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Dáil Éireann debate -
Thursday, 25 May 2017

Vol. 952 No. 2

Pension Fund (Prohibition of Levies) Bill 2016: Second Stage [Private Members]

I move: "That the Bill be now read a Second Time."

This Bill is part of a two phase process. I have produced it in its current form to ascertain the views of the House on the matter. If the House is prepared to support it I will then bring forward legislation to provide for a constitutional referendum so this prohibition can be written into the Constitution.

I understand that we do not have the resources available to the Minister and the Government when we draft. There may be technical flaws but I am not worried about this as we can iron those out as we go along. This evening I am trying to ascertain the views of the majority of the House on the matter and on whether these types of levies should be prevented in the future.

I shall provide the House with some context. The State pension, relied on by many of those aged over 66, is coming under tremendous pressure and will come under more pressure as the years go by. I will demonstrate this shortly. We must try to encourage people to save to provide for themselves so they will not suffer penury in their old age. To do this we must have incentives for people to save, but we must also remove the disincentives. There is no doubt that this levy was a powerful disincentive to people who wished to put away part of their earnings to provide for their future.

People are living longer, which is a good thing, but it presents huge challenges for the traditional type of pension the State provides for its older people in retirement. This has already been recognised in the extension of the pension age to 67 as the age at which people become eligible for the State pension, and to 68 in future years. Growing life expectancy and the increasing duration of retirement is ratcheting up the pressure on the State pension year by year. CSO statistics published in 2013 predict that mortality rates will decrease and this will result in gains in life expectancy from birth. For males this will be from 77.9 years in 2010 to 85.1 years in 2046. For females this increase in life expectancy will be from 82.7 years in 2010 to 88.5 years in 2046. These statistics also reveal that the total fertility rate is expected to decline by 1.8% by 2026. The combination of decreasing fertility rates and increasing life expectancy will have serious implications for the State's ability to meet pension costs into the future.

The national pensions framework in 2010 highlighted that currently for every pensioner there are six people at work to support the pensioner. By 2060 the figure will be less than two people. Expenditure on the State pension and related welfare schemes, which was discussed last week at the welfare Estimates, amounted to approximately €7 billion in 2017. This is 35% of the total current expenditure for the Department of Social Protection. According to a report published by the Department of Public Expenditure and Reform, over the period 2016 to 2020 there will be an average increase in the numbers of people collecting the State pension of more than 20,000 people per annum. There will be an estimated increase in cost of €233 million per annum, at current money values. This is with no increase in rates. The same report states that, even accounting for the rise in the eligible age of the State pension from 66 to 67 in 2021, the average increase in numbers collecting the State pension will be 22,600 per annum, from 2022 to 2026. The estimated costs will increase by €260 million per annum, again even with rates standing still.

The CSO's quarterly national household survey, published in May 2016, revealed there was a fall in the number of people who had a private pension in the fourth quarter 2015 compared to the same period in 2009. In the fourth quarter 2015, 47% of all workers aged between 20 and 69 had an occupational pension, personal pension or both. This compares with 51% in the fourth quarter of 2009 and 54% in the first quarter of 2008.

The CSO statistics also revealed that pension coverage remained lowest among younger workers. As I said, the State has sought to confront this problem in various ways, including, because of increasing longevity, increasing the age at which people would be entitled to the pension. That legislation is in place and will come into effect in 2021 and 2028.

The State has also been providing tax relief. I do not have the exact figure for the total revenue foregone per annum by the State in respect of tax relief for people who contribute to their pension but it runs into billions of euro. The Minister for Finance, Deputy Noonan, in a reply to Deputy Maureen O'Sullivan on 26 May 2015 said that if we were to limit to the standard rate the relief that could be deducted for pension purposes in 2015, the amount gained by the Exchequer in 2015 would be approximately €480 million. That would be the amount accruing if the rate was standardised and is not the total cost of tax relief on pension savings. On the one hand, we are spending billions of euro encouraging people to save and on the other hand we have a levy in place which is a discouragement to saving. The Minister will be aware that I have brought forward a Bill on mandatory retirement - a similar Bill has been brought forward by Sinn Féin - which seeks to abolish mandatory retirement at the age of 65. There is no law in this country that requires that a person must retire at 65 years of age but the contracts to which people sign up usually provide for retirement at the age of 65. The legislation I have proposed seeks to make that illegal. I would like the Minister to indicate when that legislation will progress to Committee Stage. If enacted, it would alleviate the situation to some extent but more needs to be done.

There has been talk about auto-enrolment, which where one provides for a supplementary pension in addition to the basic State pension. As for how it works, the employee, who is enrolled in the scheme but can choose to remain in the scheme or to opt out of it, pays a set amount, which is matched by the employer and similarly by the State. That system has been introduced in the United Kingdom and I understand from a recent Mercer report that it is working very well. As far as I am aware, 80% of people have not opted out thus far. It also operates in Australia and other countries.

I have to hand a copy of a document issued following a press conference on 3 March 2010. The conference was attended by the then Taoiseach the Minister for Finance, that is, the Minister himself and the Minister for Social and Family Affairs. The announcement states that the Irish State pension system will be reformed and will remain as the fundamental basis of the pension system in Ireland but that a new supplementary pension scheme will be introduced to provide additional retirement income for employees who are not already in a pension scheme. It is stated that in terms of operation, there will be a contribution from the employee who can choose to remain in the scheme or to opt out, a contribution from the employer and a contribution from the State. This was supposed to happen in 2014.

What is the date of the press release?

It is dated 3 March 2010. I can make a copy of it available to the Minister.

The Minister for Finance at that time was my predecessor, the late Brian Lenihan.

My apologies, the Minister is correct. To the best of my recollection, the Fine Gael-Labour Party programme for Government contained a similar commitment. Deputy Burton, when Minister for Social Protection, mentioned this numerous times but we have seen no action on it. The current Minister for Social Protection, Deputy Varadkar, in his recent campaign for the leadership of Fine Gael announced a new SSIA-type pension scheme for Ireland, which appears to be a new idea but is really the auto-enrolment system under another name. As I said, this system as operates in Australia and the UK and so on. Even if we do proceed to the auto-enrolment system it will not obviate the need for further savings. We must continue to encourage people to save and we must also ensure that if such system comes into effect, it cannot be subject to a levy. That pot of money must not be subject to a levy.

The introduction of a levy on private pension savings was, therefore, the opposite of what we should have been doing. In their lifetimes, Irish people today have seen two major financial crises, one in the late 1980s and another starting in 2008. The response in both instances was to introduce a levy on private sector pension funds. As a solution to a shortfall in national income, pension funds have proved an irresistible temptation to Governments that have an urgent need to secure ready cash. This does not only happen in Ireland. Argentina nationalised approximately €30 billion of pension assets in 2008. In 2013, the UK reduced its current budget deficit by taking £24 billion of Royal Mail pension assets. In Hungary, in December 2010, the Government seized €14 billion to reduce public debt. There is an ongoing situation in Poland.

Private pensions are savings that hard-working individuals have carefully put away over the years in order that they can care for themselves in old age rather than rely solely on the State. We are hearing an ever-growing refrain about the pension time bomb and the need for people to save for their retirement. The levy imposed between 2011 and 2015 ran totally contrary to this. We should be increasing rather than reducing a person's incentive to save. This levy undermined faith in pension savings. It is no wonder therefore that the participation rate is falling. People do appreciate the need to save: they just do not trust the system. Hence, the need to discontinue levying private savings. It is akin to seizing part of a person's bank deposit.

Between 2011 and 2015, the levy took approximately €2,393 million from private savings and hit 750,000 people. It undermined the principle of saving for retirement. It had implications for the financial security of individuals in retirement. It penalised those who were most prudent in saving for retirement. It also had other consequences. For example, it added to the difficulties of many defined benefit pension schemes already struggling to pay pensioners their entitlements. The pension schemes were already in crisis before the levy was introduced and its imposition only served to increase the financial strain they were already under. Hundreds of defined benefit pension schemes have either closed or are closed to new members. The levy was a significant contributory factor in that regard. There were other manifest injustices. For example, pensioners in defined benefit schemes paid the levy, whereas those that had their pensions secured by annuities did not. Individuals who transferred their benefits here from overseas, who had not benefitted from one penny of Irish tax relief, were nevertheless subjected to the levy.

A key feature of pension schemes is that the money is locked away until a person retires, which could be for 40 or more years. For this reason, pensions are increasingly perceived by people as being highly insecure and susceptible to the whims of future Governments. We need a pension system in Ireland that is secure, fair and straightforward. Given the manner in which State benefits for the elderly have been eroded in recent times and will be even more difficult to provide for fully into the future, we must ensure that such a punitive disincentivising measure cannot be imposed on our citizens again without their acquiescence. Public sector pensions were also reduced but these are in the process of being restored under the FEMPI legislation and they are secure, including the pensions of Members of this House. It is time we focused on protecting and securing the pensions of workers in the private sector, which is the purpose of this legislation.

I am pleased to speak to the Bill presented by Deputy O'Dea, which seeks to prohibit any future legislation that would impose a levy, or similar charge, on pension funds.

Specifically, the Bill proposes that, "No legislation, Statutory Instrument, or Ministerial Directive shall be proposed or accepted which would allow the Stamp Duties Consolidation Act 1999, the Taxes Consolidation Act 1997, any amendments to those Acts, or any similar existing or future legislation, to provide for a Stamp Duty Levy, or any similar charge, to be unilaterally applied to pension funds legitimately set up under appropriate pension legislation."

At the outset, I want to outline some important legal issues in relation to the Bill. I am advised that the proposed fettering of discretion in this manner is contrary to the exclusive legislation-making power of the Oireachtas, contrary to Article 15.2 of the Constitution and the ability of the Oireachtas to amend law in the future. The Bill is also arguably contrary to Article 17 and 28 of the Constitution as it fetters the power of the Executive to propose a money Bill to raise future funds.

I am further advised that these two fetters on both the Oireachtas and the Executive would require a constitutional amendment to allow for such legislation into the future which would bind successive Oireachtas and the Executive. It will also have a significant impact on the Executive as to how it proposes to raise public funds in accordance with the constitutional architecture for tax measures under Articles 11, 17 and 28 of the Constitution. While it is a matter for the Ceann Comhairle to determine, I am advised that there is also an argument that the Bill is a money Bill, since Article 22 of the Constitution also refers to Bills which either repeal or relate to the remission of taxation.

The Bill is a measure to prevent a type of taxation in the future and a way of raising money. I note that Deputy O'Dea acknowledged, in his comments when he was initiating this Bill, that it would inescapably involve an amendment to the Constitution. However, I note that the Bill he has presented for debate today makes no reference whatsoever to the Constitution. It is not clear, then, how section 2 of the Bill would work as it provides that the Bill would become law 21 days after having been passed.

More broadly, the function of our Constitution is to set out our fundamental legal provisions in areas such as how Ireland is governed and the rights of Irish citizens. A hallmark of successful constitutional arrangements is that they provide both stability and the necessary flexibility. Bunreacht na hÉireann, like most basic laws, is a relatively rigid constitution in that it can be changed only by amendment or replacement entirely through a referendum of the people. The necessary flexibility is achieved through decisions made by the Oireachtas and its constituent elements, the legislature and the Executive. This flexibility is vital so that government, in the broader sense of the word, can be in a position to react appropriately and sometimes swiftly to changing circumstances and events in the life of the nation. The Deputy's Bill would involve a deviation from that fundamental constitutional construct by requiring the placing of a provision directly into the Constitution in relation to a very narrow area, concerning a specific asset, namely, a pension. That is not a sound legal practice and is not something, therefore, that the Government can support.

The circumstances in 2011, when the stamp duty levy on pension schemes was introduced, were probably the most perilous economic conditions the State has experienced since its foundation. It was necessary that every sector of Irish society made its contribution towards our national recovery. It is an unavoidable fact that the unprecedented economic situation required extraordinarily hard and very often unpopular decisions. Radical action simply had to be taken to preserve and boost jobs. The pension levy was designed to claw back a small amount of the generous tax reliefs that those contributing to pension arrangements had benefitted from over many years. Stamp duty levies applying to the assets of funded pension arrangements were introduced in 2011 to pay for the jobs initiative, the chargeable persons for which are the trustees of pension schemes and others responsible for the management of pension fund assets. The original 0.6% stamp duty levy on pension fund assets ended in 2014. The additional levy of 0.15% which I introduced for 2014 and 2015, mainly to help continue to fund the jobs initiative, also ended in 2015. It is worth noting that annual tax relief on supplementary pensions is estimated at €2.4 billion, while the total yield of the pensions levy between the years of 2011 and 2015 was €2.4 billion. The intention was to claw back some of this with times being so bad. The alternatives were to go after the ordinary worker with income tax increases, more USC or more VAT and excise. The recovery in the economy helped pension funds to grow subsequently.

The position is that the equivalent value of all of the money raised from the stamp duty levy has been used to fund the wide range of measures introduced in the jobs initiative to protect existing jobs and to help create new jobs and the initiative has been a success in this regard. The measures introduced include expenditure measures such as the JobBridge and Springboard schemes, as well as a number of tax and PRSI incentives such as the reduction in the VAT rate from 13.5% to 9% for the tourism and hospitality sectors and the temporary halving of the lower employer PRSI rate. The funds raised by way of the pension levy have been used to protect and create jobs and this has helped to create the improving financial and economic position of the State. Taxpayers to whom the impact of the levy may have been passed on by the chargeable persons responsible for the payment of the levy, that is the pension scheme trustees, etc., will benefit from the changes which I began in budget 2015 and which have continued in subsequent budgets to reduce the tax burden on low and middle income earners.

I note the concerns expressed by Deputy O'Dea when he introduced his Bill in relation to the sustainability of pensions in Ireland having regard to an ageing population and the future ratio of workers to people aged over 65. The Deputy will be interested to know that, consistent with the commitment in A Programme for a Partnership Government to work to make our older years better years, the Minister for Social Protection is currently developing an action plan for pension reform. This is expected to set out a vision and a five-year plan to enable sustainable and adequate income for people in retirement. My understanding is that the Minister is examining areas for inclusion in a comprehensive plan including reform of the contributory State pension, the introduction of automatic enrolment in a new earnings-related retirement savings system, measures to provide for improved standards and governance in existing schemes and the establishment of an interdepartmental pensions reform and taxation group. The action plan is expected to be brought before Government before the end of the year.

The Deputy will also be aware that the Minister for Social Protection recently announced that the Government had approved the publication of the general scheme of the social welfare and pensions Bill 2017. That Bill contains key measures to increase protections for members of defined benefit occupational pension schemes, DB schemes, and to respond to the difficulties in defined benefit schemes. First, it requires employers who sponsor DB schemes, whether or not those schemes are in deficit, to give 12 months’ notice of their intention to cease contributions. For a scheme in deficit, the employers and trustees are required to enter into discussions to agree a funding proposal before the 12-month period expires. The Bill also introduces a time limit of six months from the date of the actuarial funding certificate for trustees of a DB scheme which is in deficit to submit a funding proposal to the Pensions Authority. The Bill further provides powers to the Pensions Authority to determine a schedule of contributions that will restore DB pension schemes which do not satisfy the funding standard, or the funding standard reserve, to an adequate funding position in circumstances where a funding proposal has not been agreed.

Taking the various factors I have mentioned into account, including the legal and constitutional issues I mentioned at the outset of my speech, the Government cannot support Deputy O'Dea’s Bill. However, I thank the Deputy for initiating a very interesting discussion which I am sure he will continue to pursue with whoever is the new Minister for Social Protection.

It is not too often that Irish politics can still shock in its hypocrisy.

We have become immune to brass necks and parties brazenly pretending to be one thing when their record shows the opposite to be the case. This Bill takes the biscuit. The party that ploughed the National Pension Reserve Fund into the bad banks now wants to protect people's pensions. The party that wrecked the economy wants to be responsible. It is not credible.

I do not think this is a serious Bill. This is not how we make laws. It is being suggested that we should put a law in place to prevent another law being introduced. However, if the Government tomorrow decided to bring that law in, it would simply repeal this one. This is not a serious Bill.

On First Stage, Deputy O'Dea claimed this Bill would provoke a constitutional referendum. I have read the Bill and see no evidence that it would cause a referendum. Fianna Fáil promised a constitutional referendum. That being so, why does the Bill not do that? The Deputy sees this as a test Bill. If it passes, another piece of legislation will introduce the referendum. Deputy O'Dea said that he brought this Bill forward to ascertain the views of the House. That could have been done by means of a phone call or conversation. This Bill smacks of a cynical and meaningless move by Fianna Fáil, which made a promise it has no intention of keeping. Nevertheless, I understand why such a move should be considered.

The pension levy was a brutal and clever piece of austerity. It took billions of euro out of people's pockets but, because of the way it was done, it did not register as the massive tax that it is and was. Only recently have some have become aware that they are being charged a levy to make up for the hole the last Government scooped out of their pension pot. Over 750,000 people are now directly affected by the pension levy. When Members raise questions on this issue, the Government washes its hands, as the Minister has done repeatedly, by saying it is a matter for the trustees, as if it was not the Government's doing in the first instance. Sinn Féin opposed this levy, as it opposed all austerity measures brought in by previous Governments. On the introduction of the pension levy, the Minister for Finance, Deputy Noonan, stressed that it was a temporary measure but now, years later, it is becoming apparent that for many workers this levy will mean a permanent reduction in their pensions.

When the levy was mooted, Sinn Féin called for extra safeguards to ensure it was not passed on to pensioners and workers. Our proposals were rejected. Years later, the bitter fruit is now ripening. In 2015, Deputy Pearse Doherty persuaded the Committee on Finance, Public Expenditure and Reform, and Taoiseach to write to the Pensions Ombudsman to express the anger of many workers who were getting letters telling them their pension would be cut for the rest of their lives. The Ombudsman did not pull his punches when he said the imposition of the levy was legal, though not necessarily fair.

At the time of the imposition of the levy, Government spokesmen expressed the hope, or even expectation, that employers could be requested or required by trustees to make good the levy. That was never going to happen. Approximately 80% of funded defined benefit schemes were already in deficit, as measured by the minimum funding standard under the Pensions Act, and the majority of employers were experiencing financial difficulty in any event, even disregarding the deficits already accumulated in the occupational pension schemes. Consequently, most trustees of defined benefit schemes had no option but to pay the levy from the assets of the scheme. Let us be honest: it is not the pension funds that are to blame - it is the wrecking austerity resulting from the scorched earth economic policy of Fine Gael.

Deputy O'Dea mentioned the Employment Equality (Amendment) Bill 2016. I acknowledge that he put forward a Bill which was due to be debated in the House and pulled that it in order to row in behind the Employment Equality (Abolition of Mandatory Retirement Age) Bill 2016 that I brought forward and which has gone through Second Stage and been sent for pre-legislative scrutiny. We are now waiting on a money message from the Minister to allow that Bill move to Committee Stage. Thousands of people are coming to the age where they will be forced out of employment not because of an inability to do the work but solely based on their age. Many of them have the ability and want to remain in work. There is cross-party support for my Bill, which is important legislation. I ask the Minister to address that issue. A money message is needed to allow that legislation move to the next Stage.

My party is not opposed to the Pension Fund (Prohibition of Levies) Bill but we are aware that in all likelihood it is not intended to be progressed in any serious way. It certainly does not belong in the Constitution.

Deputy O'Dea has expressed concern about pensions and their sustainability. He has published a separate Private Member's Bill in regard to defined benefit schemes. The Minister for Social Protection, Deputy Varadkar, is conscious of the need for reforms in the area of defined benefit pensions schemes and in that regard he has published the general scheme of the Social Welfare and Pensions Bill 2017, as I mentioned in my opening remarks. That Bill aims to change the current position whereby the employer can trigger events that wind up a scheme and have no responsibility for bringing a scheme back to a stable position. The Social Welfare and Pensions Bill 2017 provides for improved engagement between employers, pension scheme trustees and scheme members as well as providing a 12 month lead-in time in situations where an employer intends to wind up a defined benefit scheme. This reform is very important in view of the unfortunate cases where employers ceased contributing to defined pension schemes with very little notice to scheme members. The Minister's proposed amendments would give time for engagement and negotiation between trustees, scheme members and employers as well as giving time for trustees and scheme members to plan the wind-up of the scheme and discuss and consider alternative pension provisions.

The Bill provides for more certain timelines than is currently the case. Specifically, it proposes to introduce a six-month timeline for the submission of funding proposals for schemes in deficit and obliges employers sponsoring defined benefit schemes, whether in deficit or not, to give 12 months' notice of their intention to cease contributions. The Social Welfare and Pensions Bill 2017 will provide an incentive to employers to engage with trustees and to ensure employees and the Pensions Authority are informed of the employer's intention with a significant lead-in time. This compares favourably with the current situation whereby employers can walk away from a scheme at any time. The proposed amendments improve protection for members of defined benefit schemes while strengthening the obligation and incentive for employers and trustees to reach agreement to eliminate any shortfalls in the scheme.

The Minister is also working to give practical effect to the commitment in A Programme for a Partnership Government to make our older years better years. He will be bringing forward a five-year action plan for Government approval which will provide a blueprint for sustainable and adequate incomes for people following their retirement. These measures demonstrate the Government's commitment to this area. I thank Deputy O'Dea for giving us the opportunity to debate the important issue of pensions.

There are now no levies on pension funds. The primary levy ended in 2014 and the smaller levy ended in 2015. The Government has no intention of reintroducing the levies. There is no issue arising from the programme for Government that would suggest that there is any prospect of a levy in the immediate future. Consequently, the very far-ranging imposition on the Constitution proposed by the Deputy is disproportionate, in my view, to the prospect of a levy, which no one intends imposing, arising in the future. While I thank the Deputy for the opportunity to debate the issue, I do not think he should proceed with this particular Bill.

The levy was introduced in desperate times. The option being pushed at us by the troika was to abolish the tax relief on pensions. We refused to do that. If one looks at the simple arithmetic of it, approximately one quarter of what was given to pension funds in terms of tax relief was taken back by the Exchequer over a very temporary period. There is no intention of doing that again. Very generous tax breaks are still allowed for those who save for pensions. This will remain the case and it is the intention of the Government to continue on that basis. The money collected at the time was put to very good use. The hospitality sector and the tourist industry were restored by the drop in the VAT rate from 13.5% to 9%. In the context of a wider economic framework, the restoration of economic growth and of so many sectors in the economy has underpinned pension funds in this country, has made such funds viable again and has increased the potential benefits to pensioners. Taking it in the round, the levy was a good temporary measure in an emergency but not to be advocated as a permanent part of the tax code.

I appreciate that there is no levy in place now but we want to ensure that it will not, at some point in the future, be brought back in the format in which it previously existed. No Government wants to bring in a levy like that, but the amount of moneys held by pension funds is an irresistible temptation to Governments when times are hard and when ready cash is needed. The Minister mentioned the tax relief for pension contributions, which is very generous, but unfortunately the problem with the tax relief for pension contributions is that it operates in a very skewed way. I saw figures recently which suggested that 70% of that tax relief went directly to the top 20% of earners and less than 0.5% went to the bottom 20% of earners. We have to try to find a better way to do it. In view of what the Minister said about the Constitution and in view of the advice he has got I will not push this Bill to a vote.

Deputy Brady said that this is not the way to go about making laws. That is rich coming from the masters of the one or two-line Bill. They give the impression that they are doing something and that they have some concerns about people from any walk of life. I could cite a list of them here now but I will not delay the House.

The fact that the Deputy does not even want to push the Bill to a vote makes clear his intentions.

Deputy Brady accused me of hypocrisy. Being accused of hypocrisy by the party that was spawned by Freddie Scappaticci and Slab Murphy is like being called big, green and ugly by the Incredible Hulk. It really is a joke.

I am not going to sit here and listen to that nonsense.

I am sorry if the Deputy's feelings are hurt. We will focus on that great moral example, Gerry Adams.

(Interruptions).

I have prepared legislation-----

(Interruptions).

Deputy O'Dea should not address Deputy Brady.

It would not be the first time Sinn Féin told lies and misled the House. I have prepared legislation-----

Deputy O'Dea does not need to be reminded about lies.

I have prepared legislation along the lines that Deputy Brady has suggested and I will be introducing it shortly. I would not take Sinn Féin's word for anything, but Deputy Brady has indicated that he would support the legislation. I look forward to his support when I introduce it.

Question put and declared lost.
The Dáil adjourned at 6.35 p.m. until 2.30 p.m. on Tuesday, 30 May 2017.
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