LABOUR BILL TO PROTECT WORKERS IN DEFINED BENEFIT PENSION SCHEMES

Labour Party spokesperson on Social Protection, Willie Penrose TD, has launched legislation aimed at protecting and defending the pension rights of thousands of workers in defined benefit schemes. The Bill has been submitted to the Ceann Comhairle for approval and introduction in the Dáil.

The Pensions (Amendment) Bill 2017 would apply specifically in incidences when a defined benefit scheme is being wound up and/ or the employer remains solvent.

Commenting on the Bill, Deputy Penrose said:

“This proposed law seeks to clamp down on the practice of large companies walking away from their pension obligations to employees, as was seen before Christmas with the decision by Independent News and Media to wind down its defined benefit pension scheme, to name just one example.

“It is unacceptable that shareholders could profit from a corporate restructuring while workers have their pension entitlements severely reduced.

“More than one hundred thousand people are covered by the 700 plus defined benefit pension schemes in this State. These are workers who have felt safe in the knowledge they had money put aside for their retirement, but must now be seriously concerned that a precedent is being set.

“And where is the incentive for our young people to save for the future if their pension rights and entitlements can’t be guaranteed down the line.

“To deal with this issue, our Bill seeks to amend the 1990 Pensions Act by adding employers’ obligations when it comes to funding issues, including when a defined benefits scheme is being wound up and/or when the employer has not become insolvent.

“I have also tabled a Priority Question to the Minister for Social Protection Leo Varadkar, this afternoon, to seek clarity on the Government’s plans to address this loophole in the current law.

“I want to know what action he will take to stop profitable companies from winding up their defined benefit pension schemes and how he will ensure the pension rights of workers and those already retired are protected.

“There is no point in the Government talking about a universal pension provision scheme if workers see that those who have saved for their retirement all their working lives are having their pension pots slashed and reduced.”

ENDS

NOTES TO EDITOR:
Copy of the Bill available here: http://www.labour.ie/download/pdf/pensions_bill_2017.pdf

The main provisions of the Pension (Amendment) Bill 2017 are –

At present, accountancy standards require an employer to recognise its liabilities to a pension scheme in its own financial statement. Removing those liabilities from the employer’s accounts can have a transformative effect

However, an employer’s obligation to its pension scheme is not governed by statute law but by the terms of the pension trust deed – which the employer will itself have drawn up. As a result, it is rarely a binding obligation.

Most direct benefit trust deeds in fact allow the employer to wind up its pension scheme, and to cease contributions, while ignoring any deficit in the funding of the scheme and the resulting inability to pay out the benefits originally promised.
The Bill amends Part IV (“Funding Standard”) of the Pensions Act 1990, by inserting a new section 44A, dealing with employers’ obligations in relation to deficiencies in the funding standard.

The new section applies where a defined benefits scheme is being wound up, the employer concerned is not insolvent and the scheme does not satisfy the funding standard.

Where the section applies, then an amount sufficient to enable the scheme to satisfy the funding standard is deemed to be a contract debt due from the employer concerned to the trustees of the scheme.

A scheme is deemed to be being wound up where the employer takes any step under the rules of the scheme (other than actually paying an amount sufficient to enable the scheme to satisfy the funding standard) that enables to employer, in accordance with generally accepted accountancy principles or practice, to remove recognition of current or contingent liabilities towards the scheme from the employer’s own financial statement.

The new section does not prejudice any other right or remedy which the pension trustees may have in respect of a deficiency in the resources of a scheme.

The section provides that it applies to defined benefit schemes that came into operation before its commencement.

EXPLANATORY MEMORANDUM

Purpose of Bill

The decision of a major news company to wind down its defined benefit pension scheme highlights the need for the pension rights of workers to be defended and protected. It is wrong that shareholders can profit from a corporate restructuring while employees have their pension entitlements severely reduced.

There are over 700 defined benefit pension schemes in the State, covering more than 100,000 people. These workers thought they had made provision for their retirement. They must now be seriously worried at the precedent that is now being set.

From a public policy perspective, this is also a dangerous precedent, because it deters workers from saving for their retirement, due to a belief that their rights and lifetime savings might be drastically cut at some future point. The net result would be to force more people into reliance on public provision.

The pensions regulation regimes in Ireland and the United Kingdom have diverged in many respects. In the UK, the law prevents solvent companies from walking away from their obligations to their employees’ occupational pension scheme.

At present, accountancy standards (FRS 102) require an employer to recognise its liabilities to a pension scheme in its own financial statement. Removing those liabilities from the employer’s own accounts can have a transformative effect.

However, an employer’s obligation to its pension scheme is not governed by statute law but by the terms of the pension trust deed – which the employer will itself have drawn up. As a result, it is rarely a binding obligation.

Most direct benefit trust deeds in fact allow the employer to wind up its pension scheme, and to cease contributions, while ignoring any deficit in the funding of the scheme and the resulting inability to pay out the benefits originally promised.

Provisions of Bill

The Bill is by its long title an Act to amend the Pensions Act 1990, and to provide for related matters. Section 1 amends Part IV (“Funding Standard”) of the Pensions Act 1990, by inserting a new section 44A, dealing with employers’ obligations in relation to deficiencies in the funding standard.

The new section applies where –

· a ‘relevant’ scheme, i.e., a defined benefits scheme, is being wound up,
· the employer concerned is not insolvent, and
· the scheme does not satisfy the funding standard.

Where the section applies, then an amount sufficient to enable the scheme to satisfy the funding standard is deemed to be a contract debt due from the employer concerned to the trustees of the scheme.

A scheme is deemed to be being wound up where the employer takes any step under the rules of the scheme (other than paying into its resources an amount sufficient to enable the scheme to satisfy the funding standard) that enables to employer, in accordance with generally accepted accountancy principles or practice, to remove recognition of current or contingent liabilities towards the scheme from the employer’s own financial statement.

The question whether an employer is insolvent, and the time at which an employer has become insolvent, are to be determined in accordance with the Protection of Employees (Employers’ Insolvency) Acts 1984 to 2012.

The section does not prejudice any other right or remedy which the pension trustees may have in respect of a deficiency in the resources of a scheme.

The section provides that it applies to defined benefit schemes that came into operation before its commencement.

Section 2 provides in standard form for the short title and collective citation and construction of the Bill.