Ciarán Hancock: Fine Gael must undo damage to pensions

Last week, Minister for Social Protection Leo Varadkar weighed in on the debate about the plight of members of Independent News & Media's defined benefit pension schemes.

The company plans to cease payments to the scheme, leaving trustees with no choice but to wind it up. The move would wipe out a large chunk of the benefits of members, while yielding a €24 million benefit to INM’s balance sheet.

It’s a huge blow to those close to retirement with no prospect of making up the lost ground.

Varadkar has asked Attorney General Máire Whelan if it is possible to intervene in the INM case on “behalf of the public interest” when the company seeks High Court approval in the new year for a restructuring of its capital.

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Trustees of Aer Lingus’s pension plans undertook a similar manoeuvre with success in 2013 as the airline sought to reduce its capital reserves to pay a dividend at a time when there was a €930 million deficit in the company’s pensions.

Varadkar’s intervention is no doubt well-meaning and his support will have been welcomed by the 400 or so members of the INM schemes.

However, it contrasts sharply with the attitude towards pensions of the Fine Gael governments in which Varadkar has served since March 2011.

‘Temporary measure’

In May 2011, Minister for Finance

Michael Noonan

introduced a levy of 0.6 per cent on the market value of assets under management in private sector pension funds and plans.

This was to fund its jobs initiative, primarily the reduction in the 9 per cent Vat rate for the tourism and hospitality sector. Varadkar was the minister for tourism at the time.

This was to be a “temporary measure” lasting four years. Instead, it was extended into 2015 and increased in value to 0.75 per cent for 2014. It generated some €2.39 billion in revenue for the exchequer over the five years.

Even pensioners had to cough up with the cost of the levy deducted from their monthly payments.

In January 2015, pensions ombudsman Paul Kenny told the Oireachtas finance committee that the imposition of a levy was "legal but not necessarily fair".

He noted that in the case of a number of public sector-funded, defined benefit schemes, the State had taken both the public service pension reduction and the levy, which he deemed to be “penal and unfair”.

Kenny said the levy would result in a “permanent reduction in the annual pensions of a great many scheme members”.

Fine Gael has also dipped into the pockets of public servants with the pension-related deduction (PRD).

Granted this was introduced by Fianna Fáil in 2009 but it was enshrined in deals agreed with unions by the former Fine Gael-Labour Party coalition.

The PRD ranged up to 10.5 per cent on incomes above €15,000. The impact has since been eased for lower-paid workers but vast numbers of public servants continue to pay the hefty deduction.

The difference here is that public servants retain their pension entitlements, which are superior to those of private sector workers.

Two-year delay

In addition to these measures, the Government increased the eligible age for the State pension to 66 in 2014. This will rise to 67 by 2021 and to 68 by 2028.

In today’s money, the pending two-year delay in receiving their State pension would cost workers more than €24,000. It’s a particular blow to private sector workers without a supplementary pension.

We are told that the current pay-as-you-go State pension, which costs €7 billion a year, is unsustainable due to people living longer and a forecasted reduction in the ratio of workers to pensioners.

Just 35 per cent of private sector workers have their own pension funds.

Varadkar is now proposing a new universal workplace retirement saving system for those without a supplementary provision.

He set up a group last year to look at the issue while the Pensions Authority recently completed a public consultation on its own reform proposals.

A system of automatic enrolment by employers – whereby workers would have to opt out – has been mooted but no definitive decision has been made and it could be years before a scheme is up and running.

There has been a lack of strategy from successive governments in tackling the pensions issue and it remains to be seen if Varadkar will follow through on his reform agenda.

Fine Gael has a lot of work to do in the pensions area to reverse the damage it has imposed over the past five years.

Twitter: @CiaranHancock1