Last autumn, the Government committed to amend the priority rules on the wind up of a defined benefit scheme where the scheme has insufficient assets to meet its liabilities. However, more recent reports suggest that the Government is moving away from this and that it will not, as originally expected, be introducing such changes at this time.

Under the current rules, all pensioner benefits take priority over benefits for active and deferred members. In October 2011, the Minister for Social Protection, Joan Burton, acknowledged the significant inequities in these rules and, as a consequence, committed to amend the Pensions Act to “provide for a more equitable outcome for all scheme members who have contributed to the pension fund”. It was expected that the amended rules would take effect around now and that they would:

  • Continue to prioritise existing pensioners, but only up to a level of €30,000 or 75% of expected benefits, whichever is lower
  • Assets in the scheme would then be distributed among active members and deferred members (up to a level of €30,000 or 75% of expected benefits, whichever is lower) and
  • Pensioners would then get priority in the distribution of the remaining assets.

It is now understood that the Government will not be proceeding with any reform just yet and that it intends to obtain external advice and engage in further consultation. 

Comment

The deferral of the proposed amendment to the priority rules is worrying for active and deferred members of defined benefit schemes who remain at risk of potentially losing most, if not all, of their pension benefits given the inequity of the current priority rules. Furthermore, the deferral will no doubt give rise to concerns among trustees who have been holding off on decisions surrounding the future of schemes in anticipation of an amendment to these rules. These trustees will now find it even more difficult to make such decisions given the uncertainty as to when the rules may be amended. It is advisable for trustees to take advice and weigh up their options before ultimately making a decision regarding the future of a scheme.