MINISTER FOR Social and Family Affairs Mary Hanafin has offered some temporary relief in response to a looming pensions crisis by proposing changes in pensions legislation.
These amendments to the Social Welfare and Pensions Bill are designed to support workers in defined-benefit schemes that are in deficit and where the employer is insolvent. The Government, in setting up a Pensions Insolvency Payment Scheme (Pips), hopes to mitigate the losses experienced by the employees involved.
Trustees of such pension funds will be able to buy annuities for retired members at a cheaper rate from the State – via the National Treasury Management Agency (NTMA) – than from the private sector. The savings made will go towards financing the pensions of future retirees and help reduce pension shortfalls. How much difference this will make, however, remains unclear and current difficulties at Waterford Crystal and SR Technics may provide the first test of these measures.
The other Government proposal involves a change in how funds are distributed when a defined benefit scheme in deficit is wound up. Under current legislation pensioners have first claim on the assets of such a scheme and contributing members and former employees share the residue, which would be insufficient to cover their entitlements. That is clearly inequitable. For it means, as Ms Hanafin pointed out, that those who retired yesterday receive a full pension and any annual pension increases that may be due, while those who retire tomorrow may only receive a fraction of their benefits if the pension scheme is wound up. Workers, many of whom have been contributing to a defined-benefit scheme for decades, are entitled to a better and fairer deal.
The Government now proposes to amend the Pension Act to ensure that where a fund is being restructured, the burden of adjustment is shared between pensioners and current workers. It means that where a pension scheme in deficit is wound up, the wind-up priorities will change. Pensioners will have their current pension fully protected but any future pension increases will not be paid before workers, as contributors to the pension scheme, have received their share of benefits.
The problem is that so many (an estimated 90 per cent) of defined-benefit funds are in deficit and that that deficit is huge – from €20 to €30 billion. For a Government struggling to deal with a banking and public finance crisis, the chasm presents a further immense challenge at an inopportune time.
And yet, over the past decade no subject has been studied more thoroughly by government to such little effect. In 1998, a National Pensions Initiative by the Pensions Board was followed in 2006 by two further major reviews. In 2000, the Commission on Public Service Pensions reported. And in 2007, the Government published a Green Paper on pensions. Meanwhile, a White Paper is still awaited. The Government’s latest initiative, while welcome and overdue, proposes limited changes to a system where fundamental reform has been deferred for far too long.