THE Government last night confirmed a new Pension Insolvency Payment Scheme (PIPS), which will make defined benefit pension schemes up to 20% more valuable, following the collapse of pension schemes in some major employers and the threat to many more.
However, unions, who are demanding a state-backed pension protection scheme in the ongoing talks on a new national recovery plan, said the Government’s proposals did not nearly go far enough.
Announcing PIPS, the Department of Social and Family Affairs said it would “assist employees and former employees of companies where the employer becomes insolvent and the defined benefit pension fund is in deficit”.
“Under the scheme, trustees can 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, thereby reducing, to some extent, pension shortfalls.”
Social and Family Affairs Minister Mary Hanafin said it was unfair that when a scheme wound up in deficit, existing pensioners would receive all their entitlements, while workers paying into the scheme may receive only a fraction of their share.
However, her department confirmed the scheme was not a pension protection scheme as demanded by unions, only a measure to make the most of the value of the schemes.
One union source claimed PIPS was being introduced because the Government had got wind of the impending collapse of another major pension scheme. SIPTU said whatever the motive, it did not go nearly far enough.
“It means where a company is insolvent, that instead of winding up the pension scheme and going to the market to buy annuities you can go to the National Treasury Management Agency which will provide it at cost, so the trustees are not paying for the insurance company’s profits and handling fees,” said SIPTU president Jack O’Connor.
“The Green Paper on pensions estimates the value of the NTMA providing the annuity is 18% more.
“It’s a step in the right direction but does not remotely resolve the problem,” he said. “It does not address the problem that not all companies that cease trading are insolvent, as is the case in SR Technics.
“In most pension funds the assets are two thirds in equities and one third in cash and government bonds. If, as is the case in SR Technics and Waterford Crystal, the trustees have to wind it up at a time when equity values are at the lowest they have been for 20 years.
You are getting very poor value even with that additional 18%.”
He said the Government should at least take over the entire funds so that in time of recovery, the pension holders would reap the benefit.
© Irish Examiner Ltd. All rights reserved