Joan Burton (Dublin West, Labour) | Oireachtas source

I thank Deputy Penrose for raising this extremely important issue. The Pensions Act sets out the order in which the assets of a pension scheme are distributed in the event of the wind-up of a pension scheme. The statutory order of priority is of no consequence, as the Deputy knows, where a scheme winds up with sufficient assets to meet all of its liabilities. In the event of the wind-up of a pension scheme, all pensioner benefits except provision for post-retirement increases are given the highest priority after wind-up expenses and additional voluntary contributions made by individuals. Any remaining assets are then divided according to the accrued liabilities among active and deferred scheme members.

If a scheme is underfunded, the assets remaining after the distribution of assets in respect of payments to pensioners may not be sufficient to meet the liabilities pertaining to active and deferred members. In some cases, they may receive much less than the promised benefit after the commitments to existing pensioners have been satisfied.

The Government decision dated 4 October 2011 approved the drafting of legislation to change the current 100% priority given to existing pensioners on the wind-up of a deferred benefit pensions scheme in deficit by introducing a threshold on the amount and percentage of the pension payment. However, this is a complex and difficult issue which directly affects a group of people who are about to retire and those who are already retired and have little opportunity to increase their incomes. Given the significance of the proposed change, I have requested that the legislation not proceed for the moment pending broader consideration of some of the issues to which Deputy Penrose referred. A consultation process was completed in the last quarter of 2012. The process involved engagement with representatives of older people, the pensions industry, employers and trade unions. In addition, the Department engaged external expertise to assess the impact of possible changes on how the assets of a scheme are distributed on the wind-up of a scheme.

When I published the Social Welfare and Pensions (Miscellaneous Provisions) Bill 2013, I pointed out that I would not be proceeding at this stage with a change to the manner in which the assets of a scheme are distributed on the wind-up of a scheme. It must be remembered that while people are very conscious, as Deputy Penrose has said, of the impact that the wind-up of an underfunded pension scheme can have on a scheme member who is close to retirement, any change to the current arrangements is likely to involve a reduction in current payments to pensioners. It is a challenging issue and one which requires a determination of the fairest outcome for all beneficiaries, bearing in mind that the level of pension for many pensioners of such schemes, as the study shows, is relatively low. This is an important factor to bear in mind. The matter is under active consideration and, in light of the recent decision by the European Court of Justice in the Waterford Crystal case, the Government recognises the need for a comprehensive policy and legislative response that addresses the range of issues involved.

The Deputy may also be aware that the Pensions Act provides a procedure - that is, the funding standard - for determining whether a scheme has sufficient assets to meet its liabilities. The funding standard was suspended following the downturn in financial markets in 2008 until it was reinstated in June 2013 by me. Following the re-introduction of the funding standard, defined benefit pension schemes have until the end of June this year to submit funding proposals to the Pensions Board. It is considered prudent to await the submission of funding proposals by the trustees or plan sponsors of underfunded defined benefit schemes, as these will give a more comprehensive, in-depth picture of the funding position of defined benefit schemes. It will also allow for the impact of the many measures already introduced by the Government to be assessed, including the potential benefits to schemes, for instance, of the use of sovereign annuities or annuities. As such, I am keeping the situation under intense review and I will report back to the Government in the coming months. A wider package of legislative proposals and additional reforms will be considered at that stage.

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