The Pensions Insolvency Payment Scheme (PIPS) is a three-year pilot scheme offering, as a special measure, payments in cases where a defined benefit pension scheme is winding up in deficit and the sponsoring employer becomes insolvent — the "double insolvency" criterion.
Under PIPS, trustees of a participating pension scheme must pay to the Minister a lump sum which equals the net present value of the future stream of PIPS payments for the lives of the pensioners concerned and the associated administration costs. The sum will be calculated by the National Treasury Management Agency on an actuarially cost-neutral basis.
PIPS will be administered to minimise start-up costs and facilitate orderly wind-up of the participating pension scheme. In this pilot phase, the existing payment administrator of participating schemes or an alternative payment administrator nominated by the trustees will be retained.
The cost of administering PIPS will be charged to participating schemes so that PIPS is cost neutral for the taxpayer, as required by the Social Welfare and Pensions Act 2009. As part of the application process, trustees must state the administration costs for the pensioner payments into the future as agreed with their chosen payment administrator. NTMA will convert this to net present value and factor it into the PIPS lump sum described above.
PIPS is a demand-led scheme with participation levels largely contingent on the number of employer insolvencies among defined benefit pension schemes in deficit where the trustees decide that PIPS offers pensions which might not otherwise be available.
PIPS came into effect only two days ago and so it is too early to make an assessment of the likely take-up. PIPS is a pilot scheme which will be reviewed within three years.
Broader policy responsibility for private sector pension issues beyond PIPS rests with my colleague the Minister for Social and Family Affairs. The Deputy will be aware that the Minister has taken a number of initiatives to support pension schemes. As a result the Pensions Board has taken a number of significant actions, for instance:
granting additional time for the preparation of funding proposals, as a temporary measure;
dealing as flexibly as possible with applications for the approval of funding plans;
allowing longer periods for recovery plans (i.e., greater than ten years), in appropriate circumstances; and
taking into account voluntary employer guarantees in approving recovery plans.
To ensure that these extensions will not weaken supervision, the Board will reject recovery plans which fail to demonstrate an appropriate investment approach. The operation of these proposed changes will be reviewed by the Pensions Board no later than 1 January 2011.
The Deputy may also wish to note that the Social Welfare and Pensions Act 2009 has amended the Pensions Acts to:
improve the affordability and viability of Defined Benefit pension schemes by allowing trustees to include the benefits of active and deferred pension scheme members, as well as post retirement increases, when considering the restructuring of a Defined Benefit pension scheme;
provide for a more equitable distribution of assets between those who are retired and current members of the pension scheme in the event of the wind-up of the scheme, by excluding post-retirement increases from the priority given to retired members;
strengthen the regulatory provisions in relation to the obligation on employers to submit pension contributions to the trustees of a pension scheme; and
provide the Courts with the power to relieve a trustee in whole or in part from liability for breach of trust where the Court is satisfied that the trustee has acted honestly and reasonably.
The Government will also be considering the National Pensions Framework prepared by the Minister for Social and Family Affairs.