Dáil Éireann Debate, Thursday - 12 December 2013
95. Deputy Terence Flanagan asked the Minister for Social Protection her plans to introduce legislation on pension protection in line with other countries (details supplied); and if she will make a statement on the matter. [53441/13]
View answerDefined benefit (DB) pension schemes in Ireland are set up and maintained by employers on a voluntary basis. There has never been a statutory obligation on employers under Irish law to contribute to their pension scheme (although schemes rules can place some level of obligation).
Most defined benefit pension schemes in Ireland were established under a trust deed. As part of the process of establishing each occupational pension scheme, an employer undertakes to be bound by the rules of the scheme and to undertake certain liabilities and duties defined therein. The position around the employers and employees contribution obligation in a trust deed varies from deed to deed.
Employers have, by and large, made great efforts to support and deliver on the promise made to scheme members. This process is generally managed through dialogue between trustees, employers and members, where efforts are made to reach agreement regarding the steps that must be taken to secure scheme viability which may include a mix of measures such as increased employer/member contributions, longer working and amended benefits.
In developing the measures contained in the Social Welfare and Pensions Bill (No.2) 2013, significant consideration was given to imposing a statutory obligation on employers to secure a minimum level of funding before a scheme could be wound up. The advantage of placing a minimum obligation on the employer would be to reduce further the possible risk to the State and to protect the benefits of current and former schemes members. It may also prevent employers from “walking away” from defined benefit schemes and would encourage employers to ensure that the scheme is well funded and managed.
However, there are strong arguments against the introduction of an employer obligation given the uncertainties as to the overall impact and potential for unintended consequences. The introduction of employer guarantee is not a simple matter and may result increasing State involvement in sponsoring employers’ business decisions. Whilst it may improve the security of scheme members in certain circumstances, in other situations it may not. For example, in certain cases of liquidation, there may be few or no assets available once the claims of preferred and secured creditors have been met.
Imposing an obligation on an employer may be seen as unfair on employers who have voluntarily set up DB pension schemes. The previously voluntary commitments under these schemes would be made mandatory whereas there would be no corresponding obligation on employers who had set up DC schemes or had not set up any pension scheme.
To avoid debt, there is a danger that some employers with underfunded schemes may wind up the scheme in advance of completion of legislative process which, by its nature, would be complex and take some time to put in place. Experience in other countries has shown that complex ‘anti avoidance’ structures, with the requisite resources and expertise, were required to prevent employers restructuring to avoid their obligations.
Given the current economic circumstances, the imposition of significant additional costs on employers may have a counter-productive impact regarding the very viability of the business and jobs of those employed given many employers lack of capacity to absorb this extra cost. As such an obligation on an employer may threaten the companies financial stability and in some circumstances render employers insolvent. This may then impact on the companies creditors.
Internationally, “debt on employer” structures are seen as a complex measure to provide for and administer. Given the very small proportion of DB schemes here linked to employers who have a credit rating, or another reliably accurate and consistent measure of solvency, it is not the case that a workable framework to selectively apply an obligation on the employer is easily achievable. Rather, than placing an obligation on the employer to protect member benefits, the approach in the Bill is to support schemes to gradually move to more appropriate funding levels through the short, to medium to longer term using regulation and the benefits of a strengthening economy. This involves the Funding Standard and improved regulation with provisions such as restructuring of scheme benefits, the introduction of a risk reserve and the availability of sovereign annuities. The overriding priority in this area is to ensure that pensioners and members of pension schemes are protected and the future viability and sustainability of their schemes is ensured and made safer.
