THOUSANDS OF retirees are facing the prospect of having their pensions frozen under Government plans aimed at dealing with insolvent private pension funds.
Under reforms announced by the Government last night, pensioners in defined-benefit pension schemes which are being wound up face having their pension levels frozen until existing workers receive their share of benefits. In future, former as well as current employees will have to share some of the pain in the event of defined-benefit schemes being restructured.
Last night’s announcement comes amid growing concern over the future of pension schemes at Waterford Crystal and SR Technics. Workers at these and other companies have called on the Government to intervene in such cases.
Last December, a leaked Government memo pointed to a hole of €20–€30 billion in defined-benefit pension schemes and noted that more than 90 per cent were expected to be in the red at the end of this year.
Under the new measures where defined–benefit schemes – which guarantee a payout on retirement – are being wound up with a deficit, those who have retired will not get increases in their pension until current workers who have contributed to the scheme receive their share.
However, pensioners would continue to get first priority for their existing pensions.
Minister for Social and Family Affairs Mary Hanafin said it was unfair that when a defined-benefit scheme was wound up in deficit that “a person who retired yesterday is entitled to his or her full pension – as well as annual increases in that pension – while a person who is due to retire tomorrow may receive only a small proportion of their benefits”.
Up to now, where defined-benefit pension schemes are being restructured, only current employees can take benefit reductions to protect the future liability of the scheme. This would change under the proposals.
The Government is to establish a new pension insolvency payment scheme to assist employees and former employees of companies which become insolvent and where the defined-benefit pension scheme is in deficit. Under the scheme, trustees would be able to buy the equivalent of an annuity – the product they purchase from insurance companies to provide an income for those in retirement – from the exchequer through the National Treasury Management Agency at cost price rather than at market rates.
The Government said savings would then be put towards the pensions of those yet to retire, thereby reducing, to some extent pension shortfalls. Minister for Finance Brian Lenihan said last night the new scheme should go some way towards reducing losses in a way that was cost-neutral to the exchequer.
Ms Hanafin said: “We are in a situation where defined-benefit schemes are being wound up and some employees and former employees are ending up with less than they are due. I want to make it easier for people to get more.”
The Government also said it would strengthen regulations to make it easier to prosecute employers who did not pass on pension contributions made by employees to the pension scheme. It said there would also be harsher penalties for anyone convicted of such an offence.
Private sector pension reform is one of the top priorities of trade unions in the current talks on a new agreement on national recovery.
The announcement came as Mr Lenihan signalled further austerity measures aimed at bringing the State’s finances in order.
The Minister confirmed yesterday that the Government had decided to either means test or tax child benefit.
He said it was “important that we target support for children for those who need it most in a targeted way. Clearly an arrangement where the wealthy receive the same payment as those on very moderate or low income is not a correct way to proceed in the present environment.”
Mr Lenihan also said social welfare rates in Ireland were “far more generous” than in other countries, and this is “something we have to reflect on”.
Speaking of Ireland’s international economic reputation, Mr Lenihan told an Irish League of Credit Unions conference in Killarney on Saturday that the imposition of a pensions levy and raising taxes had impressed and “amazed” other European countries.
He said there would be “riots” in France were the pension on public servants to be introduced there.