Pensions a new battlefield in industrial relations
Poor investment returns and tougher regulation have contributed to pressure on workers’ pension scheme
ESB workers hold a meeting to voice concerns about their pensions. Photograph: The Irish Times
Pensions have become the latest industrial relations battlefield. Shortly before Christmas, strikes over company retirement plans threatened the ESB, Aer Lingus and Marks and Spencer. At around the same time, members of a scheme operated by multinational Element Six, in Shannon, were suing its trustees in the High Court for breach of duty.
More recently, Labour Relations Commission (LRC) chief executive Kieran Mulvey called in this newspaper for a pensions summit that would tie down the mechanism that companies whose retirement plans are in difficulty would use to address those problems.
He pointed out that the commission had dealt with 40 pension-related disputes over the last two years and said the problem was close to the top of collective bargaining agendas.
The schemes at the centre of these disputes are defined-benefit ones, where the pension is tied to the employee’s final salary and the employer is liable for any shortfall in the fund. About 800 companies in the Republic operate such retirement plans, and the Pensions Board – the regulator – was recently reported as saying that half of them are in deficit.
Several factors have come together to create this situation: the poor investment returns of the past decade, and more particularly the last five years; and tougher regulation, which takes a conservative view of schemes’ liabilities and requires them to put more assets into low- risk-low-return investments.
Along with this, the number of pensioners receiving payments from such schemes is increasing, while the number of those paying into them is falling. This is partly a result of people living longer, but it is also attributable to the fact that many employers have cut their workforces.
While unions play a central role in disputes involving pension schemes they are not, strictly speaking, parties to them. The relationship is between the trustees, who oversee how the scheme is invested, the members (current and deferred pensioners and employees) and the company that is sponsoring the fund and therefore liable for any deficit.
Last year, while the ESB group of unions went through the industrial relations process, four of its workers took legal action against the company in a bid to prevent it from making dividend payments to the State while it had a €1.6 billion shortfall in its pension pot.
The union group was careful to make it clear that while it supported this action it was not a party to it. However, it was the unions that made the running in the dispute with the company, and the workers agreed not to continue with the action once the LRC brokered the deal that averted the strike in December.
The unions are directly involved in these disputes because it is their position that employers should make adequate provision for workers once they retire. In essence, they regard pensions as part of their members’ pay and conditions.
In the case of defined-benefit schemes at least, this argument carries some kind of weight, as the return is tied to the worker’s pay. It might carry less weight in the case of defined-contribution plans, as it is the amount of cash in the fund that determines the employee’s pension.
When Marks and Spencer announced that it was closing its defined-benefit scheme, which has a surplus, as part of an overall series of cost-cutting measures, Mandate, which represents most of its workers, said the company had no right do so without consultation. The company argued that it was not obliged to consult, as it was replacing the fund with another.
It is easy to see how employers might want to cut unions out of decisions in relation to pension schemes. The only way to do this is to challenge the idea that such schemes are part of workers’ pay and conditions and instead to treat them as an added extra that the business can no longer afford. However, the chances of doing this successfully are slim.
The companies that offer defined- benefit pensions to their workers tend to be State-owned, or long-established “traditional” businesses. Such companies are generally unionised. Any effort to sidestep collective bargaining in order to find a quick solution to a pension problem is likely to meet resistance.
Promise to workers
Even if those efforts were successful, the simple fact remains that when employers sponsor defined-benefit pension schemes, they make a promise to their workers. There may well be other ways of obliging them to keep that promise, such as the courts, or political pressure, or both.
It is also a fact that employers themselves have created at least part of the problem. Even before the recession, many large companies cut their workforces, mainly through voluntary redundancy programmes. Those who took these packages generally left with their retirement entitlements intact, while at the same time there were fewer people left paying into the pension plan that was meant to support this.
Those employers may have had good reason for cutting their workforces. However, they have also contributed to a situation where those who stayed on, and those who left in the belief that their retirement funds were intact, may now have to make significant concessions.
Those who are being asked for those concessions, and the trade unionists who represent them, are aware of this and in any case are not willing to give up on their retirement savings so easily. If Mulvey’s pension summit becomes a reality it will be just the first step in what is likely to be a very difficult industrial relations peace process.
Barry O’Halloran is an Irish Times journalist