John Curran (Dublin Mid West, Fianna Fail)
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205. To ask the Minister for Social Protection if she has carried out a financial analysis as to the impact to companies operating defined benefits pension schemes arising from her plans as outlined in head 12 and 13 of the Social Welfare and Pensions Bill 2017; if so, if she will publish same; and if she will make a statement on the matter. [29281/17]

Regina Doherty (Meath East, Fine Gael)
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The possible implications, both positive and negative, of the proposed measures have been subject to considerable deliberation by my Department. It is not feasible to carry out a financial analysis given the variability of schemes, employers and market conditions. All defined benefit (DB) schemes are different, with their own trust deeds and scheme rules, setting out contribution rates for employers and employees. The circumstances of each scheme may change over time depending on investment strategies and market conditions and it is not possible to estimate the number of schemes that will not satisfy the funding standard in the future and by how much. In addition it is not possible to ascertain the likelihood of sponsoring employers changing their support for their schemes as this is likely to be driven by a combination of financial issues, investment decisions and industrial relations matters.

Notice periods for the termination of employer contributions are normally set out in trust deeds and rules vary from scheme to scheme. Head 12 of the Social Welfare and Pensions Bill obliges employers sponsoring DB schemes to give 12 months’ notice of their intention to cease contributions, irrespective of those scheme rules.

It should be emphasised that these provision do not result in an increase in the rate of contributions payable by an employer but merely stipulates that the employer contributions must continue for a period of 12 months from the date of notice.

Where an employer proposes to cease making contributions to a DB scheme an alternative pension arrangement is usually put in place, such as a DC scheme. Any alternative pension arrangements will also result in employer costs. Accordingly, any contributions arising in respect of the 12 month notice period, in excess of the notice period already set out in the scheme rules, must take account of the costs of any alternative pension arrangements that would have been put in place.

The serving of notice to cease contributions is, in the ordinary course, a precursor to winding up the scheme. Given that any such action will have a fundamental impact on the members’ benefits the purpose of the introduction of a notice period is to give employees and trustees sufficient notification of this event.

Head 13 of the Bill enables the Pensions Authority to determine a funding obligation that will restore DB pension schemes, which do not satisfy the funding standard or funding standard reserve, to an adequate funding position, in circumstances where a funding proposal has not been agreed.

The funding standard defines the basis on which the liabilities of DB schemes must be calculated. The funding standard provides a benchmark against which the ‘health’ of a scheme can be tested. Where a scheme fails the funding standard it means that unless some action is taken the scheme will not be in position to pay the benefits promised. A funding proposal, which must be approved by the Pensions Authority, should be designed to ensure that the scheme will have sufficient assets to meet its liabilities within an acceptable period.

It should be noted that Head 13 does not fundamentally change the current voluntary system underpinning DB schemes to a mandatory one where the obligation to fund all, or most, of a deficit arising in a scheme would rest solely with the employer. The existing mechanisms/processes provided for in the Pensions Act such as the development of a funding proposal, remain in place. It is only where this process is not successful in supporting a scheme that the new provisions will apply. The provisions are designed to encourage engagement between employers and trustees in a defined timeline to put in place measures to address a funding deficit.

According to the latest available returns made to the Pensions Authority, approximately 70% of the 677 DB schemes operating as of 31st December 2016 are satisfying the funding standard. Of the schemes that do not meet the funding standard, almost all have funding proposals in place to address funding shortfalls. Of the 677 schemes 22 are currently in wind-up.

Head 13 will not result in any additional costs on employers who remain committed to fulfilling their obligation to their DB scheme. Accordingly, the provision will not result in any additional costs to the sponsoring employers of the 70% of schemes currently meeting the standard or to employers of those schemes which do not meet the funding standard but where a funding proposal is in place.

The provisions seek a middle road between the current position where employers can abandon DB schemes and full and immediate debt on employer provisions. They are to ensure the sustainability of DB schemes for scheme members and continued trust in the pensions system as a whole.

I hope this clarifies the matter for the Deputy.