It goes without saying that the mechanics of pensions are quite complex, with many different figures, formulae, terms and conditions, as well as rules and regulations. A consequence of this is that legislation pertaining to pensions can easily be hijacked and manipulated in the public domain. Legislative changes can be used to stir up worries and concerns, which is exactly what has happened with this Bill. From the outset of the media coverage the State pension was mentioned, which was incorrect, and that has led to much incorrect commentary. It is worth stating quite plainly that this Bill does not impact on the State pension at all and there is no change to the State pension arising from this Bill. The State pension has been protected by this Government in each of its three budgets, and it is exceptionally important to many citizens, which is why it has been protected.
The Social Welfare and Pensions (No. 2) Bill 2013 concerns defined benefit schemes only, meaning that it relates to occupational or private pensions. The Government has protected the State pension but the global economic difficulties of recent years have affected the ability of businesses and employers to support private pension schemes. Many Deputies will know of examples of this from their own constituencies. In my constituency of Galway West I am aware of companies, including multinational companies, which have had to wind up defined benefit pension schemes because of losses incurred in the financial markets. The results are negative for all concerned but particularly devastating for existing employees.
Heretofore the rules have meant that existing pensions in payment are allocated the lion’s share of the pension’s pot in the event of a winding up. One multinational in Galway exemplifies what has happened until now. The company experienced very turbulent times globally and was eventually bought by a competitor, which in turn was bought by a venture capitalist company. The original defined benefit pension scheme was wound up as it was no longer sustainable. Retired employees received a substantial – but not the full – amount, which they could then put into an approved retirement fund or use to purchase an annuity. However, existing employees lost practically all of the contributions they had made to what they believed would be their pension. This was especially devastating for workers in their late 40s and 50s, and these workers were left with nothing and effectively had to start again. It is highly unlikely they will be able to build up a pension even approaching the value of that which they have lost. Most reasonable people would see how unfair this is, and it is this lack of fairness that is the motivation underpinning the introduction of this Bill. It is neither fair nor right that a person who responsibly puts aside a portion of his or her income each week or month to build up a pension for retirement can be left with nothing through no fault of his or her own. With the European Court of Justice judgment in the Waterford Crystal case, there is a clear obligation on member states of the European Union to make provision for cases in which both the employer and the pension scheme are insolvent.
All of the beneficiaries of a pensions scheme will receive half of their benefits, while retired employees will be protected entirely up to €12,000. This is separate from the €12,000 value of the State pension which the majority of recipients of defined benefit pensions also receive. Crucially, where the defined benefit pension scheme is unable to meet the cost of these new requirements, the State will step in using pension levy funds. It is in effect a safety net that protects responsible citizens who have contributed to their retirement. Furthermore, where an employer remains in business but the pension scheme is wound up because of underfunding, amendments are being enacted so that current and existing employees and recipients of modest pensions are protected and receive a greater share of the benefits.
The changes being enacted are part of a wider issue with regard to pension provision. All of the statistics show that Ireland and the EU will experience significant growth in the number of citizens who are 66 and over. In 40 years or so nearly 10% of the population will be over 80. These citizens are now commencing their working lives and at 20 and even 30 it can be difficult to contemplate retirement, let alone make provision for it.
Funding the State pension will become ever more challenging. In 2011, for example, funding the pension accounted for 57% of the social insurance fund, which provides for the various social welfare schemes. By 2066, however, it is estimated that pension-related funding will consume 85% of the Social Insurance Fund. That leaves very little to cover other important supports such as labour activation measures and payments to less able people. The figures and statistics demonstrate how vital it is we examine pension provision and put in place the necessary steps to ensure provision is made for older citizens. The Social Welfare and Pensions (No. 2) Bill is a very welcome part of the process. I commend the Minister and her officials for their work on it.