The Minister for Social Protection, Joan Burton, has announced a package of legislative measures to address the situation where an underfunded DB pension scheme winds up or elects to restructure. The legislation is due to be published and enacted in the coming weeks.
The Society of Actuaries in Ireland welcomes the Minister’s announcement of legislation to reform the order in which the assets of an insolvent defined benefit pension scheme are distributed on wind-up. The Society has been seeking change in this area for many years, to deliver greater fairness in the distribution of assets while continuing to provide protection for retired people.
The current rules give priority to pensioners on wind-up, resulting in a disproportionate burden being borne by those who have not yet retired.
The new rules, when enacted, will provide a more equitable distribution of the assets between pensioners and those who have not yet retired. Though we would have liked to see the changes go further, we welcome the improvement that they will bring.
- If both the pension scheme and the sponsoring employer are insolvent, the State will (using pension levy monies) provide any funds needed to ensure that all members receive at least half their accrued pension. For pensioners, the first €12,000 p.a. of pension will be fully protected.
- If the scheme winds up in deficit but the employer is not insolvent, the first €12,000 p.a. of pensions in payment will receive priority. After that, pensions in payment may be reduced by up to 10% if the pension is under €60,000 p.a. or by up to 20% if the pension is over €60,000 p.a.
- Where an insolvent defined benefit scheme is being restructured, pensions in payment may be reduced as per (ii).
- The Pensions Board will be given added powers to intervene where a scheme’s funding level is below 50%.
The Pensions Board has announced that it will defer consideration of any funding proposals or Section 50 applications received until the legislation has been enacted and statutory guidance has been updated.