- SOCIAL AFFAIRS MINISTER ANNOUNCES SIGNING INTO LAW OF MAJOR PENSION REFORM MEASURES
- BRENNAN SAYS NEW EU DIRECTIVE WILL MAKE PENSION FUNDS MORE SECURE AND SOLVENT
- GOAL IS A DECENT PENSION FOR ALL & A STRONG AND ROBUST PENSION FUND INDUSTRY
Irish Association of Pension Funds
Annual Benefits Conference
Radisson SAS St. Helen’s Hotel, Dublin
22nd September 2005
Opening Address by Séamus Brennan
Minister for Social Affairs
I would like to thank your Chairman, Joe Byrne, for inviting me here this morning to make the opening address to the
IAPF Annual Benefit Conference.
This conference allows me the opportunity to acknowledge and salute the valued and valuable contribution that the pensions industry overall makes to the Irish economy. Your own Association, through the expertise and leadship of your members, is playing a pivotal role in growing the pensions industry and building that all important confidence.
Just to put in context how important that contribution is it is worth reminding those attending that right now, your members provide –
- retirement income security to over 200,000 employees,
- pay pensions to nearly 70,000 men and women who have already retired
- are responsible for some €50 billion in retirement savings.
I welcome this opportunity to thank your Association and all your members for the important contribution they are making to an industry that is growing in national importance every day. This morning we see another very important aspect of the work of the Association, that of educating and alerting members and others to the very real issues facing pensions now and in the years ahead.
Pensions are, and will remain, key concerns for our society for decades to come and it is important that the issues faced by schemes are kept to the fore. You have a very full agenda for the morning dealing with matters which are of immediate concern to trustees, scheme sponsors and administrators, including a number of key issues such as the Funding Standard and the implementation of the
I am also interested to see that an assessment of the international experience in relation to mandatory pensions will be discussed. This is quite appropriate given the review of our overall strategy at present nearing completion by the Pensions Board.
I expect to receive the report of the Board in the next month and at that stage I will decide, in consultation with my colleagues in Government, how best to proceed.
As you know I have asked the Pensions Board to be radical in its review and to come up with specific and targeted proposals that will address the serious pension issues that must be faced.
It is possible that some type of mandatory provision will emerge from the review but, at this stage, I have an open mind on how we might develop such a system. At the end of the day, our objective is to have a pensions system which we can afford and sustain and one that will deliver adequate incomes to people in retirement.
As you are all aware, the Funding Standard is a key issue for Defined Benefit schemes and one to which a lot of thought and consideration has been given over the last few years.
As you know, my predecessor introduced temporary measures to assist schemes arising from difficult times from about 2000 pending a full review of the position by the Pensions Board. Following an extensive consultation process and a full debate, the Pensions Board recommended the retention of the temporary measures and an expansion of the grounds on which they may be granted. I was pleased to do this through the Social Welfare and Pensions Act which was passed by the Oireachtas earlier this year and as you may be aware, only yesterday, I signed into law regulations which set out the detail of those new grounds.
The Pensions Board has the discretion to allow schemes more time to restore full funding and this is being applied in as flexible a way as possible. I am aware that the
IAPF and others are still concerned at the way the Funding Standard operates and the implications it has for the cost of defined benefit schemes and the continued operation of them.
I am also aware that some employers have committed very significant resources to their schemes and this is to be welcomed. In implementing the Funding Standard we are endeavouring to strike a very difficult balance between the interests of scheme sponsors and scheme members. The measures introduced this year are designed with that balance in mind and I will keep these under review.
It is an exciting time in the pensions industry and changes and improvements are emerging on a daily, sometimes hourly, basis.
Only this week the Cabinet approved the signing into law of the regulations under the Institutions for Occupational Retirement Provision (
IORPs) EU Directive. I have now signed those regulations which, appropriately, come into effect from tomorrow. I am particularly pleased that Ireland is ahead of most other European countries in responding to the Directive and in implementing the regulations.
The Directive sets out a framework for the operation and supervision of occupational pension schemes in all Member States and will hopefully facilitate pan-European pension plans. This Directive offers tremendous opportunities for Ireland and we must ensure we are in a position to take advantage of these. One of my over-riding concerns in transposing the directive is to ensure that it is done in a way that facilitates that aim.
A task force, established under the auspices of the Department of An Taoiseach, is now considering how Ireland might best respond to these emerging opportunities. It is a tribute to the system of regulation that we have in Ireland that much of the framework required to transpose the
IORPs Directive already exists in the Pensions Act.
However, some significant changes to the Act were required to ensure compliance and were included in the Social Welfare and Pensions Act 2005. The regulations I signed into law yesterday relate to investment, qualifications of trustees and the arrangements for cross border activity.
In relation to investment, the Directive establishes the "prudent person approach" as the underlying principle for investment. This principle is already firmly established in Ireland and so the new regulations do not expand or quantify the rules set out in the Directive.
However, the extent to which these rules should be applied to certain "small schemes" generated a lot of debate during and since the passage of the Social Welfare and Pensions Bill 2005. As you know I established a working group, comprising officials from my own Department, the Department of Finance and the Revenue Commissioners and representatives from the Pensions Board, the National Treasury Management Agency and the Financial Regulator, to examine this issue.
The group reported to me recently. In the first instance the group saw no distinction between a scheme with over 100 members and a scheme with under 100 members, no matter how small, where those who are investing have responsibility for persons other than themselves. On that basis, they recommended that I apply the Directive in full to such schemes and I have accepted that recommendation. This is consistent with the vast majority of representations which I received which recommended an exemption only for single member schemes.
However, even in relation to single member schemes, the group considered that prudential issues do arise on the basis that borrowing for investment purposes increases risk and where there is no diversification that risk is further exacerbated.
There is anecdotal evidence that some schemes are 100% invested, for example, in geared pension property and the group was of the view that this could not be considered objectively prudent.
Options designed to minimise or reduce this risk were considered by the group and it also noted that there are key differences in the current regulatory regime relating to the way in which members of single member schemes are treated in comparison to other individuals. The Group have recommended that this issue be examined by the relevant Departments and agencies.
On this basis and notwithstanding that the Pensions Board has recommended a total ban on borrowing, I decided that the status quo for single member schemes should remain while the current regime is examined further. I should add that the tax aspect of pensions is currently under review and that my decision to retain the status quo for the moment does not prejudice the outcome of this review or the review of the current regulatory regime.
As you know, article 9 of the Directive requires that schemes must be run by people of good repute who have appropriate qualifications and experience. The Pensions Act now specifies what constitutes good repute, for example, a person must not be an undischarged bankrupt or be disqualified from being a Company Director. The Pensions Act also provides that, where appropriate, an actuary or an auditor must be engaged by the scheme.
The new trustee regulations provide that the additional experience and qualifications required are those relevant to the investment of the resources of the scheme. The regulations provide that trustees must employ an investment manager or satisfy the Board that they have the required qualifications and experience.
Cross Border regulations:
The Directive can open up great opportunities for Ireland as it paves the way for pan-European pension schemes.
For example, multi-national companies may wish to consolidate the governance of their assets and liabilities in one Member State in relation to pension schemes which are currently based in a number of Member States.
The Regulations which I signed yesterday set out the information which must be provided by schemes seeking either authorisation to operate cross border or approval to accept contributions from specific employers in other Member States.
Where a scheme does operate cross border, they must comply with the social and labour law of the Host State and the regulations set out what that legislation is where Ireland is the Host State.
In the light of emerging experience, these regulations will be kept under review.
As you are aware, all over the world Governments and the pensions industries are grappling with the challenge of providing adequate retirement pensions, while at the same time coming to terms with difficulties of meeting the enormous costs involved.
In this, Ireland is no different. We have the serious problem of totally inadequate pension coverage but, unlike so many other countries, we do not yet have a looming pension’s crisis. However, if left unchecked the consequences in the years ahead for hundreds of thousands of older people, the State and the pensions industry itself, will be daunting.
I firmly believe that everyone should be entitled to a decent pension in retirement, and it is that belief that has guided my decision on finding ways to tackle the pension’s problem. However, as it now stands, out of a current workforce of 2 million, in the region of 900,000 do not have a private or occupational pension.
Unless this trend is aggressively addressed and reversed then hundreds of thousands of people face into a retirement on the basic social welfare pension of €9,000 a year.
That is why we must look at alternative solutions, devise new and more attractive products and fundamentally change the pension’s landscape. It is encouraging that pensions are now on the national agenda and a source of strong public debate.
As I have said several times, if your Association or others in the industry have new proposals or suggestions, my door is always open to you. There are difficult choices and decisions ahead for all of us. I am determined to play my part by providing leadership and support in Government and with whatever changes to legislation may be required.
I look to all the stakeholders in the pensions industry to play their part so that together we can work towards the goal of a decent pension for all consistent with a strong and robust pension fund industry.
I wish you well with you conference today.