Written answers

Thursday, 23 January 2014

Department of Social Protection

Pension Provisions

Photo of Joe CareyJoe Carey (Clare, Fine Gael)
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117. To ask the Minister for Social Protection her views on corrspondence (details supplied) regarding defined benefit pension schemes; and if she will make a statement on the matter. [3223/14]

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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You will appreciate that it is not appropriate for me to comment on matters relating to an individual pension scheme.

Defined benefit (DB) pension schemes in Ireland are set up and maintained by employers on a voluntary basis. When a DB scheme is set up, the level of employer and employee contributions is agreed and established in contract in the Trust Deeds and Rules of each scheme. The Trust Deeds and Rules differ from scheme to scheme and reflect the level of obligation of the parties involved.

Significant challenges exist for many DB schemes and many employers, trustees and scheme members are making great efforts to ensure their ongoing viability. This process is generally managed through dialogue between the parties, where efforts are made to reach agreement regarding the steps that must be taken to secure scheme viability. This may include a mix of measures such as increased employer/member contributions, longer working and amended benefits.

In developing the legislative changes contained in the Social Welfare and Pensions (No.2) Act 2013, very significant efforts were made to identify an approach that strikes a reasonable balance between the interests of pensioners, active and deferred members across the broad range of scheme portfolios and scheme structures. To ensure the broadest range of views and expertise was considered, the consultation process included a stakeholder consultation. This included groups representing older people and pensioners, the pensions industry, employers and trade unions. Written submissions were also sought from the groups and informed the review process. In addition, the Department engaged external technical and actuarial specialists to undertake modelling exercises which assisted in the review process.

Before the recent changes were introduced, when a DB scheme wound up and was underfunded, pensioners received 100% priority for their benefits, often at the expense of current and former employees. The legislative changes aim to provide for a fairer and more equitable distribution of scheme assets whilst also facilitating greater sharing of the risk between all the beneficiaries when a scheme is underfunded. However, a principle underlying the changes was that pensioners would continue to be afforded the highest level of protection, particularly those on low to moderate pensions with protection levels set at 100% of pensions up to €12,000; 90% of pensions between €12,000 and €60,000; and 80% of pensions greater than €60,000.

Pension schemes generally make an allowance for the State pension when calculating final pensionable salary for the occupational pension. This is often referred to as a "co-ordinated" or "integrated pension". In the case of a co-ordinated pension, the recent changes to the Pensions Act will not apply to the State element of a co-ordinated pension. Those on an un-co-ordinated defined benefit pensions typically include pre-1995 employees in the civil and public service and commercial semi-state organisations. The pensions of these individuals are generally higher than those who have an entitlement to the State pension. This is apparent in an analysis of pensions in payment which shows that the median pension for pensioners of commercial semi-state organisations is €21,500 compared to €11,000 for pensioners in the private sector.

Any consideration by the trustees of a scheme to restructure scheme benefits under the Pensions Act is not an arbitrary task. The trustees of pension schemes have a fiduciary duty under Trust Law and the Pensions Act to act in the best interest of all scheme members. The Pensions Act and statutory guidance issued by the Pensions Board sets down detailed criteria which the trustees of a scheme must comply with before application to the Pensions Board to issue a direction to restructure pension scheme benefits.

In relation to the pension fund levy, this is a matter for the Minister for Finance. This levy, which was introduced to fund the Jobs Initiative in 2011, will be abolished from the 31st of December 2014. An additional levy on pension funds at 0.15%, to continue to help fund the Jobs Initiative and current and future State liabilities in relation to pensions, will apply to pension fund assets in 2014 and 2015.

In the case of both a company and the scheme being insolvent, the State will guarantee that existing pension benefits will be protected to a level of 50%, with pensions of €12,000 or less being 100% protected. In this context, I must emphasise that the Pensions Board is working with pension schemes, particularly schemes in a poorly funded position to help these schemes achieve a more sustainable funding position thereby decreasing the likelihood of State intervention.

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