Many private sector retirees face having their pensions frozen under a radical new Government initiative revealed today.
Pensioners in defined-benefit schemes being wound up with a deficit will not get increases due to them until existing workers get their share of the benefits.
Social Affairs Minister Mary Hanafin said it was unfair that retirees get all payments due if their former employer goes bust, while existing workers face losing money.
“I think it is unfair that when a defined benefit scheme winds up in deficit, a person who retired yesterday is entitled to his or her full pension – as well as annual increases in that pension – while a person who is due to retire tomorrow may receive only a small proportion of their benefits,” the Minister said.
Shortfalls in private pensions hit the spotlight after massive fund deficits were revealed in troubled firms SR Technics and Waterford Crystal.
The world-renowned crystal maker has a shortfall of more than €100m while SR is understood to be over €20m.
Ms Hanafin said pensioners would continue to get first priority for their pensions.
But any future increases would not be granted until workers who have also contributed to the scheme, and have not yet retired, get back some of what they paid in.
The measures are contained in the Social Welfare and Pensions Bill which will be finalised in the Oireachtas this week.
“This amendment protects pensioners, but by moving pension increases lower in priority, it means that workers – who may have been contributing to the scheme for decades – get more of a share of their entitlements,” Ms Hanafin said.
The Government also introduced a new scheme to help safeguard pensions if employers go bust.
The Pensions Insolvency Payment Scheme will allow operators pay a sum to the Exchequer to cover the cost of paying the pensions of retired members, instead of buying annuities.
Savings will then be put towards the pensions of those yet to retire in a bid to reduce a potential shortfall.
“I am bringing forward a Pensions Insolvency Payment Scheme to address the problems being faced by people who have seen their employer become insolvent and their pensions reduced,” Ms Hanafin said.
“The scheme should go some way towards reducing those losses in a way that is cost-neutral to the Exchequer.”
Ms Hanafin also said the Government would be making it easier to prosecute employers who do not pass on the pension contributions made by employees to the pension scheme.
Anyone convicted of this offence will also face much harsher penalties.