Written answers

Tuesday, 14 February 2017

Department of Social Protection

Defined Benefit Pension Schemes

Photo of Michael CollinsMichael Collins (Cork South West, Independent)
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290. To ask the Minister for Social Protection if he is putting any protections in place for employees on a defined benefit pension scheme whose employers are trying to move to a defined contribution scheme; and if he will make a statement on the matter. [7109/17]

Photo of Leo VaradkarLeo Varadkar (Dublin West, Fine Gael)
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The Deputy will be aware that over the last number of decades and especially during the financial crisis the decline of defined benefit pension sector has accelerated significantly. In fact most employers that currently have a defined benefit scheme also operate a parallel defined contribution scheme.

Neither I as Minister for Social Protection nor the Pensions Authority are empowered under legislation to interfere either in the scenario of a defined benefit scheme being wound up or to compel an employer to make pension contributions to a scheme. Occupational pension schemes are generally set up under trust and are contributed to by an employer on a voluntary basis. In almost all Irish defined benefit schemes employers are not prohibited from ceasing contributions, usually after a notice period.

It has to be said that many employers have made great efforts to support their pension schemes and have tried to make good the promises made to scheme members. Of course there are employers who have not.

Sometimes sponsoring employers can no longer afford to pay for the level of pensions expected by members of defined benefit schemes. In some cases defined benefit schemes have been frozen and employers have opened up defined contribution schemes for their employees. They continue to pay into these schemes for their employees.

This process is usually managed through dialogue and negotiation between employers, employee representatives, trustees and members. Enhanced transfer values may be offered to encourage members to move to defined contribution schemes.

It’s worth noting that this position is not unique to Ireland. In the UK 85% of defined benefit schemes are closed to new members.

The introduction of increased employer obligations has recently been generating much discussion but it should be remembered that such unilateral modifications to a sector could yield unwanted side effects. Any changes to the Pensions Act that legislatively alters the relationship between a pension scheme and its sponsoring employer could have far-reaching implications for pensioners and the pension sector as a whole, as well as the employers. These could include prompting well-funded schemes to wind up to avoid new obligations; threatening a company’s financial stability; rendering some employers insolvent; and/or giving a competitive advantage to employers who either never provided a pension and/or put defined contribution schemes in place.

My Department and I are not just keeping a watching brief on the defined benefit sector but are very much involved in the development of proposals for the reform of pensions within the current economic climate.

I hope this clarifies the matter for the Deputy.

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