IRELAND – Consultancy LCP has questioned whether Ireland's Department of Social Protection will be able to press ahead with changes to the country's wind-up order in the wake of a court ruling over the level of benefits the government must guarantee.
The European Court of Justice last week ruled that Ireland's failure to guarantee at least half of the benefits from the Waterford Crystal pension scheme, following the company's 2009 insolvency, marked a "serious breach" as a European Union member state.
Martin Haugh, partner at LCP's Dublin office, questioned whether the ruling would interfere with the planned revision of priority order upon wind-up, which currently sees pensions in payment receive absolute priority over active and deferred members.
Working on the assumption that the ruling would lead to the introduction of a guarantee or protection scheme for defined benefit (DB) pensions, Haugh said: "You'd imagine that there would need to be some level of consistency between what we ultimately end up having as far as a minimum funding standard and what is provided by any guarantee fund.
"There would be no logic in the two of them being different."
He questioned the fairness of the looming 30 June deadline to submit funding proposals to the Pensions Board.
He also noted that some trustees from underfunded schemes had no intention of filing a proposal and instead planned to wind up prior to the date, hoping that a changed priority order would allow for a more equitable distribution of its assets.
Others have previously noted the "huge predicament" trustees face over hoped-for changes to the priority order, while the Society of Actuaries in Ireland last year presented its own proposal for reform that was backed, in principle, by industry, employers and unions.
However, Haugh also said the introduction of any minimum guarantee, pending a ruling from Ireland's High Court, would need to coincide with changes to Section 50 of the Pensions Act, which allows for the reduction of benefits for underfunded schemes.
"It would seem to me to be a bit perverse that we could cut benefits for schemes that have solvent employers, but, if you're insolvent, you actually have a guaranteed level of benefit," he said.
Haugh said it would not surprise him if the government "glossed over" the matter, and that any kind of protection scheme would need to be complemented with the introduction of debt upon the employer legislation.
"It's very hard to envisage some kind of protection mechanism without some kind of debt upon the employer," he said. "The moral hazard risk is too great – you'd be leaving loopholes."
LCP predicted that the current 0.6% pensions levy, set to expire in 2014, could continue in another guise to fund such a future scheme.
Haugh said the 0.6% rate that raised €465m last year would seem "excessive" to fund such an arrangement.
However, he said he could see a 0.1% or 0.2% charge being introduced if the government were indeed to opt for pre-funding over retroactive levies, as current practice in the case of an insurance company's insolvency.
The UK Pension Protection Fund last year predicted it would raise £630m (€750m) through a levy on its DB universe covering funds with £1.1trn of assets.
The Irish market is significantly smaller, with DB assets of €63bn at the end of 2011, according to the annual Pension Investment Survey by the Irish Association of Pension Funds.