Concern grows over CIÉ’s €1bn pension deficit ahead of vote on reform

Rejection of Labour Court proposals could lead to financial and industrial uncertainty

Irish Rail trains pictured at Heuston Station in Dublin. The pandemic has massively restricted passenger numbers at Iarnród Éireann, Dublin Bus and Bus Éireann. Photograph: iStock

Irish Rail trains pictured at Heuston Station in Dublin. The pandemic has massively restricted passenger numbers at Iarnród Éireann, Dublin Bus and Bus Éireann. Photograph: iStock

 

It has been known for some time that the financial position of the three State-owned CIÉ companies, like virtually all others in the transport sector, was not good. The pandemic massively restricted passenger numbers, leaving Iarnród Éireann, Dublin Bus and Bus Éireann relying on hundreds of million of euro in State support to continue to operate essential services.

However, at a lunchtime hearing of an Oireachtas committee on Tuesday the chairwoman of the CIÉ group Fiona Ross, who is about to start her second term, dropped a bombshell about pensions, which represent the main financial problem facing the organisation.

For years there have been talks about reforms to the two pension schemes in place for staff in the group. As of December 2019 it had been calculated that these faced a combined deficit of about €770 million. However in the subsequent 12 months the position deteriorated markedly. The figure is now close to €1 billion.

“The most significant challenge facing the group is the scale of our pension deficit and this pension deficit is a key component of the weakness in the group’s financial position. The accrued liabilities of the schemes have increased significantly in 2020 and exceed the schemes’ assets by €975 million at the end of 2020.

“This is a priority concern of CIÉ as it puts the long-run security of pension provision for our workforce at risk,” Ross said.

It was “therefore increasingly urgent that measures are taken to further de-risk the schemes and provide for long run sustainability of pension provision,” she added.

The timing of the chairwoman’s comments was hugely significant.

Most acute problem

Of the two pension schemes, the one operated for managerial and white collar grades is facing the most acute problem. The so-called 1951 scheme has about 2,200 active members, 2,250 pensioners and 450 deferred members. It has an estimated deficit of about €550 million.

Over the coming weeks its members will vote on reforms put forward by the Labour Court aimed at restoring it to a firmer footing. These have already been accepted by the group and its subsidiary companies.

Previous reform proposals have been rejected by a significant margin. However, observers believe the ballot result due in early May could be closer. If the Labour Court proposals are turned down it could plunge the three transport companies into financial and industrial relations uncertainty.

Changes to the other pension scheme – known as the regular wages scheme – which has about 6,500 mainly frontline workers and has a deficit of about €400 million, have already been agreed.

The CIÉ group believes the provisions of the 1951 scheme are generous compared to others in the public and semi-state sectors.

At present the employer contributes about 28 per cent and the employee about eight per cent. The group told the Labour Court last autumn that “this contribution rate is far higher than the norm and well above the maximum 12 per cent employer contribution approved by the Department of Public Expenditure and Reform”.

The 1951 scheme is a defined benefit arrangement and based on 40 years service, the pension payment involves 50 per cent final salary and a lump sum of one and half year’s pay. Members can retire at 60 although they can continue to accrue service up to age 66. The actual average age of retirement is 63.5 years.

Under the Labour Court proposals, the new minimum age of retirement for those under age 60 at present would be 63 years. Those wishing to retire prior to 63 could do so, however, by paying a contribution from their lump sum. Their pension in such circumstances would not be discounted.

New entrants

The 1951 scheme would remain open to new entrants but pensions would be based on career average earnings. Retirement for such individuals would be in line with the State pension age. Employer and employee contributions would remain unchanged.

There would also be a €1 million ex- gratia payment to existing pensioners.

Under the Labour Court recommendations, the CIÉ group would contribute a minimum of €320 million over the ten-year funding proposal. This would include an additional €1.4million annual levy to establish a special purpose fund for the retirement of those below the age of 63 years.

Any future pay rises above the rate of inflation or more than 1.75 per cent would be subject to a review to determine their impact on the pension scheme. Any pay awards in excess of this level would be pensionable under a CIÉ hybrid scheme.

However, ahead of the ballot on the Labour Court recommendation, the picture has been complicated by plans by the 1951 Superannuation Committee – in essence its trustees – to ask the High Court for directions on how much the company must pay to plug the funding gap.

It has told members that its understanding is that “CIÉ cannot unilaterally reduce member benefits”.

Some members of the pension scheme believe that under commitments made in 1994 when a number of older funds were brought together into the 1951 scheme, the company is obliged to ensure it remains solvent and therefore is required to make up any deficit.

However, the CIÉ group strongly disputes such a view.

Unions appear wary

Staff unions appear wary at the High Court strategy suggested by the trustees and seem concerned that it could potentially force the company to act unilaterally to resolve the pension problem.

The CIÉ group told the Labour Court last autumn its finances were at a critical juncture and it could not increase its cost base further to deal with the pension deficit.

“The impact of Covid-19 has weakened the financial position of CIÉ itself while also leading to volatility in the value of pension assets. The group’s pension difficulties must be urgently solved before the expected pandemic recession takes hold and jobs become unsustainable .”

Business Today

Get the latest business news and commentarySIGN UP HERE