Ireland’s main opposition political party has tabled a bill to make it illegal for companies to abandon defined benefit (DB) pension schemes with deficits.
Fianna Fáil managed to pass the bill in Ireland’s lower house (Dáil Éireann) last week, despite opposition from the ruling Fine Gael party. It is now being considered by the joint committee on social protection.
If passed, the Pensions Authority will have the power to stop employers walking away from their pension funds and to step in to help those companies who are struggling to finance their schemes.
Last year, Independent News & Media abruptly chose to wind up its scheme, despite a reported €23m shortfall. Ireland’s current law does not require sponsors to make good on deficits, and it does not have an insurance facility for schemes, such as the Pension Protection Fund in the UK.
In addition, Willie O’Dea, a prominent member of the Fianna Fáil party who tabled the bill, has called for a new method of calculating liabilities to make them less of a financial strain on sponsors.
In a blog post on his website on Tuesday, O’Dea said the current calculation method for liabilities was “artificial” and “the chief culprit” behind scheme closures.
“At present, the calculation of liabilities of the defined pension scheme is based on a hypothetical situation,” O’Dea said. “The question is: would the pension scheme be able to meet all these liabilities if it was wound up tomorrow? This is a total misunderstanding of the long-term nature of pension provision.”
He continued: “Schemes are not designed to wind up tomorrow. They are designed to build assets and meet liabilities over an adult’s lifetime. We need to move to an ongoing funding model that recognises this.”
O’Dea’s bill called for the Pensions Authority to launch a study of alternative liability calculations.
“New methods of calculating liabilities must be found that would help save the pension schemes we have and create an incentive for the creation of others,” O’Dea said.
In a debate in the lower house last month, O’Dea and Willie Penrose of the Labour party both called for greater protections for DB members. However, Leo Varadkar, minister for social protection, claimed that the proposals could destabilise some companies and render others insolvent.
“The only legislative changes I will recommend… are ones I am confident will do good and not unintended harm,” Varadkar said. “If Penrose and O’Dea and colleagues from other parties want to come together to put through legislation that could potentially do untold harm to many people, they should by all means do so. However, the consequences will be on their heads.”
Consultancy firm LCP warned of several “unintended consequences” of the bill, including the pre-emptive closure of viable schemes by employers wishing to avoid the legislation.
However, LCP supported O’Dea’s proposals regarding liability calculations, adding: “we would question the extent to which the other elements of the Bill can be enacted without this element. We can only hope that the outcomes of such an exercise will be constructive.
In an update on its website, LCP said: “Overall we welcome the fact that attention is being focused on legislation impacting defined benefit pension schemes and hope for constructive outcomes whether they are based on this bill or an alternative.”