Pension crisis exposed as State to pay €200m
THE State faces having to find up to €200m to compensate Waterford Crystal workers for the loss of their pension benefits.
The warning of the massive cost to taxpayers came after the European Court of Justice found in favour of the Waterford Crystal workers who took a case against the State for the loss of their pensions when the company collapsed.
Now it is feared the controversial levy imposed on private pensions in 2011 – and due to end next year – will be extended indefinitely to fund a new compensation scheme for companies that become bankrupt with under-funded pensions plans.
And there were calls for the Government to act now to ensure other workers do not lose their retirement incomes in collapsing schemes.
There are almost 200,000 workers in defined benefit plans, but most do not have enough funds to pay the pensions promised.
Judges found that under EU law, the State had an obligation to protect the pension entitlements of workers when a company becomes insolvent.
Already-retired workers got their pensions when the crystal company went bust in 2009.
But those under the age of 65 were left with between 18pc and 28pc of the pension benefits they had expected to get when they retired.
Some 1,500 workers were members of the Waterford Crystal pension scheme.
They had a defined benefit scheme, which means they were promised two-thirds of their final salary once they had worked for 40 years.
Former Waterford Crystal worker Tommy Hogan had yet to retire when the company collapsed in 2009. When he did retire he ended up with €100 a week from the pension scheme, even though he had been promised €400, the Unite union said.
The European case was taken by Unite under the 2008 EU Insolvency Directive, with the union arguing that the Government was obliged to protect employees as both the company and its pension fund were insolvent.
The solicitor for the workers who took the case to Luxembourg, Gerry Byrne of Byrne Wallace in Dublin, estimated that the State will end up having to pay out around €200m to make good the pension losses.
The full liability in the schemes is more than €300m, but workers have got some of the money.
Mr Byrne said the State had ignored the EU requirement to have protection schemes in place for workers, initially since 1980.
The High Court will now have to decide the exact amount of money to be given to the Waterford Crystal workers.
Mr Byrne said the workers in sister company Wedgwood in the UK ended up with 90pc of their pension expectations.
A spokesman for Social Protection Minister Joan Burton said she was studying the judgment.
Experts said the judgment had no direct implications for defined benefit schemes where the sponsor company was still trading, even if the pension fund was in deficit.
But Jerry Moriarty, of the Irish Association of Pension Funds, which represents scheme trustees, said there was a need now for a scheme to protect workers when an employer was insolvent and the fund was in deficit, as required by EU law.
And he called on Ms Burton to change other pension rules, because at the moment, when a scheme winds up, pensioners get their full entitlements but workers yet to retire lose out heavily.
Earlier this week, the Organisation for Economic Co-operation and Development (OECD) criticised the fact that employers can "walk away" from their pension scheme deficits with no financial consequences.
Defined benefit schemes promise to pay a set level of pension, depending on the years of service. But the promises have become impossible to keep because people are living longer and investment returns have been too low.
Eight out of 10 defined benefit plans are in deficit, while pensioners have first call on the assets in schemes.
Sean O'Donovan at consultancy group Mercer said the Government may now have to introduce another levy on private sector schemes to fund a compensation plan when both employers and schemes collapse.
He said the State may copy what happens in other countries where a deficit in a company pension scheme becomes a debt on the employer.
"It is also conceivable that the State may look to introduce legislation retrospectively to prevent solvent employers from putting their insolvent schemes into wind-up before any legislation was passed," he said.
Workers at SR Technics, the former aircraft maintenance group at Dublin Airport, lost out when their employers closed the operations. It was not clear yesterday if the State will now also have to compensate those workers for the loss of their pension benefits on foot of the European Court judgment.
Insurance giant Aviva and PTSB this week announced the closure of their defined benefit schemes. Benefits are being reduced or schemes are shutting at AIB, Independent News and Media, the publisher of this newspaper, and Grafton.
Retailer Arnotts told the trustees of its defined benefit pension scheme that it will cease making contributions to the plan.