The Irish government may well have extended the current 0.6% pensions levy to prepare for the launch of a pension protection fund, a pensions lawyer has suggested.
Jamie McConville, partner at LK Shields in Dublin, said it was “hard not to make some kind of connection” between the government’s extension of the pensions levy, at 0.15% for two years, and the potential for a Waterford Crystal High Court hearing to result in further compensation claims by members of the insolvent company’s pension fund.
The matter, which is soon to be discussed by the Labour Relations Commission, could still be heard in the High Court, following a ruling against the Irish government by the European Court of Justice (ECJ) that found the state was in “serious breach” of its obligations to protect scheme benefits.
Following the ECJ ruling, Ireland changed the priority order upon wind-up, allowing for active and deferred members to have greater security of benefits, while also confirming that those subject to benefit losses after a double insolvency will be compensated by the state.
However, McConville said the problem was that the minimum funding standard (MFS) for defined benefit (DB) funds was increasingly perceived as “quite weak”, especially in light of a recent court ruling that saw trustees of the Omega Pharma scheme granted an additional €2.23m contribution, despite the fund meeting the statutory minimum requirements.
“If the courts are not seeing the minimum funding standard as necessarily being the key benchmark, it seems to me difficult for that to be ignored by courts in the future, in a case such as Waterford Crystal where they are having to assess what is an adequate level of compensation,” he said.
He speculated that it was “entirely possible” the High Court would deem a set percentage of accrued benefits being guaranteed, as currently allowed under the revised priority order, as insufficient when it came to a verdict in the Waterford Crystal case.
“Then, two questions arise,” McConville said. “What is a sufficient level and how is the cost going to be met?
“I wonder if the fact the pension levy is being kept alive beyond this year, albeit at a lower level of 0.15%, is perhaps for the possibility of future funding of a pension protection fund in mind.”
Ireland introduced a four-year, 0.6% pensions levy in 2011, with proceeds funding general expenditure.
In last year’s Budget, the government introduced a new, 0.15% levy that would overlap with the final year of the previous duty, then continue as a standalone charge until 2015.
In 2013, the 0.6% levy raised €520m, with the additional charge expected to increase earnings by €135m.
The sum compares favourably with the £695m (€865m) levy income for the UK Pension Protection Fund predicted for the current financial year, despite the UK’s pension assets, at close to £1.2trn, dwarfing Irish pension assets of €86bn, based on the income of the pensions levy.