Gap in consumer protection legislation puts people with long-term illnesses or injuries at risk, writes Laura Slattery
The Oireachtas Joint Committee on Social and Family Affairs is to investigate a gap in consumer protection legislation that leaves people who cannot work due to illness or disability with nowhere to go if they have a dispute with their employer about income continuance benefits.
The pensions ombudsman Paul Kenny has written to Minister for Social and Family Affairs Séamus Brennan in relation to concerns that workers who are paying into income continuance schemes arranged by their employer are not covered by any regulator or ombudsman scheme.
"The schemes are an anomaly in that they are an employee benefit, but the employer is the insured party," Kenny said. If the worker acquires a disability or illness that means they must stop working, the insurance company pays out on a claim made by the employer, who in turn pays a benefit to the employee.
If there is a dispute, members of these schemes cannot take their case to either Kenny or the financial services ombudsman Joe Meade because the employee is not a direct customer of the insurance company providing the cover.
Former Tara Mines worker and independent Meath councillor Philip Cantwell plans to make a submission to the Oireachtas committee, which is chaired by Labour TD Willie Penrose.
Cllr Cantwell represents a group of former Tara Mines employees in receipt of income continuance who have not received the pensions they were initially promised.
Under an income continuance scheme set up by benefits consultants Irish Pensions Trust (now Mercer) in the early 1980s, an "escalator" provision specified in the policy documents indicated that when workers on income continuance reached retirement age, they would receive a pension based on their salary at the time they acquired the disability rolled up at a rate of 5 per cent for every year since they left work until the age of 65.
This would ensure that their income benefits and pensions kept pace with inflation and were not based on historical salary levels.
But Tara Mines has not honoured this 5 per cent annual escalation in the pension benefits and in 2001, the company said it was escalating the pensionable salaries of people on income continuance in line with the actual pay increases given to serving Tara Mines employees.
These pay increases have fallen far short of the 5 per cent per annum escalator promised under the terms of the income continuance scheme.
Cllr Cantwell estimates that the pensions of around 80 Tara Mines workers on income continuance are around €10,000 a year lower as a result.
It is understood that Tara Mines has now applied to the High Court to seek formal changes to the rules of its scheme. A spokesman for the company said Tara Mines had no comment to make about the situation.
According to Cllr Cantwell, by not passing on the benefits of the 5 per cent top-up to workers' pensions, the company can use this money to subsidise its own contributions to the pension scheme.
He believes the practice, which has the effect of short-changing people with long-term illnesses and permanent disabilities, is common among Irish companies and he has asked Kenny to investigate the extent of the issue.
"This is the taking of money from the weakest of the weak," said Cllr Cantwell, who estimates that as many as 3,000 workers in Ireland could be losing out a total of over €300 million from their pensions every year.
He has also taken the case to Tim O'Malley TD, who has responsibility for disability issues within the Department of Health.
Income continuance, also known as income protection or permanent health insurance, is a popular employee benefit in Ireland.
Figures from the Irish Insurance Federation (IIF) show that insurance companies earned premium income of €151.4 from these policies in 2004 and paid out benefits of €81.1 million.
These figures include premiums from individual policies sold to self-employed people. However, employer-sponsored group schemes account for around 90 per cent of the market.
The absence of consumer protection in the area was highlighted three years ago in a report by benefits consultants Watson Wyatt and law firm Matheson Ormsby Prentice on behalf of the Pensions Board. The 2003 report said there was widespread confusion about the nature of the benefits under income continuance schemes and inadequate disclosure by employers about the terms of the cover.
Workers' entitlements in relation to income continuance arise under employment contracts. But the Pensions Board report found that formal employment contracts make only brief reference to the benefit, with the main details typically included in the same booklet as the details of the pension scheme.
Some pension schemes were set up so that contributions paid into it also included the cost of income protection benefits and of insuring death-in-service. As life assurance and other protection premiums increased significantly in the late 1980s, this may have led to a reduction in the amount being paid into the pension fund.
The practice "raises a concern", according to the Pensions Board report.
It recommended that regulations be introduced to ensure employers properly disclose the benefits payable under the income continuance scheme, including the level of pensions that will be paid to employees who cannot work due to a disability or illness.
A survey of employees conducted as part of the report found that over a third were unaware of some of the key features of the cover.
As income continuance plans combine elements of an insurance product and an employment contract, the report recommended that they be regulated by the Department of Enterprise, Trade and Employment (DETE).
The Irish Financial Services Regulatory Authority has now taken over the regulation of insurers from the DETE. But its consumer protection guidelines do not cover members of income continuance schemes and employers' obligations to disclose the exact nature of the income continuance benefits employees are paying for have not changed since the publication of the report.
