Dáil Éireann Debate, Wednesday - 18 April 2012
669 Deputy Michelle Mulherin asked the Minister for Social Protection if she is satisfied that the 1980 EU Insolvency Directive has been properly transposed into Irish law sufficient to protect employees who have paid into defined benefit schemes; and if she will make a statement on the matter. [19239/12]
View answer670 Deputy Michelle Mulherin asked the Minister for Social Protection the steps she will take to protect employees who have paid into defined benefit pension schemes which are discontinued by employers even though they are solvent. [19240/12]
View answer671 Deputy Michelle Mulherin asked the Minister for Social Protection her plans to request the establishment of a pension protection fund to provide security to employees in the event of the insolvency of an employer. [19241/12]
View answerI propose to answer Questions Nos. 669 to 671, inclusive, together.
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.
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. The Funding Standard is a regulatory mechanism to assist in ensuring that DB schemes can meet the pension promised to scheme members. Responsibility rests with the employer and the trustees for ensuring that a scheme is properly funded and managed.
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 DB 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.
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.
Article 8 of the Directive 80/98/EEC was implemented by section 7 of the Protection of Employees (Employers' Insolvency Act 1984. The European Commission carried out a review of the implementation of Article 8 in 1995 and again in 2010 and on both occasions expressed general satisfaction with Ireland's implementation of the Directive. This is currently under scrutiny as part of a legal challenge in the Courts: accordingly, I cannot comment further.
The Government already makes a very significant contribution to support the private occupational pension system by forgoing approximately €2.5 billion in taxes each year. This is in addition to the €6 billion expenditure on State pensions. It has also made a number of legislative changes in recent years to assist pension schemes address the funding challenge facing many schemes at present.
