Thousands of workers face the loss of pension benefits as a result of the Government’s failure to address the priority order of entitlement for pension schemes that are being wound up, Ibec warned today.
The business lobby group criticised the decision by the Minister for Social Protection Joan Burton to put off a decision on addressing inequities in insolvent defined benefit, or final salary, pension schemes when she published the Social Welfare and Pensions Bill today.
The Government had signalled that the issue would be addressed in the Bill but decided to hold back following an adverse European Court of Justice ruling that will force it to compensate workers at Waterford Crystal who were left with just 18-28 per cent of their benefits when their company and pension scheme collapsed in 2009.
That could cost the Government up to €300 million and will require a more comprehensive package of pension reforms, which are now expected towards the end of the year.
However, pension advisers Mercer warned today: Whilst we recognise that the Government needs to decide answers to the questions raised by the Waterford case, members of under funded pension schemes that will wind up this year will continue to suffer.”
More than 80 per cent of pension schemes are estimated to be underfunded. A number of large employers, including Permanent TSB and Independent News & Media, have indicated they can no longer sustain the cost of such pension arrangements.
Ibec director Brendan MGinty said: "The failure to reform pension rules puts the entitlements of thousands at risk."
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 scheme members who have not yet reached retirement age with only a fraction of the pension they had expected.
“The current rules mean that a retired worker will have his or her full pension protected in a wind-up, whereas a 64-year old worker, months from retirement, may be left with little or no pension rights at all,” said Mr McGinty.
Ibec had lobbied for a change that would more fairly spread scheme assets among members - probably with a cap on pensioner entitlements in such cases - alongside the Irish Congress of Trade Unions, the Irish Association of Pension Funds and the Society of Actuaries.
Fianna Fáil spokesman on social protection, Willie O'Dea, says the failure to address priority order on wind up would be a "massive disappointment for tens of thousands of pension holders in the country".
“People who have been working all their life faces the prospect of a huge reduction or even a total loss of pension entitlements while former executives of companies are guaranteed to receive very generous pensions,” he said.
“This is unfair, unjust and inequitable. On two occasions Minister Burton has given a firm commitment to both Ictu and Ibec that this situation would be rectified in the current pension legislation but she has once again failed to address this matter.”
Mercer principal Joyce Brennan said the legislation failed to address a host of question arising out of the Waterford Crystal case .
“Defined benefit pension schemes are facing a lot of uncertainty,” he said. “The Waterford case leaves employers and trustees in a legislative vacuum.
“Does the Waterford case have any relevance where a pension scheme winds up in deficit but the employer is solvent? Will there be a change in an employer’s obligations regarding pension scheme deficit if they choose to wind up the scheme? Does it still make sense to voluntarily reduce pension benefits to eliminate a deficit if a protection scheme will be in place?
“None of these questions are addressed in today’s Pensions Bill. In the meantime, trustees and employers have a 30th June deadline to agree funding plans.”