Following a recent High Court ruling, Ireland’s pensions industry has found itself questioning whether the current minimum funding standard (MFS) for schemes can endure.

In the case, heard by Justice Michael Moriarty, the trustee of the Omega Pharma defined benefit (DB) fund was granted an additional €2.23m prior to sponsor wind-up, despite meeting the MFS, and therefore statutory, requirements.

The trustee argued, and Moriarty agreed, that the statutory minimum was “not appropriate in the particular circumstances” of the fund. However, the scheme actuary fell short of pushing for additional contributions that would have enabled a full buyout with an insurer, which would have required €5.8m.

As the sponsor failed on several instances to engage with the trustee prior to the case being filed, the request for additional contributions was accepted, as the trustee was left to “gauge reasonability, effectively in a vacuum”, as well as how much money was reasonable, according to the ruling.

Arguably, this can be seen as the sponsor’s main failing. In another recent court ruling, the firm Element Six argued successfully that trustee requests for the full €129m to address a deficit could have damaged the company’s sustainability. As a result, Element Six was granted an additional €14m settlement on top of a one-off contribution of €23.1m it received before the court case.

While lawyers would be quick to say the Omega Pharma ruling is just one case, it does raise questions about Ireland’s funding framework, if a judge can deem it an inappropriate benchmark.

The Department of Social Protection (DSP), whose minister, Joan Burton, is in charge of pension matters, says the MFS should only ever be seen as a method of assessing the health of DB funds, and called on social partners to engage to reach a level of funding deemed acceptable by all.

This fails to answer two very important questions – namely, whether there should be a statutory minimum that can be seen as insufficient, and whether the Irish government is now reconsidering the framework, only two years after it reinstated the MFS and introduced legislation for a 10% risk reserve.

The issues bring us back to another unresolved regulatory question looming over the industry. The protection of accrued benefits has never been absolute in Ireland, a fact brought home by last year’s European Court of Justice ruling that heavily criticised the government for its failure to ensure at least half of benefits were paid following the insolvency of Waterford Crystal.

While changes to the priority order have since been implemented, allowing active and deferred members to see an uplift at the expense of pensions in payment above €60,000 a year, the differences in scheme funding can still mean beneficiaries stand to lose significant sums of money.

Jamie McConville, partner at law firm LK Shields in Dublin, admits sponsors now need to be aware that simply abiding by the MFS cannot be seen as “a winning argument”.

“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.”

He speculates that the High Court hearing in the Waterford case, set for January, could result in a ruling that finds compensation based around a percentage of the MFS is insufficient.

McConville says that, if the current level made possible by changes to the priority order is deemed too low, the logical extension would be a funded solution.

“I wonder if the fact the [0.6%] 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.”

While the Exchequer has, so far, refused to ring-fence levy income for such payments, the €520m raised in 2013 alone is comparable with income for the UK protection scheme, covering a universe where single schemes are larger than the Irish DB market.