Irish gov't gets final say on exclusion from PIPS
IRELAND - Pension schemes, businesses and employers that have "wilfully contributed" to a pension scheme deficit or insolvency could see the pension fund excluded from the new Pension Insolvency Payment Scheme (PIPS).
PIPS was announced in April 2009 and is being introduced next month to help employees receive a greater proportion of their benefits in circumstances when both the scheme and the employer are insolvent. But the final legislation was only signed-off by the government yesterday. (See earlier IPE article: Ireland unveils pensions insolvency 'state annuity' scheme)
Brian Lenihan, the minister of finance, signed the statutory instrument under the Social Welfare and Pensions Act 2009 giving effect to PIPS from 1 February 2010. However, the new policy statement highlights a number of circumstances when the minister for finance can choose to exclude a fund that has applied to the scheme.
This followed comments by Mary Hanafin, the minister for social and family affairs, in October stating department of finance officials had been continuously working on the legislation because of certain "technical issues". (See earlier IPE article: Commission on Retirement must halt pension delays - IAPF)
The new assistance scheme will take the form of a two-stage application process, which will require a pension fund to receive certification from the Pensions Board that the scheme qualifies for the 'double insolvency' criteria - recognising that the sponsoring employer is insolvent (this must include all employers in a multi-employer scheme) and that the scheme itself is in deficit and has begun winding up.
Once the scheme has been certified, it can then apply to the minister of finance for inclusion in PIPS. If this is the case, the minister will provide a quote for the value of the lump sum that trustees must pay to the Exchequer in exchange for taking on the responsibility for pensioner benefits.
The calculations used by the Department of Finance include a standard mortality assumption based on guidance from the Society of Actuaries in Ireland, and an interest rate based on the yield to maturity of 10-year Irish government bonds - valued at 4.7% in January 2010.
Trustees then have two weeks in which to accept the offer, which the government claims is likely to leave the scheme trustees with more money to fulfil its obligations to active and deferred members.
However, the department of finance said even if some pension funds are approved by the Pensions Board as 'eligible schemes', the minister could still exclude them from PIPS. This can be done if it is their opinion that the circumstances of the 'double insolvency' have been contrived, or if the exclusion is in the public interest or interests of the Exchequer.
In particular, it warned: "PIPS provides that the minister may exclude schemes, businesses and employers that, in the minister's opinion, have contrived the qualifying conditions for PIPS or have wilfully contributed to the pension scheme deficit or employer insolvency."
Lenihan said: "I am pleased to note that there has been a significant recovery in Irish pension scheme assets during 2009; however, there is still a need to support schemes that are facing the two-fold problem of a deficit and employer insolvency. PIPS provides an innovative yet straightforward response, which supports pension scheme members without exposing the taxpayer to unreasonable risks."
Hanafin added the scheme is "just one of a number of initiatives which the government has taken to protect members of defined benefit schemes in recent times. I welcome the greater security that PIPS will provide for those scheme members who experience both the loss of their employment and a reduction in their benefits".
It is envisaged that PIPS will operate on a pilot basis for three years, at which point the system will be reviewed. However, if the scheme is discontinued then those pensioners from schemes transferred to PIPS will continue to have their benefits paid.
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