IBEC calls for a change in the law on winding-up of pensions
26 June 2012
THE law has to be changed to ensure that workers who have paid into a pension for 30 years do not end up with nothing when company schemes are wound up, employers' body IBEC said.
There were fears that a large number of the almost 1,000 defined benefit company schemes will end up closing down as most of them are in arrears.
Schemes that are wound up have to prioritise putting money aside to provide for those already receiving a pension.
This could mean that, in schemes with large deficits that are wound up, there will be nothing left for those still in work and contributing into the plan, IBEC director Brendan McGinty told the IBEC conference on pensions yesterday.
"If those schemes are wound up, active members -- working men and women who have 20 or 30 years' service -- may receive little or nothing from the schemes," Mr McGinty said.
He called for a change in the rules that see existing pensioners in company schemes getting first priority over all the money in a scheme when it is wound down.
The Government had planned to change the so-called priority order when a pension is being wound up.
Under that now-withdrawn plan, pensioners would still get priority. But their pension payment would be capped at €30,000 a year or 75pc of their entitlement.
The rest of the funds would be shared equally with those still working and paying into the scheme and the deferred members, who have yet to reach retirement age but are no longer working in the company.
"The Government should urgently revise the priority order on the wind-up of a pension scheme.
"At present, all the benefits due to existing pensioners must be paid out first, before active and deferred members receive anything. This has the potential to cause enormous hardship and unrest among workers, including those nearing retirement, whose pension provision may simply disappear," Mr McGinty said.
The employers' body also called for changes to what it called the "draconian funding standard", which sets out strict rules on the minimum assets that a defined benefit scheme must hold and what steps must be taken if the assets of the scheme fall below this minimum.
The minimum funding standard was re-introduced two weeks ago, but pensions experts fear that its provisions are so tough that it will force the winding-up of many schemes.
Mr McGinty said: "The scale of the pensions crisis is not fully appreciated. At best, thousands of members of defined benefit schemes face significant increases in contributions and significant fall in benefits.
"Many, however, will be left with little or no benefits on retirement. Urgent action is needed."
He said that the "new arbitrary rules for defined benefit pension schemes" will cause otherwise viable schemes to close.
When these schemes are wound up, existing pensioners will have priority, leaving many of those that have not yet reached retirement age with significantly reduced benefits.
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