(May 23, 2013) — The Irish government has been attacked from all sides for its failure to act and prevent a collapse in its defined benefit (DB) pension system.
A report today from the Irish Business and Employers’ Confederation (IBEC) criticised the government’s reluctance to tackle problems inherent in the system and was echoed by pension organisations in the country.
“The failure to reform pension rules puts the entitlements of thousands at risk,” said IBEC Director Brendan McGinty. “Where a scheme is at risk of being wound up, the current rules give absolute priority to pensioners, leaving those scheme members who have not yet reached retirement age with only a small fraction of the pension they had expected. The current rules mean that a retired worker will have his or her full pension protected in a wind-up, whereas a 64-year old worker, months from retirement, may be left with little or no pension rights at all.”
Following a consultation held by the Department of Social Protection on the review of Section 48 of the Pensions Act at the end of 2012,a set of principles were agreed that could form the basis for a new wind-up framework that would be more equitable than the status quo, according to the Society of Actuaries in Ireland. The society said it was encouraged by comments from the government that changes would be made. However, the minister in charge of the sector said this week that any decision on the matter had to be deferred.
Ireland’s pension funds were badly hit by the country’s overall economic collapse, and the sector had already suffered from more general problems impacting DB pensions around the world. Very few DB schemes remain open in Ireland and the majority of funds are significantly underfunded.
The Irish Association of Pension Funds (IAPF) expressed its disappointment at the lack of action, particularly in relation to the much promised commitment to deliver a fairer priority order rule for those schemes that are ultimately wound up.
“The deferment of any decision had left pension trustees in a complete vacuum and makes the prospect of DB pension schemes being would up all that more likely, which could have a financially devastating impact on thousands of workers,” said IAPF CEO Jerry Moriarty. “Requiring those schemes to now submit funding recovery plans by the end of June has left trustees in an impossible position and it will not be feasible for schemes to meet this deadline.”
In April, the Irish government found itself potentially on the hook for €280 million in pension benefits for a bankrupt company. The European court said it would force the Irish government to provide pension benefits for around 1,500 former employees of Waterford Crystal after former employees of the company argued the Irish government was obliged to protect them.
Judges also said the economic situation of Ireland did not provide the government with an excuse to only provide a lower level of protection.
Related content: OECD: Greater Flexibility on Irish DB Payouts Needed