Peter Fitzpatrick (Louth, Fine Gael) | Oireachtas source

The Bill amends the Pensions Act 1990 to change the manner in which the resources of a defined benefit pension scheme are distributed on its wind-up. It also broadens the categories of benefits that can be reduced where a defined benefit scheme is being restructured because it does not meet the statutory minimum funding standard. It amends the Social Welfare Consolidation Act 2005 to provide for a number of technical changes. When an employer goes out of business and the defined benefit pension scheme in that business is underfunded, the funds in the pension scheme will be divided to ensure all of its beneficiaries, including pensioners, current employees and former employees who have not yet retired, will receive 50% of their benefits. Existing defined benefit pensions in payment will be protected up to a figure of €12,000. Where the defined benefit pension scheme does not have sufficient moneys to meet this amount, the State will meet the shortfall using pension levy funds. This addresses the exposure of the State following the ruling of the European Court of Justice in April 2013 which stated Ireland was in breach of the EU insolvency directive. The European Court of Justice ruled that when both the employer and the pension scheme were insolvent, the State must put measures in place to provide at least 49% of the pension benefits expected. This measure provides for a fairer outcome for all members, gives protection to lower paid pensioners and limits the extent to which the taxpayer must contribute.

Other measures are being introduced in the Bill which are not requirements under the insolvency directive but which seek to minimise the likelihood of similar situations arising. In the future when an underfunded pension scheme is being wound up and when the employer is in business, the 100% priority given to pension benefits is being changed to reduce the priority given to higher pensions. This will ensure current employees and former employees who have not yet retired and who have also contributed to the pension scheme will receive a greater share of the benefits. It can also arise that pensioners receive all or almost all of the funds and members who have contributed but not yet retired receive little or nothing. Pensioners in receipt of pensions under €12,000 will have first priority to ensure they are not affected. Pensions between €12,000 and €60,000 will be reduced by 10% of the total pension amount. The overall reduction is limited to a maximum of 20% of the total pension amount where the pension is over €60,000. The State is not contributing in this instance. The employer is still in business and it is the employer who sponsors the defined benefit pension scheme and makes the pension promise.

The Pensions Board will be introducing tighter regulations for defined benefit pension schemes. This entails refusing to accept funding proposals from schemes with a funding figure of less than 50%, forcing schemes to take action to address their poor funding position; imposing additional obligations to ensure significantly underfunded schemes achieve a base level of funding in the short term; and withdrawing flexibility options for schemes which go off track while subject to a recovery plan where the level of funding falls below 50%.

IBEC, the group that represents Irish businesses, welcomed the announcement by the Minister for Social Protection, Deputy Joan Burton, that the Government would reform pension rules to ensure the remaining funds of insolvent defined benefit pension schemes were distributed more fairly between those in retirement and those who had yet to reach retirement age. The existing system means that those of working age must lose everything before pensioners are asked to lose anything. IBEC has been leading the call for change for several years. Members across the Chamber will be aware of cases in which, where a defined benefit scheme was in trouble, a 66 year old who had only just retired received his or her full pension, while a 64 year old due for retirement saw his or her pension decimated. It is important to note that these measures will apply only in a limited set of circumstances, meaning the potential number of schemes affected will be small.

Crucially, none of this impacts on the State pension, which is not affected in any way by measures included in the Bill. The Government has protected the State pension in all three of the budgets it has introduced.

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