Proposed publication of the Pensions (Amendment) Bill, 2013
The Minister for Social Protection, Joan Burton TD, secured Government approval for a package of measures aimed at tackling difficulties in Defined Benefit pension schemes.
The package addresses the situation where an underfunded Defined Benefit pension scheme winds up in deficit or elects to restructure. It can arise at present that pensioners receive all or almost all the pension fund and the members who have contributed but not retired receive considerably less than expected. These measures will ensure a more equal distribution of assets in an underfunded Defined Benefit scheme when an insolvency/restructuring occurs. The measures will apply only in a limited set of circumstances, meaning the potential number of schemes affected will be small. In those limited circumstances, the measures will ensure a fairer deal for employee and former employee members by increasing their future pension entitlements, while prioritising an occupational pension of up to €12,000 for existing pensioners in addition to their State pension entitlements.
In the case of both a company and scheme being insolvent, the Government will guarantee that existing pensions will be protected to a level of 50% with pensions of €12,000 or less being 100% protected. The Minister for Finance, Michael Noonan TD, has granted the use of funds from the Pension Levy to meet any obligations on the State that may occur arising from such double insolvencies.
The measures meet Ireland’s obligations under the EU Insolvency Directive to protect workers’ entitlements. They are also in keeping with the stated consensus among stakeholders – including employer representative bodies, trade unions, pension funds and actuaries - of the need for reform of the pensions priority order to ensure greater fairness within Defined Benefit scheme structures. Depending on the number of pensioners and the rate of pension in payment, every 1% redistributed from pensions in payment could result in a 2% or more increase for future pension entitlements for current and former employees.in the scheme.
These measures affect only the occupational element of a Defined Benefit scheme as follows:
i. When a pension scheme winds up in a situation where both the employer and the pension scheme are insolvent (Double Insolvency):
This change will ensure that all members in the pension scheme share some element of the deficit and that the assets in a scheme are distributed more fairly. The Government will ensure that existing pensions will be protected to a level of 50% with pensions of €12,000 or less being 100% protected. But all members will be expected to contribute to bring the benefit level of all scheme members up to 50%. If the pension scheme has insufficient funds to cover this amount, the State will fund the shortfall, using funds provided by the Pension Levy,[thereby guaranteeing existing pensioners their occupational pension up to a maximum of €12,000, or 50% if greater, and current workers 50% of their pension entitlement upon retirement]. Nothing in these measures will impact on State pension entitlements, which remain unaffected.
ii. When a pension scheme winds up and is insolvent (Single Insolvency):
The way in which the scheme’s assets are divided up in a wind-up situation will change, with the current 100% priority for pensioners being reduced in a limited way. This will mean that higher-paid pensioners will contribute to improve the benefit levels of current workers. Lower-paid pensions (up to a maximum of €12,000) will not be reduced. Again, none of these measures will affect State pension entitlements.
iii. When a pension scheme is restructuring:
The same option at (ii) above will be available to trustees when a pension scheme is restructuring to enable it to remain viable. This will support and encourage employers to keep their schemes open.