When people start talking about their pension, you know that they are old, or else old before their time.
Discussions on pensions are normally the preserve of the technically minded. The rest of us usually have difficulty suppressing a yawn or two when the subject comes up for discussion. It is not a topic that stirs the blood, which may explain why the mainstream trade union movement found it hard to get exercised on the subject until recently.
As a result, some less scrupulous employers were quick to capitalise on such representative inertia, launching surreptitious raids on corporate pension funds during the fat years when the eye of the unions was not sufficiently on the pensions ball.
In recent weeks, however, it started to look as if the lights would go out after the ESB group of unions reacted firmly — or fiercely, depending on one’s point of view — to a rather dubious move by management to present its defined benefit scheme as more of a defined contribution scheme in company documents.
At the same time, employees of Marks & Spencer in Ireland went on strike for a day after moves by management to downgrade their pension arrangements, putting them in a worse position than their UK counterparts.
At Aer Lingus, there are serious rumblings among staff about the scale of the joint DAA/Aer Lingus pension scheme deficit.
Pensions has become the new battleground, with both sides in the class divide adopting sometimes entrenched positions.
The number of defined pension schemes, where the employer undertakes to provide a guaranteed income linked to end of career pay levels to all employees, has shrunk dramatically, from around 2,500 to around 800.
The gap in the treatment of existing pensioners as opposed to scheme members not yet at retirement age has become a yawning one. The system favours the former over the latter.
This was most glaringly apparent in the treatment of around 1,500 former Waterford Crystal workers, who were left high and dry following the closure of the manufacturing plant in early 2009. While existing pensioners were protected, those not yet at pensionable age were thrown to the wolves.
In April, the European Court of Justice delivered an important ruling in favour of 10 members of the trade union Unite, who had argued that the State was in breach of the 2008 EU Solvency Directive.
The ruling followed a previous judgement in a case brought by a British worker, Carol Robins, who was left with just under one half of the pension to which she was entitled following her employer’s insolvency. The court ruled that the British government must bring her pension up closer to the level of her original entitlement.
The Waterford Crystal employees were left with between 18% and 28% of their entitlement. The matter was remitted by the Court of Justice to the High Court, here. It has yet to give its judgment.
Britain has in place a pension protection fund paid for out of a common pool. No such fund exists in Ireland.
However, last month, the Government unveiled a plan under which the State, in the event of an insolvency, will guarantee the payment of 100% of the pension owed up to €12,000 a year, 90% of pension owed between €12,000 and €60,000, and 80% of that owed on the excess over €60,000.
Britain’s Supreme Court in August adopted a difference stance. In the ‘Nortel’ judgment, the court overruled both the appeal court and high court in holding monies owed to pensioners in an insolvency rank equally with other unsecured non-preferential debts. It had been previously assumed that monies owed in respect of pensions had a priority ranking.
At the same time, the British government is engaged in an overhaul of public pensions policy that is rather more radical than that embarked on here. The pension arrangements of all current public servants has been changed, with future payments to be no longer based on final salary but rather on a career average. This measure has only been applied to new entrants in Ireland.
Concern about the future viability of Ireland’s ‘pay as you go’ public pensions system has grown as recognition dawns that public retirees are likely to live far longer than their 1970s and 1980s predecessors, imposing costs that cannot be recouped in the form of lower annuities as in the case of private sector equivalents.
The Fiscal Council has included future State public pension commitments as a large contingent liability in the accounts.
In the wake of the ESB crisis, politicians here will be all the more reluctant to grasp the public pensions reform nettle. One should add that the ESB employees would appear to have the law on their side.
However, sooner or later, the broader national problem will have to be addressed.
An unreformed public pensions arrangement has the potential to give the final coup de grace to national solvency, a lesson which the French and Italians, in particular, may be soon about to learn as they face sooner than us the consequences of an underfunded pay as you go system.
Favourable demographics and a rebounding economy, if such a happy event comes to pass, may allow this generation of leaders to kick the matter into the long grass, but there, one suspects, the problem will lie, waiting like a snake, ready to bite.
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