Tuesday, 10 June 2014

Questions (308)

Clare Daly

Question:

308. Deputy Clare Daly asked the Minister for Social Protection her plans to protect pensioners in terms of allowing more flexibility to recognise service and pension contributions, in view of the serious undermining of defined benefit schemes; and if she will make a statement on the matter. [24116/14]

View answer

Written answers (Question to Social)

I assume the Deputy is referring to the recent changes to the Social Welfare and Pensions (No. 2) Act, 2013. As I have previously highlighted, a detailed consultation process was undertaken to inform the deliberative process regarding the wind-up priority provision in section 48 of the Pensions Act. This included a Department-sponsored review by Mercer Consultants on the technical aspects of the distribution of assets. This review involved specific consideration of a service-related priority – the principle of which is that those who have contributed the longest should get the most from the scheme on wind-up. The Mercer review was published by the Department (www.welfare.ie ) on the 9th December 2013.

It was acknowledged at that time that, generally speaking, defined benefit schemes by their nature take an employee’s length of service (and by association their contributions) accrued in a pension scheme into account when calculating pension entitlement. It is arguable therefore that this longevity principle is naturally satisfied by the structure of DB schemes.

The principle underlying an additional service tapered approach would be that those who have contributed for longest should get proportionately more out of the scheme in the event of the wind-up of the scheme. However, ‘overlaying’ such a service-related scale could be regarded as overweighting the priority in favour of service or ‘double counting’.

To demonstrate how the service principle works, consider two members of a scheme, one with 30 years’ service completed and one with 15 years’ service completed. Assume the pension formula is 1/60th of pensionable salary per year of service, with both having the same pensionable salary of €30,000 and both being aged 55. The accrued pension of the first member is 30/60ths of €30,000, which is €15,000. The accrued pension of the second member is half this amount, which is €7,500. This example demonstrates that the most appropriate approach has been adopted in the legislation.

Question No. 309 answered with Question No. 101.
Question No. 310 answered with Question No. 108.