On the 27th April 2009, Minister Mary Hanafin announced the establishment of a Pensions Insolvency Payment Scheme (PIPS) which is to be provided for through amendments to the Social Welfare Bill 2009, currently at committee stage in the Oireachtas. The Scheme offers trustees a more cost effective mechanism to provide pensions to retired members with the aim of increasing the remaining pool of funds available for the benefit of members who have yet to retire.
This Scheme is a response to the current crisis where a large number of defined benefit pension schemes are in deficit as a result of stockmarket turbulence, leading in turn to the increased risk of the members of such schemes being left without financial provision in the event of their employers becoming insolvent. This issue, highlighted by the workers in Waterford Wedgewood, lead to a European level concern that Ireland may be in breach of its obligations under the 1980 Directive on Insolvency Protection. In the case of Robins and others –v- Secretary of State for Work and Pensions (commonly known as the ASW Pension case), the European Court of Justice found that Member States do not have an obligation to fund pension provision or to guarantee pension rights in their entirety, and that "the liability of the Member State concerned is contingent on a finding of manifest and grave disregard by that State for the limits set on its discretion". Whether the protection afforded by the PIPS meets the States obligations under Article 8 of the Directive on Insolvency Protection remains to be seen.
The main features of the Scheme are:
- Payment to National Treasury Management Agency to replace Annuities
Where the employer becomes insolvent and a defined benefit pension fund is in deficit, the trustees of the fund can manage the available funds more efficiently, by availing of a new lower cost method of providing pensions for retired members. Rather than purchasing expensive annuities from insurance companies, the trustees now have the option of paying sum to the Exchequer on a not for profit basis, to cover the cost of paying the pensions of retired members. The Scheme will be managed by the National Treasury Management Agency.
- Change to Wind Up Priorities
The Scheme changes the way in which funds are disbursed in a defined benefit pension scheme in circumstances where it is wound up with a deficit. Pensioners will continue to get first priority for their pensions but any future pension increases will not be granted until workers who have also contributed to the scheme, and have yet to retire, receive their share of benefits.
- Restructuring of Defined Benefit Pension Schemes
The Pensions Act 1990 (as amended) is being further amended so that in the event of the restructuring of a pension scheme current and former employees and pension increases can be included in any restructuring. Currently only existing employees can make sacrifices in the event of a restructuring of a DB pension scheme.
- Strengthening Regulation
The Minister is strengthening regulation to make it easier to prosecute employers who do not pass on the pension contributions made by employees to the pension scheme and is increasing the penalties for such an offence.