Pensions In Ireland: Do the right thing
Last year was a positive one for the Irish economy and there were also some positives for the pensions sector. Strong investment growth helped assets increase to €91.5bn and the government finally signalled the end of the pension savings levy. A number of landmark court cases helped clarify the duties of trustees and it ended with the very welcome news that the government had agreed a settlement with the former Waterford Crystal workers.
The IAPF’s Annual Investment Survey showed an increase in assets of over 14% in 2014 with €91.5bn under management; €58.1bn (64.5%) of those assets were in DB schemes and the rest in DC schemes.
The closure and wind-up of DB schemes continued and led to court cases and high-profile disputes. The first judgement was in February in the Element Six case. The trustees were being sued for failing to make a contribution demand on the employer for the entire scheme deficit, failing to enforce the existing funding proposal, and for not obtaining all information or to having adequate regard to advice. This case highlighted the difficulty faced by trustees when there is no debt on employers. The judge ruled that the trustees had taken the right factors into account in coming to their decision, including the possibility of the closure of the employer if a contribution demand was made.
Another case was taken by the trustees of the Omega Pharma scheme against the employer to enforce a contribution notice served on the employer. In this case, the trustees were informed of the intention of the employer to cease contributions to the scheme. The scheme met the minimum funding standard, but the trustees decided to make a contribution
demand of €2.3m. The employer did not engage with the trustees and the court found in favour of the trustees.
Both highlight the reluctance of the courts to interfere in decisions taken by trustees where they act in honesty and good faith and in the best interests of the beneficiaries. The importance of being able to show how decisions were made was demonstrated. As with all cases, they are dependent on the wording of the scheme rules and the powers available to trustees.
More recently, there has been a settlement in the Waterford Crystal case. This arises from a case taken to the European courts by workers who faced substantial reductions in their DB pensions following the liquidation of the employer while the scheme was in deficit. With no protection fund, the workers took the case to the European Court of Justice. Using the same principles established in the Robins case taken against the UK government, the ECJ ruled in their favour. The case was heading back to the Irish High Court in early 2015 but the government agreed a settlement which will cost €178m.This has already been raised from the levy on private sector pension savings.
Having introduced a temporary four-year levy in 2011, the government shocked everyone last year by increasing it from 0.6% of assets to 0.75% and indicated that the additional 0.15% was to fund situations like Waterford Crystal. There was relief in this year’s budget announcement, when the minister for finance announced that he would end the 0.6% levy in 2014 and the 0.15% levy would end in 2015.
While that was welcome, it still means that about €2.3bn will have been paid to the government from private sector pension savings over the levy period. As well as the impact that will have on retirement income, it has also dented confidence in the sector. People need to know that their savings are secure if they are to be persuaded to save for the long term.
That leads on to one of the other big issues that needs to be dealt with. Less than 50% of the working population in Ireland have supplementary pensions coverage. There has been much analysis of this issue over the last 20 years but little done. The government had committed to an auto-enrolment system but stalled when the recession hit.
In 2014, the government indicated it would set out a roadmap and framework early in 2015. It is important that this happens. Ireland still has a younger population than most European countries, thus an opportunity to deal with this issue now. However, we have wasted much of this opportunity with far too many reports examining the issue and a lack of willingness to make tough decisions that might seem painful now but make long-term sense.
It is important to plan properly but that can’t be a substitute for making decisions. There is a lot of experience from other countries on auto-enrolment that can allow us to come up with a solution that will work for Ireland. We still have work to do to make the current system simpler and strip away the unnecessary layers of complexity that we have put in place over the years.
With too many people relying on a state pension that has serious question marks over its sustainability, it is important that we do the right thing and do it right.
Jerry Moriarty is CEO of the Irish Association of Pension Funds