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tsbMick's 'topical issue' suggestion was selected for debate on Thursday, May 23rd, 2013. The subject of the debate was the threat to the TSB deferred pension scheme. Mick was joined by Deputies Thomas Pringle and Clare Daly in raising the issue while Minister for Finance Michael Noonan responded for the Government. You can watch the full debate here while the full transcript is below.

Thomas Pringle

Permanent TSB had a defined benefit pension scheme which closed to new members in 2006. At the time when Permanent TSB was taken over by Irish Life in 2001, the pension scheme was 120% funded but over the intervening years, the company did not make the full contributions that would have been required to keep the pension scheme in balance. There is now a deficit of somewhere in the region of €115 million.

The reason we put this topical issue forward today is because on foot of the Mercer report, the Minister for Finance asked the covered institutions to come back to him with plans for how they were going to reduce their payroll by a minimum of 6%. I understand that Permanent TSB has submitted a plan to the Department of Finance, the main plank of which is that it intends to end the defined benefit scheme within the company. This is projected to save between 8% and 10% of the cost. This may satisfy the Mercer report but will affect 1,200 current and former workers who have taken early retirement and have deferred pensions until they reach retirement age.

This will not affect the existing pensioners because they are protected under existing law but these 750 deferred workers and 450 active members of the pension scheme will see their pensions reduced by between 53% and 68% of what is projected if this scheme is closed in such a fashion. That the company should even consider doing this to the pension scheme is very unfair when it was the company that ran it down by not making the proper contributions over the past number of years and allowing the scheme to run up a deficit.

It is in the Minister's power not to accept this plan from the company, send it back to find the reductions from somewhere else and protect these workers who have invested in this pension scheme, made the contributions and are looking to protect their future which they see being seriously undermined.

Mick Wallace

I am sure the Minister is well aware that the Government has signalled that the issue would be addressed in the Bill. It is not being done so for other reasons and thousands of workers are facing loss of pension benefits as a result of the Government's failure to do so. IBEC has pointed out that this is very unfair to the workers involved. As it stands, where a defined benefit scheme is at risk of being wound up, people already in receipt of a pension from it have absolute priority, leaving those members who have not yet reached retirement age with only a fraction of the pension they expected. A group of them were in here yesterday, one of whom told us that he had paid for a pension of €20,000 and is now looking at €8,000. He was devastated, as were a number of others. A worker of 64 years of age who is months from retirement might be left with only a fraction of what they would have expected. They pointed out that although the chief executive, Jeremy Masding, has taken a 2% cut in his contribution to his pension, he is not taking a salary cut.

When people put money into pension schemes, I do not think they saw it as a form of speculation yet we have seen plenty of evidence where people who have speculated in the banking area have been paid in full. We must listen to the chairman of Permanent TSB, Alan Cook, say "we have an obligation to save the bank and we have to take corrective action at this time." We save banks but we do not save people. Does the Minister think this is fair?

Clare Daly

We are told that in less than ten days' time, Permanent TSB will shut down its payments into the defined benefit pension scheme and move to a defined contribution scheme. The points made by the other Deputies are very relevant. This is an absolutely enormous blow to over 1,200 people who had a reasonable expectation that they could retire with some degree of certainty that their living standards would be protected. I have no doubt they had made plans with their families and instead, almost overnight, they face the prospect of having to live out the rest of their years in relative poverty having paid into a pension scheme all their lives.

The reason we are raising this issue is because the Minister has the power to do something about this. When the Government sold Permanent TSB to Irish Life, the pension scheme was adequately funded. Contributions have not been kept up. The Government has failed in the legislation before the House next week to deal with the priority system when defined benefit pension schemes are in jeopardy. Not only IBEC but also the unions involved have said they do not want the scheme shut down but want to look at alternative ways in which this issue can be dealt with. It is sickening to think that this proposal is coming off the back of a cost-saving measure when enormous fees and payments are being made to board members, not just those working in a full-time capacity but part-time directors who are getting more for attending a couple of meetings a year in an average payment when one spreads it out over the year than people who retired after spending decades working in the banking system.

We are asking the Minister to look at this issue, call a halt and instruct the bank not to shut down the defined benefit scheme and to enter talks under the auspices of the Labour Relations Commission or whomever to come up with a fairer answer that does not leave people pauperised in the latter years of their lives after having worked all their lives for a decent pension.

Michael Noonan

When publishing the review of remuneration practices and frameworks at the covered institutions on 12 March 2013, I indicated that the Government had formed the view that with the remaining covered institutions still incurring losses, it was an inevitable conclusion that the cost base of the institutions needs to be reduced further. This is essential if they are to return to profitability, be in a position to support the economy and repay the State's investment through a return to private ownership.

On behalf of the Government, I directed the banks, including Permanent TSB, to achieve 6% to 10% savings on remuneration costs. I was not prescriptive in how this was to be achieved respecting their differing levels of State ownership and paths to profitability. Those outline plans have been received but it is not possible at this stage to reveal precise individual details bar what has been put into the public domain. I can confirm that all three institutions have put forward pension changes to varying degrees as part of their respective responses.

I am constrained as to what I can say presently due to commercial sensitivities and perhaps, more critically at this stage, industrial relations concerns as the normal protocols continue and need to be respected and observed by all parties. This is something I have advocated throughout this process. I am anxious, therefore, that all the participants in these discussions are given space and time to conduct these critical negotiations.

Accordingly, I encourage all sides to engage in these discussions proactively through the appropriate forums in view of the serious consequences for all concerned. In this context, the Government readily acknowledges the sacrifices made by bank employees to date at all levels and recognises that this has been achieved without major industrial unrest in what is a critically important sector.

In respect of the specific issue - the proposed wind up of the defined benefit pension schemes at Permanent TSB - I need to be explicit in stating that this proposal emerged from Permanent TSB management which is responsible for managing the bank's operations commercially in accordance with the relationship framework. The relationship frameworks with the banks recognise that the covered institutions remain separate economic units with independent powers of decision and that the boards and management teams retain responsibility and authority for determining their institutions' strategy and commercial policies and conducting their day-to-day operations.

As I have said in response to recent parliamentary questions, the pension arrangements for the staff of Permanent TSB are a matter for the management of that company and the trustees of the relevant pension schemes. I am informed by the bank that very substantial funding deficits exist in the various defined benefit schemes which it operates.

In response to this significant problem and as part of a review of the overall cost base of the business, Permanent TSB has recently communicated to staff its plans to discontinue employer contributions to all existing defined benefit pension schemes and to commence in their place contributions to a new defined contribution pension scheme. Ultimately, it is for the trustees of the defined benefit pension schemes to decide how the schemes will respond to this development, but it may result in the defined benefit schemes being wound up and the assets already accumulated being distributed among the members of the relevant schemes, in accordance with the requirements of the Pensions Act. I understand such matters have been the subject of discussions between the interested parties. I am also informed that both staff and management have agreed that, in the absence of any agreement to date, the matter should be referred to the Labour Court for an early hearing. In the light of this development, all sides should agree that space be given for these negotiations to take place in a constructive manner.

I am very aware of the serious funding challenge facing pension schemes. It is acknowledged that the fundamental problem is that pensions are significantly more expensive owing to increasing life expectancy and lower than expected investment returns which are reflected in the increased cost of annuities. The issue of how the assets of a pension scheme are distributed on the winding up of a pension scheme is under consideration by the Minister for Social Protection. It has been the subject of a detailed review, including engagement with representatives of stakeholders and external consultants. This is a complex and sensitive issue, one which requires careful consideration before any change is made to the current provision as set out in section 48 of the Pensions Act. I understand that in a wind-up of a pension scheme the additional voluntary contributions, AVCs, are given the highest priority, followed by the pensioners, while the deferred and active members are each given the same rights to the remaining assets. I cannot speculate on the level of assets that would be available to the deferred and active members in a wind-up of the Permanent TSB defined benefit schemes.

Thomas Pringle

When the State sold Irish Life for €1.3 billion recently, it also secured a windfall profit of €114 million from the quarterly profits of that company. That €114 million would be sufficient to close the deficit in the Permanent TSB pension schemes and allow the workers, including former workers, to secure their pensions. It should be within the control of the Minister, as practically the sole shareholder, to instruct the management of the company to make the money available to the pension schemes. Failing that, he has a responsibility to instruct management to continue to pay into the pension schemes while the issues to which he referred are being resolved through the Labour Court and the Minister for Social Protection's pensions Bill. At least, the workers, including former workers, would not be closed out completely from whatever system and solution were put in place.

Mick Wallace

By chance I received an e-mail in the past hour from a woman in Enniscorthy in which she wrote:

I started working in the bank in 1980. At that time the sign over the door read, Dublin Savings Bank. I left the bank 30 years later in 2010 after witnessing many changes, not only the name over the door but the way banking business was done. During my employment I was hard-working and loyal and I was bound by the terms of my contract and obliged to save part of my income each month toward my pension. I am sure you can understand now how horrified I am to learn that the chief executive of Permanent TSB, Mr. Masding, is making the decision to wind up the pension scheme. By doing so, he puts my future and the future of my family in jeopardy. The action he is about to take will wipe out any hope I ever had to afford a good education for my child and will place me and my family in the position of asking the State for financial assistance in our older years.

We, the staff, have worked hard over the years to grow the bank. We have honoured our commitment to the bank and it is not right when the management decides to take advantage of employees and make them pay the price of the failure. Are you aware that the funding situation is not only due to poor marketing performance but to the lack of urgency and procrastination by the management of the bank to address the problems for the last five years?

Surely the Minister agrees there is false economy involved. The people concerned may end up being dependent on the State in some way and they will be unable to contribute to the domestic economy in the manner they would have expected. It is a case of losers all round. It is nuts.

Clare Daly

The Minister has attempted to swat away the problem and say it was as a result of a management decision and had nothing to do with him. We do not accept that is the case. Unfortunately, the attempts to close down defined benefit schemes are becoming all too common. It happened recently in the national theatre - the Abbey Theatre - and there is a threat to the scheme at the airport. This is a serious issue for many reaching retirement age. Any talks are very welcome if they are taking place. However, has the Minister instructed management at Permanent TSB to continue paying into the defined benefit pension scheme while these talks are in progress? To be honest, if he has not done so, it is an academic exercise and window dressing and will not be a serious attempt to address the very real problems faced by the staff. It is not just because people are living longer that there is a problem with pension schemes; it has come about as a result of a race to the bottom in employment and many staff who joined these companies joined defined benefit schemes, but the schemes were inadequately funded. I assume the Minister is aware that the OECD has stated companies should not be allowed to walk away and leave pensioners holding the can for poor decisions. What does the Minister intend to do in the next ten days to make sure this scheme is not shut down in order that there can be meaningful discussions to look at how the situation can be retrieved and people who have worked a lifetime in the bank can retire with dignity?

Michael Noonan

The situation may be worse than the Deputies who have raised the issue are aware. I am informed by Permanent TSB that the 2012 annual report showed a deficit of €127 million on the pension schemes. However, new accounting rules which came into effect from 1 January 2013 will cause this deficit to rise. As permitted under the accounting standard which applied in 2012 - IAS 19 - Permanent TSB adopted the corridor approach which allowed the deficit to be smoothed over a period of time. However, the corridor approach was eliminated from 1 January 2013 under the new accounting standard; therefore, the deficit will rise as a result. Based on the deficit figure on 31 December 2012, the new accounting rules will increase the accounting deficit by €184 million, as disclosed in the 2012 annual report, giving rise to a deficit of €311 million. The best way forward is as I have stated, to allow the matter to be referred to the Labour Court - both management and employees agree that this should happen - and allow the space for negotiation under the guidance of the Labour Court.

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Namaleaks is a project that seeks to uncover possible injustice and poor practice related to NAMA (National Asset Management Agency) and financial institutions in Ireland.


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