Almost all defined benefit (DB) schemes have a rule that allows the employer to cease contributions, usually after a notice period. Currently there is no legislative obligation on the employer to make contributions and no further liability on the employer where contributions cease.
However, over the last number of years the Government has amended pension legislation to protect the pension sector and to ensure fairer and more equitable outcomes for all scheme members. The wind up priority order was amended by the Social Welfare and Pensions (No.2) Act in 2013. The changes to the wind up priority order essentially de-prioritises a portion of pensioner benefits in the manner in which the resources of a scheme are distributed on the wind up of a pension scheme. These changes make more resources of the scheme available in the initial distribution of assets to active and deferred scheme members.
The Social Welfare and Pensions Act 2012 required a DB scheme to hold additional funding in the form of a ‘risk reserve’ by 2023. This function of this ‘risk reserve’ is to provide some protection and long term stability for scheme members against future volatility in financial markets.
The introduction of the Pensions Insolvency Payments Scheme reduced the cost of purchasing pensions for trustees where the employer has become insolvent, offering special payments in cases where a DB scheme is winding up.
The General Scheme of the Social Welfare and Pensions Bill 2017 (now the Social Welfare, Pensions and Civil Registration Bill 2017), was published in May 2017 and contained a number of key measures relating to DB pension schemes.
The amendments will provide for a 12 month notification period where an employer is seeking to cease making contributions to a scheme. The provisions will also provide that, where a scheme is in deficit and a funding proposal is not been put in place in a timely manner, the Pensions Authority may direct steps to be taken to ensure that the scheme meets the funding standard.
These provisions are quite technical and complex. Work to finalise them is at an advanced stage and I hope to be in position to bring forward the amendments at Committee Stage at the end of May or early June. With the cooperation of the Oireachtas the Government intends to pass this legislation before the summer recess.
I hope this clarifies the matter for the Deputy.