Pensioners may face cuts under reform package
Retired members of troubled schemes to get lower payouts under legislation
Under the new Government plan people actively paying into defined-benefit schemes will be given a greater level of protection should the scheme be wound up or restructured. As a corollary, retired members earning above a certain threshold may no longer be entitled to their full payment if the scheme falls into difficulty.
A significant change in the rules governing defined-benefit pension schemes could see cuts in payments to existing pensioners in troubled schemes.
The Government yesterday approved a plan to introduce intergenerational equity into defined-benefit pension schemes that run into problems. Under the Pensions (Amendment) Bill 2013, people actively paying into defined-benefit schemes will be given a greater level of protection should the scheme be wound up or restructured.
As a corollary, retired members earning above a certain threshold may no longer be entitled to their full payment if the scheme falls into difficulty.
At a briefing in the Department of Social Protection yesterday, it was emphasised the Bill was designed to provide “for something that might never happen”. The provisions will apply to 80,000-85,000 people who are still members of defined-benefit funds. It will not apply retrospectively to schemes wound up.
At present if a scheme is restructured or wound up, existing pensioners retain their full pension entitlements and whatever is left over, if anything, is divided between the contributors who have yet to retire or those who have left a company but deferred their pensions until retirement age.
Under the new legislation, the Government will guarantee payment of 100 per cent of existing pensions worth up to €12,000 annually.
Pensioners with annual benefits over €12,000 and up to €60,000 will be guaranteed to retain 90 per cent of their pension, while those with benefits above €60,000 will be guaranteed 80 per cent.
In the event of both a pension scheme and employer being deemed insolvent, members (both active and retired) entitled to more than €12,000 annually will be protected up to 50 per cent of entitlement.
The new rules will not apply to members of the Waterford Crystal pension fund, but they will get a minimum of 50 per cent as a result of a ruling by the European Court of Justice.
The legislation will be published today, brought before the Oireachtas next week and enacted by the end of the year.
The number of defined-benefit schemes in the State has fallen from about 2,500 in the 1990s to 800 at present. About 40 per cent are regarded as fully funded, compared to 80 per cent 10 years ago.
Up to 85,000 people are paying into defined-benefit schemes. The State pension is not affected by the measures.
The current rules are particularly hard on workers close to retirement, as they can be left with little or nothing and do not have time to build up a new pension entitlement.
The Bill includes measures to prevent schemes from becoming severely underfunded.
Minister for Social Protection Joan Burton said the measures were about “fairness in the first instance” and ensuring workers receive a greater share of their pension benefits in the event of restructuring or insolvency of their scheme.
“The State could not be expected to solve employers’ funding problems given the financial implications it would have for taxpayers,” Ms Burton said. “However, the State can intervene to ensure a fairer deal for workers and sufficient protection for pensioners, while allowing employers to get to grips with their pension problems.”
The move to change the rules comes after an unprecedented call by the Irish Congress of Trade Unions, employers’ group Ibec, the Irish Association of Pension Funds and the Society of Actuaries to change the “priority order” in a wind-up. About 65,000 workers have been impacted by the closure of 400 defined-benefit schemes since 2008, they said.
The department said it was impossible to say how much would be required to meet the State’s obligations under the legislation. Minister for Finance Michael Noonan has approved use of funds from the pension levy for the shortfall.