Peter Mathews (Dublin South, Fine Gael)
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Question 283: To ask the Minister for Social Protection if he plans to introduce a pension protection fund or a similar programme which would protect occupational pensions; and if she will make a statement on the matter. [15791/11]

Joan Burton (Dublin West, Labour)
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The pension rights of scheme members are protected through trust law and by provisions in the Pensions Act 1990 as amended.

As supplementary pension schemes are usually established under irrevocable trust, the assets of the scheme are legally separate from the assets of the employer and are not available to any other creditors where the employer becomes insolvent. Under trust law, trustees of occupational pension schemes have the principal responsibility for ensuring that the entitlements of the members are adequately protected and that they receive the pensions due to them.

In addition to the safeguards provided by trust law, the Pensions Act 1990 provides for the regulation of pensions schemes in Ireland. Under the Pensions Act, defined benefit (DB) pension schemes must meet a minimum funding standard which requires that schemes maintain sufficient assets to enable them discharge accrued liabilities in the event of the scheme winding up.

Where schemes do not satisfy the Funding Standard, the sponsors/trustees must submit a funding proposal to the Pensions Board to restore full funding within three years. The Pensions Board can allow a scheme up to ten years to meet the standard in certain circumstances.

Should a scheme be wound up by its trustees, the Pensions Act 1990 (as amended) specifies how scheme assets are prioritised. In short, schemes first prioritise benefits that have accrued to members by way of additional voluntary contribution or transfer of rights from another scheme. Benefits being paid to retired members come next in the priority list, followed by benefits to current and deferred members of the scheme.

The issue of guarantees and the security of pension funds was raised in the Green Paper on Pensions which was published in October 2007. A public consultation process followed the publication of the Green Paper and was completed in May 2008. In March 2010 the National Pensions Framework was launched. This framework set out plans for the reform of the Irish pensions system.

The issue of a pension protection type mechanism was considered as part of this process to provide protection for defined benefit pension scheme members in the event that their scheme is wound up with a shortfall. While both the UK and the US have such a mechanism, and these were examined, there are a number of reasons why a pension protection fund did not form part of the measures in the National Pensions Framework and why it is not intended to introduce such a measure. The relatively small size of the pensions industry in Ireland means that the risk-sharing and costs involved would be high, particularly at a time when pension schemes are already dealing with significant challenges. Imposing such additional costs could lead to DB closures. It imposes a retrospective penalty on employers who have set up a pension scheme on a voluntary basis and may confer a competitive advantage on those who have made no provision for their employees. It can lead to unintended consequences: e.g. under funding of pensions in advance of liquidation; riskier investment strategies; increasing pension benefits rather than wages in companies at risk; early retirement of directors taking substantial benefits. Stronger companies could end up cross-subsidising the weakest. It is prone to economic cycles: in a downturn, it is exposed to significant demands which it may not be able to meet. It imposes a high regulatory burden and is administratively complex and costly.

In a situation where a Pension Protection Fund was introduced and in the event of any shortfall, it is likely that the Government would be expected to intervene and bear the fund deficit.

However, the framework recognised the difficulties facing DB schemes and emphasised that "further measures must be put in place to ensure that regulatory provision underpins a realisable pension promise and provides that the funding levels required to achieve the core pension expectation of scheme members can be delivered". More specifically, the framework committed to keep the funding standard under review and also suggested a new design for DB schemes.

An implementation group under the auspices of the steering group of the National Pensions Framework has been charged with the development of a new DB model. This work has included consultations with the pension industry, employers and trade unions. I will be bringing forward proposals for this new DB model shortly.