Bust pension schemes to slash existing pay-outs
THE Government is planning a change in the rules which will allow bust pension schemes to cut existing payments.
And the measure would allow for a reduction in the pensions being paid to those in a scheme that has to be restructured.
Social Protection Minister Joan Burton is expected to bring a memo to Cabinet today on the new legislation, in what amounts to a radical rebalancing of how limited funds get distributed in struggling defined benefit schemes. However, the measure will not be retrospective so will not apply to schemes that have already restructured, or have already been wound up.
But once the law takes effect, schemes which are in trouble will be able to cut payments when they are being restructured or being wound up.
This will mean more money for those yet to retire when a scheme is underfunded.
At the moment if a scheme is restructured or if it winds up, investors get 100pc of their pension.
The rest is then divided up between those still contributing to the scheme and those who have yet to retire but have left the company.
This has led to situations where retired workers get to keep their full pension, but those yet to retire are told the scheme is underfunded and they will only get half or less than they expected.
The rules hit those who are close to retirement, particularly hard because they have little time to address the problem.
The move to change the rules comes after an unprecedented call by the Irish Congress of Trade Unions, the Irish Association of Pension Funds and the Society of Actuaries to change what is called the priority order in a wind-up.
Around 65,000 workers have been impacted by the closure of 400 defined benefit schemes since 2008, the three bodies said recently.
Ms Burton has delayed dealing with the issue for more than two years as it is considered politically "toxic". One expert explained: "You are going to have situations where an 80-year-old in a nursing home is told that her monthly pension is being cut from €2,000 to €1,500." The expert said he expected High Court challenges from pensioners.