Top 1000: Ireland - The state steps in
More than a year after the Pensions Board’s deadline for the submission of funding proposals, Ireland’s second pillar has faced fewer changes of late.
The Pensions Authority, as the Board has been called since March 2014 following an overhaul of the country’s regulatory structure, recently confirmed that all but 56 defined benefit (DB) schemes have submitted funding proposals by the end of April, outlining their path to recovery.
It also disclosed that 49% of schemes now comply with the minimum funding standard, a marked improvement on post-crisis levels when eight out of 10 were in breach.
But the regulator remains concerned about the level of non-compliance in submitting funding proposals, and warns that it could wind up funds that do not engage after it was granted powers to do so under the Social Welfare and Pensions (Miscellaneous Provisions) Act 2013.
The Act also legislated for the restructuring into the Pensions Authority, now overseen by a three-person board composed of the chair Jane Williams, as well as representatives from the Departments of Social Protection and Finance.
As part of the changes to address concerns about regulatory capture, the Act promised to launch the Pensions Council, responsible for advising government on regulatory changes. While non-governmental appointments to its dozen-strong council have yet to be confirmed, in March, the minister for social protection Joan Burton appointed the former director of the European Consumers Organisation Jim Murray as its chair and instructed the body to examine the level of charges facing consumers.
Regulation in summary
• The Pensions Board has been re-named the Pensions Authority after a restructuring of the regulatory framework to address concerns of regulatory capture.
• A new Pensions Council has been created, with appointments imminent.
• There have been changes to distribution of assets upon wind up, allowing for greater equity between pensioners, active and deferred, and removing the absolute priority previously granted pensions in payment.
• Shortfalls arising after wind up, in case of double insolvency events, can now be met with funds from the exchequer; revenue from the 0.6% and 0.15% pensions levies is earmarked for potential costs but will not be ring-fenced in a separate entity.
It will also include representatives from Burton’s department, the Pensions Authority, the Central Bank of Ireland and the Department of Public Expenditure and Reform. The Department of Social Protection confirmed that it has advertised for the remaining four to eight members, which it plans to appoint by the end of the summer.
More importantly for the country’s €60bn DB sector, the government has legislated for changes to the distribution of assets upon wind up. A thorny issue that Burton had repeatedly promised to address since taking office in 2010, it was finally tackled after the European Court of Justice (ECJ) ruled that the Irish government had failed to adequately protect the benefits in the instance of company insolvency.
According to the ECJ’s ruling in case C 398/11, workers at Waterford Crystal should have seen at least half of their accrued benefits protected by the state, as required by European Directive 2008/94/EC, covering insolvency. The ruling was in stark contrast to the status quo where pensions in payment are granted absolute priority, with benefits of active and deferred members only addressed with what remained within the fund.
There are resulting changes to the wind-up order, introduced by the Social Welfare and Pensions (No. 2) Act 2013. It guarantees at least €12,000 a year to pensioners. For pensions in payment between €12,000 and €60,000 beneficiaries will be paid the higher of €12,000 or 90%. Where a yearly benefit exceeds €60,000, the greater of either €54,000 or 80% of the entitlement will be offered.
The money deducted from pensions in payment will be used to pay for 50% of the benefits of active and deferred members, excluding any inflation increases. Any remaining assets are redistributed among pensioners.
Members whose pensions are lost through double insolvency are subject to a different arrangement. At least 50% of payments to pensioners, active and deferred members are guaranteed, and also offer inflationary increases. Pensions in payment under €12,000 are fully guaranteed but only offered inflationary increases on half the amount.
Where the fund has insufficient assets to meet the requirements, the Irish exchequer would be required to step in, using the proceeds from the 0.6% pensions levy that ran from 2011-14, as well as revenue from the second, 0.15% levy announced in the October 2013 Budget.
The new charge, legislated for by the Finance (No. 2) Act 2013, would coincide with the last year of the previous stamp duty, effectively raising the annual rate to 0.75%. It will then continue by itself for one year, ending after 2015.