Pension protection required urgently
WHEN COMPANIES fail, all the stakeholders lose out. Shareholders lose their investment. Workers lose their jobs. And, if these are employees of a company based in Ireland, they could also lose some - and perhaps all - of their pension benefits. Many hundreds of current and former employees in Ireland of Waterford Wedgwood, which is in receivership, find themselves in that unenviable position.
Their British-based counterparts at Wedgwood are better placed. Workers in the UK have a safety net in the shape of the Pension Protection Fund. There, when a company with an underfunded pension plan fails, the State partly guarantees pensions. Fifteen months ago, the Green Paper on pensions suggested the Government might consider introducing a similar scheme here. But no action has been taken.
Waterford Wedgwood is a loss-making company with a very large hole in its pension fund. The value of the scheme's liabilities exceeds its assets by more than €100 million. The collapse of the company has meant its pension scheme will, most likely, be wound up. Its assets will be distributed according to a strict set of rules. This could mean that existing workers and those former workers at Waterford Glass who have yet to reach retirement age receive meagre pension benefits, possibly none. For the pension deficit is huge and in winding up the scheme payments to retirees have priority. Indeed, if funds are insufficient to pay full pensions to those in retirement, their payments will also be cut.
The inequities of the current pension system are obvious and Waterford Wedgwood provides a casebook example of the inadequacy of legislation. A worker there who was close to retirement, who had spent a lifetime at the company and who had paid into its pension plan, could end up with nothing. For that employee, the loss of job and pension means reliance on a State contributory pension plus any personal savings to finance many years of retirement. For more than a decade successive governments have talked about pension reform, yet done very little to advance it. The failure to consider pension insurance legislation, similar to that operating in Britain, is symptomatic of this.
In 12 months unemployment has risen by 71 per cent. The December live register figures recorded the biggest one-month increase since 1987. Virtually all unemployment has occurred in the private sector. There, wage cuts are seen increasingly as a necessary part of the adjustment to the greatest financial and economic challenge the world has faced since the Depression of the 1930s. But, as Waterford Wedgwood has demonstrated, where a company fails and where its pension fund is greatly underfunded, the result is not just job losses but loss of pension benefits as well. In this regard, the contrast with the public sector could hardly be greater. As yet, there have been few job losses there, no wage cuts except those volunteered by some senior civil servants and no adjustment to public sector pension benefits. And the taxpayer provides a pensions safety net which is missing in the private sector. The Government must now provide this via a pension protection fund.