John Cregan (Limerick West, Fianna Fail)
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Question 146: To ask the Minister for Social and Family Affairs if he will clarify the situation in relation to coordination or incoordination of occupational pensions; the reason this legislation was passed; the basis or origin of same; the further reason employers are allowed to reduce or take away part of State old age pensions that employers have paid for (details supplied); and if he will make a statement on the matter. [19453/07]

Martin Cullen (Waterford, Fianna Fail)
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An integrated occupational pension scheme is one where the pension payable, or the design of the benefit promise made, takes into account the state pension (contributory), or other similar contributory benefits payable by the State. In the public sector, these schemes are usually referred to as "coordinated" schemes.

Integrating occupational and social welfare pensions is a common practice and most defined benefit or final salary schemes are structured in this way. The practise is not generally subject to legislation but derives from the rules of individual pension schemes, though in the case of some public sector schemes it may be included in the statute under which the scheme operates.

Defined benefit pension schemes are becoming increasingly expensive to provide. By operating integration, an employer may be able to provide an employee on retirement with an earnings-related pension which might otherwise not be possible. Most members of a private defined benefit occupational pension scheme will qualify for the state pension to which the employee and the employer have contributed.

The most common method of operating an integrated scheme is by what is known as "salary offset". This means that the employer will regard the social welfare pension as providing pension rights in relation to part of the salary. This is not an unreasonable position given that both employers and employees contribute towards the social welfare pension. Notional adjustments are made to salary that take account of this to arrive at the "pensionable salary," on which both employer and employee contributions to the occupational schemes are based.

The manner in which integration operates can vary and depends on the rules of individual schemes. However, in a typical private sector scheme guaranteeing a total pension of two thirds of final income, salary is reduced by 1.5 times the social welfare payment to arrive at "pensionable salary". When the pension is paid the combination of the occupational scheme and the social welfare payment will provide the overall target of two thirds of final salary.

It should be pointed out that under the Pensions Act 1990, integration may only take place at the point when a pension is first paid. Legislation does not permit reductions to be made to occupational pensions in payment to take account of subsequent increases in the social welfare pension. The legislation also provides for a minimum level of benefit to be paid from an occupational scheme based on the total contributions made by the employee to that scheme.

Occupational pension schemes are voluntary in nature. In designing schemes a balance has to be struck between the expectations of scheme members and the costs which employers are prepared to bear. The increasing cost of defined benefit schemes is already a deterrent to many employers and in these circumstances it would be difficult to countenance any measures which would add to these costs and the pressures which already exist in the defined benefit pensions area.

The Pensions Board published 'A Brief Guide to Integration' in booklet form which provides guidance on the integration of occupational pension schemes. This is available free of charge from the Board and on its website www.pensionsboard.ie.