Protection of Employee's contributory pension

Dan133269

Hello all.

What is the position with regard to the protection of an employee's contributory pension if the employer becomes insolvent.
I am aware of The Protection of Employees (Employers' Insolvency) Act, 1984 and S.I. No. 123/1985 — Protection of Employees (Employers' Insolvency) (Occupational Pension Scheme) (Forms and Procedure) Regulations, 1985.
So basically, if the employer becomes insolvent, employees can apply to the Minister for payments through the Redundancy and Employers' Insolvency Fund?

What I am trying to understand basically, is how the workers in Waterford Crystal lost all their pension contributions and how there was no legal protection of their money or payment from the Fund?

Thanks in advance.

Dan133269

bump. Anyone?

coylemj

There is a separate forum for banking, insurance and pensions where you'd probably get an answer to this post..

http://www.boards.ie/vbulletin/forumdisplay.php?f=544

I'm not well up on the legalities but as far as I'm aware the problem that Waterford employees encountered was that when a company goes under and the pension fund is wound up, the existing retirees (i.e. people already on pension) get priority and have to have their pensions secured by the purchase of annuities. After that happened in the Waterford case there was no money left for the serving employees so they were left high and dry.

FreudianSlippers

Moved to Banking & Insurance & Pensions

Kennie1

As previous posts have said there is a certain order laid down by the pensions board of who gets what when a pension scheme gets wound up, that being Pension in payment and AVC's first and foremost and preserved benefits and and I am not aware of how the trustees of WC administered their scheme but there is 2 main ways this is done; the trustees invest the money in assets themselves or they employ an investment company to do this on there behalf with the latter the most common. I will try and explain how a pension scheme would become insolvent in as simple terms as possible. Back in the 80’s if the member was expected to retire on a pension of lets say 10k the scheme would have funded a lumpsum of c. 80,000 on average and this would have provided this pension for the retiree. The scheme would have expected to provide this pension for about 7 to 8 years as the average life expectancy for a man was about 71 or 72 back then I think, they would also price in wage inflation at about 2-3% and pension escalation (yearly pension in payment increase) at about 2-3% as well.They would also have assumed that their investment returns would have produced an investment return of about 14%pa. The trustees would have charged the company and employees a premium of possibly 2-4% of salary(best guess-amate) for this accordingly

Now what has happened since?;

Firstly average life expectancy has gone up dramatically having increased to at least 76 now so schemes are now paying pensions for over 50% longer so if nothing else changed apart from this the scheme would have to fund for about 120,000

Secondly annuity rates have fallen from 10% to about 5% of the fund and the scheme would have to increase the funding from 120,000 to 240,000 to give the same pension

Thirdly there has been huge wage inflation from 1995 to 2007 and the WC scheme was based on so the wage inflation was not charged correctly knowing now what they did not know then!

Fourthly as we all know the investment returns have not been anything like 14% and have only been about 1% on 10 year returns.

So put all this together the overall cost for funding for retirement had gone up dramatically from what used to be about 2-4% of salary, to now over 20% of salary. In the context of a company that is struggling to survive in a market where their product is dependant on exports to the US, they could not afford to meet the extra funding needs and the employees could not afford to make the extra payments needed to fund their pensions as this would mean a pay cut for all intensive proposes. The trustees of WC would have reviewed funding standards every 5 years and would have noticed these problems alright but I suppose they would have hoped that funds would perform better over the next 5 years and that the company would improve its position and return to profit and that the funding shortfalls would have been able to be improved but as we know that never happened as the company went into liquidation.

Unfortunately WC is not alone, there is about 80% out of the 850 final salary schemes that are underfunded at the moment, this will mean that there will need to be extra employee/employer contributions made or a reduction of pension benefits.

Protection of Employees (Employers' Insolvency) (Occupational Pension Scheme) (Forms and Procedure) Regulations, 1985. applies so that the employer cannot use the pension fund assets to prop up the business as far as I am aware and that employees pension is not disavantaged by the company going under.

Dan133269

cheers for detailed reply!