PAC Meeting | May 1, 2014
Department of Social Protection
Secretary General, Ms Niamh O'Donoghue, called and examined

Acting Public Accounts Committee Chairman (Deputy John Deasy): Expenditure on pensions totalled €6.3 billion in 2012, which is an increase of 7% on 2009. A further 3% increase was projected for 2013.I would like to shift to something in which the Department is involved intimately, that is, the Waterford Crystal pensions issue. Rather than outline the background, of which Ms O'Donoghue will be aware, perhaps she could outline the Department's involvement in this and the current position when it comes to dealing with those representing the workers. The High Court has set a date in the autumn. Many people, including me, are unhappy about that because this has dragged on a long time but perhaps Ms O'Donoghue can address the current position, the Department's involvement and, broadly, the issue of under funded pension funds in the State. What is of interest to me is how we got to this position, how the massive under funding of the Waterford Crystal pension scheme was allowed to happen, how we will deal with the numerous other under funded pension schemes that are discussed regularly, which probably amount to billions of euro, and how we deal with the governance of these schemes, for example, how the trustees acted and so on. It is a significant issue.

Niamh O'Donoghue: The Waterford Crystal case arose because of a case taken to Europe in the context of what was called a double insolvency where a pension fund was insolvent and the company then became insolvent. Workers, therefore, were caught by a double insolvency and the question arose in respect of the State's liability to protect their pension rights in that instance. The court made findings that the State had an obligation and had failed in its obligation in regard to a particular directive to establish a rate at which such protection could be offered. In terms of how that would be addressed, legislation was passed last year to address the gap that was identified by Europe. The mechanism is now in place in terms of future proofing to ensure there is some protection for workers but, obviously, a number of companies, including Waterford Crystal, are caught in that gap between the directive and last year's legislation. Given that it is the subject of a court case, I cannot comment on it except to say the court case is ongoing but the predominant group is the workers n the Waterford Crystal case. A small number of other schemes are in the same situation with a much smaller number of workers.

Acting Chairman (John Deasy): The Department has made an offer to the group representing the workers. The issue that will be decided by the High Court in the autumn is how much or what percentage of their pension they will get ultimately. The Department is actively engaged with the people who represent them. Am I correct that an offer has been made by the State to provide a particular level of payment?

Niamh O'Donoghue: It would be very inappropriate for me to comment on that.

Acting Chairman (John Deasy): Is the Department in contact with the High Court regarding the setting of dates or is that an independent function of the court?

Niamh O'Donoghue: That is handled by the Attorney General's office.

Acting Chairman (John Deasy): Is Ms O'Donoghue in contact with the Attorney General's office?

Niamh O'Donoghue (below): Yes.

Acting Chairman (John Deasy): Ms O'Donoghue, therefore, liaises with the Attorney General's office regarding its communications with the High Court. Can she understand the difficulty for the workers? I know people who have died since this process began, going back to when the court case was taken to the Europe. It is estimated 30 former workers have died since this was initiated and that is an issue for us. It has gone on too long. There is a huge issue with under funding of pension schemes but-----

Niamh O'Donoghue: It is a huge issue in the State and Ireland is not unique in terms of problems with defined pension schemes and the funding of pension schemes. A number of things have happened. There has been a restructuring of the governance arrangements. The Pensions Authority has been put in place to replace the Pensions Board, which had responsibility in this area for regulating the application of the Pensions Acts. The funding standard has been restored and engagement is going on with all the schemes in respect of their plans to meet that standard over a number of years. It is, therefore, an active space at the moment but it is challenging and difficult. That is not unique in Ireland.

Acting Chairman (John Deasy): Ms O'Donoghue has explained the nexus regarding the Government generally. The Department is in communication with the Attorney General's office and it might be in contact with the office of the President of the High Court. Some indication needs to be given by Ministers or the Department, although it does not speak for Ministers, with regard to the urgency required. It has been dragged out for too long and there needs to be some resolution regarding this scheme, notwithstanding the massive issue of under funded pension schemes. Has the Department examined the governance of the Waterford Crystal pension scheme and how that hole came to be in the first place? Has this been investigated?

Niamh O'Donoghue: The governance and operation of the scheme was subject to the regulation of the Pensions Board.

Acting Chairman (John Deasy): "No" is the answer. The Department is dealing with this perspectively or from this point on.

Niamh O'Donoghue: The Department was actively involved in the court case that led to Europe so very considerable examination was done in regard to that. However, at that point, the company and scheme were insolvent and the workers found themselves in that situation.

PAC Hearing | April 3, 2014

Mr Robert Watt, Secretary General Department of Public Expenditure & Reform, called and examined.

[Extract]
Deputy John Deasy:
First I’m going to ask you about what I regard as the largest, potentially, public-private partnership that this country has seen in many years, and possibly has ever seen. And that is something I know your Department is involved in: that is the Irish Strategic Investment Fund. It’s not listed here in your opening statement or dealt with, but I think it’s something your Department might be leading on with regard to the inter-departmental committee with Finance and the NTMA (National Treasury Management Agency). 
As much as I know about this, it’s a €6.8 billion fund which comes from the National Pension Reserve Fund, which is being turned into an Investment Fund, that is looking for commercial investments from the private sector. That €6.8bn hopefully will be matched by another €6-7bn of private money, and the Government’s idea — well, it’s started already — is that it’s being farmed out to private equity funds in Dublin, in London, to look for those commercial investments. And that’s fair enough. 
What I am interested in is: has any thought been given to where this money is going to be spent, or is this random with regard to commercial investments coming into the Government; the equity funds taking a look at these and some kind of process within Government — is there any sense, or has any thought been given to parts of this country that frankly are stagnating? 
We’ll say, for argument’s sake, there’s some truth to the idea that Dublin, for example, has seen some kind of a recovery. But other parts of the country have not. Surely because this is the largest stimulus fund this country has ever seen, or will see for years, has anybody in Government thought about diverting some of this money, as a critical policy measure, towards those parts of the country that are stagnating, that are regressing in some cases when it comes to unemployment. And that have seen no recovery. 
Has any thought been given to that considering the amount of money that’s involved here? Going through your statement, you talked about the PPPs in the past, and I’d make the point to you that many of these PPPs were targeted, they were infrastructural projects, and they would have been strategic projects that were targeted around the country for various reasons — infrastructural reasons. There was a different mindset and thought process involved in targeting that money, those billions, to those different parts of the country. 
In this case I have a suspicion that the €6.8bn and the money on top of that, that may come in from the private sector investments, is not targeted around the country at all.

Robert Watt: You’re right in terms of the investment fund. It’s €6.8bn. It previously was the NPRF, I suppose a passive investment fund which was global, which invested in property and equities and bonds across the world. The fund is in the NTMA. The Department of Finance has a role, we have a role — we’re not leading: we are part of a group ... we are absolutely involved. The fund is being reoriented towards investment in projects in Ireland that can provide a return, an economic impact, a jobs impact; also that are commercial, that provide a commercial return to fund. And they have to get the balance right between projects that for whatever reason the market won’t fund ... maybe because there’s more uncertainty about the project or because it’s a start-up activity. So it won’t be delivered by the market yet it’s commercial. It’s going to be tricky for them to identify projects.
There is legislation being drafted, a Bill is being prepared. The Minister for Finance, Mr Noonan, will be publishing it I think after Easter, around Easter time, which will set out the mandate: they’ll be obliged to set out an investment strategy, and that investment strategy will have to reflect or listen to the views of Government. 
Based on what I’ve seen there’s no regional angle or perspective to this. So their job is to invest in projects that have an economic impact, a jobs impact, and which are commercial. But as far as I’m aware at this stage there’s no regional impact.

John Deasy: And I suppose what I’m asking is, should there be?

Robert Watt: Should there be? Well, this is something to debate. You know, we look at exchequer funding or PPPs [and] we have regard to spread. Naturally, the political world and the way monies are allocated, reflects the spread.

John Deasy: That’s been the case in the past.

Robert Watt: That’s been the case in the past. So, a commercial fund, an investment fund investing in projects, is there a role for it to take account of a regional remit? That there’s regional balance? It’s something that I haven’t thought about. It’s something that could be debated. You know, clearly that there is, based on the evidence that we have, a two-tier economy emerging, that the Greater Dublin area is different — I think all the evidence suggests that it’s out of recession, and growing. You might say, well, that suggests there are greater opportunities elsewhere in parts of the country that haven’t moved as quickly out of recession: for example property values are lower or opportunities might be cheaper. But it’s something that I, Deputy, to be honest, haven’t reflected on. I don’t see any reason why a fund which is being orientated to jobs and economic activity in Ireland, why in theory it can’t have regard to a regional spread or a regional balance.

John Deasy: You know the basic figures with regard to, for example, Foreign Direct Investment: Dublin, Cork, Galway — it’s about 82%. It’s an inordinately huge number when you consider the country as a whole. And the disparity between those three urban areas and the rest of the country is... it’s immense. So here we have something that could amount to €12-13bn, and nobody’s given any thought to any regional aspect at all. And I think it’s a deficit, potentially.

Robert Watt: I may be doing them a disservice but from what I’ve seen, in terms of the legislation, I don’t see that, but that’s not to say...

John Deasy: This has started already. [The Dept of] Finance has given the presentations. He [the Minister] has said we’re open for business, bring it on. As you know, and you’ve been around the financial worlds long enough, equity funds don’t really take into consideration public policy that much. And what we’ve done is, we’ve actually given them the job to find these commercial investments. And I don’t believe that anyone has actually taken into account the fact that we may be looking at not only a two-tier economy, but a two-tier recovery. And that’s what I want to avoid. And that’s what I think this legislation should try to avoid. Now, someone might say to you, if you do that, and if you go down that line, well it makes some sense. But with regard to commercial investments, would you be actually negating, or would you be blocking some decent investments, if you made the case that a lot of that money, or some of that money, be earmarked for the areas that were suffering the worst from the recession. At the very least I think we need to start talking about that.

Robert Watt: My understanding of the legislation is that the Minister for Finance, the Government, would input into the overall strategy, the focus, but obviously the individual decisions are commercial decisions then for the body then, the ISIF set up within the NTMA. So there is a role for public policy and there is a role for Government... as you mentioned it, Deputy, no, I don’t see any reason why you can’t have regard to the regional impact of the investment, have regard to exactly the types of projects and the impact they might have. And that would have to be reflected back in some sort of mandate then to the people who are responsible for making the decisions.