Thousands of OAPs facing the shock of cuts in their pensions
THOUSANDS of retired people face having their pensions cut under new rules approved by the Government.
The change will mean that existing pensioners will get to keep €12,000 a year – but face losing money if their pension is higher than that.
The Cabinet has signed off on new rules to allow existing pension payments to be hit in schemes that go bust or have to be restructured. It is the first time that pensioners will have been hit – people who have no ability to make up the lost income.
Up to now, pensioners in private schemes had their pensions fully protected in the vast majority of cases, even when schemes had to slash pensions benefits they expected to pay to those still working.
Now, Social Protection Minister Joan Burton is to introduce new legislation to allow trustees of defined-benefit schemes to share out losses in schemes between those yet to retire and those who are already getting pensions.
There will be no impact on the state pension. But up to 85,000 people who are paid a pension from a private sector defined benefit scheme are vulnerable. The pensions being paid out in around half of these schemes are in deficit.
Once the law takes effect, schemes that are in trouble will be able to cut pensions when the schemes are being restructured or wound up.
This will mean more money for those yet to retire when a defined-benefit scheme is underfunded.
Ms Burton's change to the law will mean that existing pensioners will get to keep at least €12,000 a year, but face losing money if they get more than that.
Most pensioners of defined-benefit schemes get less than €12,000 a year, according to Dr Orlaigh Quinn of the Department of Social Protection.
The new law is expected to be in place by Christmas.
It will allow trustees to cut the pension in half for amounts over €12,000, where both the scheme and the sponsoring company are insolvent. This means a person getting a pension of €20,000 a year from a private sector scheme faces losing up to €4,000 of this.
If both the scheme and its sponsoring company are bust and cannot pay the minimum €12,000 pension, the State will fund the shortfall through the levy on private-sector funds.
Where only the scheme is bust, and in cases where schemes are being restructured, trustees will have to ensure that pensioners get €12,000.
In these cases, any cuts over that amount will be limited to 10pc for pensions up to €60,000.
Those yet to retire will have to take a similar-sized hit.
The measure will be retrospective, but experts said it was unlikely to apply where a scheme has already been wound up or restructured.
However, the new rules will not apply where a scheme has already been restructured and pensioners have been provided with an annuity – an annual payment until they die.
There are just under 800 defined-benefit pension schemes in the private sector, but hundreds of them are in trouble.
Around 240 are underfunded, while some 160 are in deep trouble, according to the Department of Social Protection.