Move by Joan Burton will mean lower pensions for 400,000 workers
Published 21/04/2016 | 02:30
Thousands of workers will see the value of their pensions reduced after outgoing Social Protection Minister Joan Burton signed an order.
The move is set to affect more than 400,000 private sector workers.
It will mean those who left a defined benefit pension will now get less money when they retire, after Ms Burton signed an order reducing the value of funds of deferred members.
It is the first time a statutory order has been used to reduce the value of these pension funds.
The move reflects the fact that inflation is negative.
But the reduction in the value of the deferred pensions is in contrast to the State old age pension, which saw weekly payments go up since the start of the year. And the move by Ms Burton does not affect generous public sector and politicians' pensions.
The order signed by the minister will hit 414,000 deferred pension scheme members.
These are people who were in a defined benefit pension, but left the scheme to get another job, the scheme has been closed down, or they took redundancy but have yet to retire.
Ms Burton's move does not affect those in receipt of a defined benefit pension, or those who are still active members of a DB scheme.
The decree was signed by Ms Burton earlier this month "having consulted with the Minister for Public Expenditure", Brendan Howlin.
It advises trustees of defined benefit schemes to apply a charge of minus 0.3pc on the value of funds for deferred pension members and make it retrospective for 2015.
The order will mean that every €1,000 of pension funds of a deferred member will be reduced to €997.
Actuaries will have to factor in and back-date the negative rate for these funds, and lawyers have expressed concerns that it may not even be allowed in many schemes whose rules only permit an increase in the pension rate, in line with the Consumer Price Index (CPI).
Jerry Moriarty of the Irish Association of Pension Funds said the decision comes after half of all defined benefit schemes were closed down in the past decade, with many of those that remain being in deficit.
He said the minister makes an order every year to adjust the valuation of funds held for deferred members.
This legislative power is there to counter any attempts by schemes to increase the value of the funds of active members, while freezing deferred members' funds.
But the cut to the value of deferred members' funds was not expected.
Actuary Tony Gilhawley said changes in legislation in 2012/13 allowed for such a scenario, although it had never been used.
"The statutory revaluation of a deferred DB pension used to be defined as the 'increase' in the CPI for the previous year to a maximum of 4pc."
The minister's spokeswoman acknowledged that it was the first time the revaluation percentage has been negative.
"It may be noted that the regulations cater for minimum standards. Scheme trustees, should the scheme rules allow it, are not precluded from applying revaluation rates that would be more beneficial to members where the scheme has the capacity to do so."