- Changes Introduced By The Social Welfare And Pensions Act 2009
New legislation has been introduced which significantly amends a number of areas of the Pensions Act 1990. These measures have been primarily introduced in response to the ECJ decision in the ASW case in relation to the State's obligations under the Directive on Insolvency Protection and the current funding crisis many defined benefit pension schemes in Ireland find themselves in.
(i) Pensions Insolvency Payment Scheme (PIPS):
A new scheme is to be set up for pension schemes which have or are in the process of being wound up in deficit in circumstances where the employer sponsoring the scheme is also insolvent.
The scheme allows for pension schemes to buy annuities for existing pensioners from a government directed asset management agency (the NTMA) at a lower price than would be available on the open market. The difference is remitted back into the pension scheme and made available to discharge the pensions obligations in respect of members yet to retire. It is estimated that the annuities from the NTMA will be between 8% and 18% cheaper than on the open market.
A major criticism of the scheme which has been voiced in particular by trade unions, is that the scheme falls well short of fulfilling Ireland's obligation to provide a pension protection fund in accordance with the EC Insolvency Directive and the ECJ decision in ASW. Only a small minority of pension schemes may qualify under the strict rules of the scheme. In particular, an insolvent scheme or a scheme which is in deficit but in respect of which the employer sponsoring the scheme is not insolvent but is refusing to increase contributions to aid the scheme, will not qualify for the PIPS scheme. A further ambiguity which has been focused on is in relation to multi-employer schemes where one employer is insolvent but the others are not. The Act is silent on the eligibility of schemes in this situation for PIPS.
(ii) Distribution of Assets on Winding Up of the Pension Scheme:
The Pensions Act stipulates a mandatory order of priority that applies when a pension scheme is wound up. Existing pensioners are given top priority. The Social Welfare and Pensions Act 2009 retains this regime but introduces a change whereby increases in pensions in payment are no longer given priority over payments to active and deferred members.
This measure has the potential to provide substantial savings to pension schemes in difficulty, particularly mature schemes where a large proportion of the members are drawing their pensions. This should result in a larger pot for distribution amongst active and deferred members.
(iii) Provisions for Reducing Benefits:
The new legislation extends Section 50 of the Pensions Act to allow for pension schemes to reduce the benefits of current and former employees. However, these changes may only be made if the employer sponsoring the scheme is unable to contribute to the scheme in full and if the approval of the Pensions Board is obtained.
A new Section 50A has also been introduced into the Pensions Act conferring a wider power on trustees, subject to certain limitations and conditions to "make such amendments to the scheme as they consider appropriate". This potentially far-reaching provision would seem to allow for benefits to be reduced.
Clearly, any such amendment is likely to give rise to a claim of breach of trust by disgruntled members. However, the new legislation provides that in proceedings brought against a trustee for breach of trust the court may relieve the trustee from liability if he/she acted honestly and reasonably.
- Extension Of Period For Submitting A Funding Proposal
The Pensions Board has announced that, in order to allow trustees to examine the changes introduced by the new Social Welfare and Pensions Act 2009, they are extending the period which has been given to trustees to submit a Funding Proposal. The Board has extended the period from 6 months to two years from the date on which an actuarial certificate or statement signifying the need for a funding proposal was submitted to the Board. This extended period applies to schemes where such certificates or statements were negative in the period 31 December 2007 to 31 December 2008 inclusive. Trustees who fail to make a submission in time may be liable to prosecution.