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New Pension Insolvency Rules: An Improvement but Employers can still walk away and leave Tax-payers to pick up the pieces

Extract from my Dáil contribution on new Pension rules for insolvent private sector pension schemes…

This Bill proposes to allow for the reordering of the priorities in the event of the insolvency or restructuring of a defined benefit pension scheme. It also provides the Government’s legislative response to the Waterford Crystal workers’ situation by introducing minimum pension guarantees in certain circumstances where a double insolvency exists and I will say more about that later.

In principle, a reordering of the priority arrangements in the event of a pension fund wind up is most welcome. The current regime is entirely stacked against current workers and deferred members. We have all come across those awful cases in our constituencies of workers in their sixties losing out on their pension because the scheme has wound up and all of the proceeds have gone to the existing pensioners. The system, undoubtedly, must be made a whole lot fairer. That said, the Government has got the balance wrong with these proposals, on a number of levels.

First, with regard to the single insolvency situation, the absence of any provisions in the legislation to ensure that at least some of the deficit would remain a debt on the company is a major flaw in this legislation. This really is just another form of corporate welfare and yet another example of socialising private debt. The legislation places no onus on employers in a single insolvency situation to make any further funding available for the pension fund and offers no obstacle to employers who choose simply to walk away from their pension promises. Such a scenario is not, of course, permitted in the United Kingdom and one must ask why it is acceptable in this State. I wonder how taxpayers will feel when they realise that they are paying for this corporate welfare.

Second, the minimum guarantee in the single insolvency scenario is much too low. The legislation only guarantees an income of €12,000 for pensioners. What if this is the only income for a pensioner couple? It is completely inadequate. Indeed, the way the priority order is now drafted could mean extra costs for the State because pensioner couples reliant on the minimum guaranteed pension of €12,000 would probably be entitled to means-tested State benefits. Therefore, not only would a solvent employer have walked away with the State’s blessing but taxpayers will have to fund higher social welfare payments as a result.

Third, there is not enough burden sharing among the higher-paid pensioners. The most a pensioner on over €60,000 stands to lose is 20%. The legislation should, of course, set down a maximum income limit on the guarantee. Under the Government’s proposals, trustees can take money from a pensioner whose pension is very slightly in excess of the €12,000 threshold while still paying out a €100,000 pension to another member. That is simply inequitable in anybody’s book.

Fourth, I welcome the fact the Government is finally legislating for the double insolvency situation. However, it is true to say that this would not be happening this year were it not for the tenacity and fortitude of former Waterford Crystal workers and the Unite trade union.