said in my speech, we have agreed a public awareness campaign. Obviously we would not be able to bring this forward until such time as the PRSAs are legislated for and in situ. I hope the industry will take up the opportunities that we are providing. We have to undertake the public awareness information campaign, which will be run by the Pensions Board, but the industry has a strong part to play in this, as have the employers and trade unions. The Senator also raised the issue of fear regarding charges. This is covered in the legislation on standard PRSAs and there is a restriction on what can or cannot be done in this regard.

Unfortunately, I was not present for Senator Ross's words but having listened to some of the [145] remarks about what he had to say reminds me of that famous phrase used by the late Senator McGowan regarding some of the elements of the Seanad. I understand that Senator Ross threw brickbats all over the place and referred to vested interests, or words to that effect. It is amusing he seems so exercised by the pensions Bill but he does not seem to be as exercised by the Social Welfare Bill. I wonder why he is so exercised by the pensions Bill, given his background. Perhaps in future he will come in and talk about the Social Welfare Bill, which I would imagine will have a much greater effect on the consumers of the country than this Bill. I do not accept his points and think it very unfair criticism that he would allege this is a cosy cartel – maybe they are not the words he used. It is unjust given the efforts made by all the social partners and, indeed, members of my staff regarding what has been a hugely tortuous route to where we are at present with this Bill.

We can only regulate so much. We have to try to bring a number of interests along and I am confident we have succeeded in doing that. None of the numerous submissions that came to us when we presented the Bill was critical and most were reasonably complimentary about the way in which we dealt with this matter. Senator Ross has been very critical without having anything particularly constructive to say about what is on offer here. He referred to the issue of consumers and apparently wanted 14 consumers on the board, but that is illogical. This board has to deal with extremely complex issues and while it might have the staff in the Pensions Board to advise it, it is necessary to have people with some background in the area of pensions on the board to supplement the advice of the permanent officials.

The Pensions Board was put in place by the previous administration and I compliment all the members of the board who were appointed by the outgoing Government. It had people who were, possibly, in some way partisan. Perhaps I should not say this but it is true and this would have been the case in regard to other boards that were appointed under my aegis and the aegis of outgoing Ministers. The job in the Pensions Board was carried out in an excellent fashion by all the members.

There were consumers on the board and we decided to change that in the Bill – as far as I can recall, it was not one of the proposals in the NIPI report that there should be more consumer interests. I had an opportunity to appoint a new board after its five year term last December, which consists of three ministerial nominees, and I chose people who I thought were consumers. I believe that there needed to be a consumer element in the Bill. I understand that Senator Ross referred to some Fianna Fáil cumann in Kiltimagh and I, like Senator Ormonde, make no apology for appointing anybody who is connected with my party or indeed any other party because they are as entitled to be on boards as anyone else. Senator Costello should not say anything as [146] I may be able to give him a lesson as to how many people were appointed by the outgoing Government in its last few days.

Mr. Costello: Information on Joe Costello  Zoom on Joe Costello  I was only interested in the Fianna Fáil cumann.

Mr. D. Ahern: Information on Dermot Ahern  Zoom on Dermot Ahern  The Senator can check my record as regards appointments. To a certain extent he would raise an eyebrow and indeed my own party might raise an eyebrow as to some of the re-appointments that I made during my time.

Mrs. Ridge: Information on Therese Ridge  Zoom on Therese Ridge  Fair play to the Minister.

Mr. D. Ahern: Information on Dermot Ahern  Zoom on Dermot Ahern  I believe in appointing people on ability and there are people in all parties with ability. Of the three people who I appointed to the board, one was a housewife with some taxation experience and not a member of any cumann that I know of, another was an accountant and I do not know whether that person was a member of any political party, and another woman was involved in TCD, of all places – maybe Senator Ross knows her. Apart from those three there would be the intention to put on an additional consumer representative.

Senator Ross raised the issue of transparency in charges. It is obvious he did not read the proposals because standard PRSA charges are capped. He complimented the publicity awareness campaign. He referred to a number of issues which are not in this Bill and have nothing to do with the Bill. The Senator probably has hobby horses in relation to his own interests. I suggest that he might not be as transparent and come in and speak on the issue of social welfare generally. He criticised the issue in relation to the insurance ombudsman. He likened our proposals in this Bill to the insurance ombudsman. The insurance ombudsman is a voluntary arrangement within the industry. Our ombudsman will be set up on a statutory basis and will be independent. It is an insult to suggest that the ombudsman set up on a statutory basis can be influenced; one has only to look at the public service ombudsman. I totally reject what Senator Ross had to say in that respect.

I thank Senator Ormonde for her comments and for her rebuttal of what Senator Ross had to say. That is proper order. Senator Costello referred to the mandatory issue but as I have already said we will continue to review it. That issue was discussed at great length by the social partners but it was agreed unanimously that it should be dealt with on a voluntary basis. I am of the view that it needs to be reviewed and, as I instanced earlier, that will be the case. Senator Costello raised the issue of the 50% coverage being in the black economy and self-employment. I cannot comment on that but it is true that with the Celtic tiger economy – I hate using that phrase – many young people have come into employment who have not made pension pro[147] vision. The proportion of people in pension cover is less than it was for the reason that many young people are living for today and are not thinking about tomorrow, as we all did when we were that age, and have not made pension provision. Therefore, this is an effort to try to entice those people into pension arrangements at an early age.

Senator Costello asked whether pension PRSAs will be applicable to students, part-timers and those in community employment. They will be applicable to those people. Anyone will be able to take these PRSA plans. He was concerned about the 5% and the 1% capping charges. Those charges are reasonable. Contrary to what Senator Ross said, this was one of the issues which caused the pension industry the most concern. Indexation will be monitored and if the voluntary approach does not work we will have to return to it.

I have dealt with the issue of taxation which the Senator raised. In relation to the Employment Equality Act I would like to have brought the proposals forward in the Bill but they are [148] extremely complex. Hopefully, we will be in a position to bring them forward on Committee Stage.

It was always our intention, as requested by Senator Ridge, that there should be a big time lag between Second Stage and Committee Stage. We have in mind some time in late November, subject to the agreement of the Leader of House so that there will be plenty of time for people to examine the matter.

I thank all Senators who contributed and the Leader for giving us the opportunity to launch the Bill in the Oireachtas.

Question put and agreed to.

Committee Stage ordered for Wednesday, 10 October 2001.

Acting Chairman (Mr. Farrell): Information on Willie Farrell  Zoom on Willie Farrell  When is it proposed to sit again?

Ms Leonard: Information on Ann Leonard  Zoom on Ann Leonard  Next Wednesday at 2.30 p.m.

The Seanad adjourned at 1.05 p.m. until 2.30 p.m. on Wednesday, 10 October 2001.

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