Waterford case leads to overhaul on pensions

In March 2010, 10 representative members of the Waterford Crystal pension scheme brought a case against the Irish State for failing to protect the pension interests of employees in the event of the insolvency of an employer and a pension scheme. The case came before the Commercial Court in Ireland in March 2011, which then referred the case to the European Court of Justice.

The European Court of Justice is responsible for ensuring that EU law – which takes precedence over national law – is correctly applied in member states. Courts in member states can refer questions of EU law to the Luxembourg court. The higher court then makes a ruling, which must be implemented by the national court in question.

Breach
In April this year the Luxembourg-based court ruled that the Irish State was in serious breach of the EU insolvency directive – a key piece of EU legislation which protects employees in the event employer insolvency.

In particular, the court ruled that Ireland had failed to implement article 8 of the directive which states that countries are obliged to protect the interests of employees and former employees with respect to the protection of their pension entitlements, in the event that their employer becomes insolvent.

Much of the judgment was based on a 2007 case in the UK, known as the Robins case, which was the first real test in the courts of the EU insolvency directive. The Robins case found that member states could be liable for pension shortfalls in the case of insolvency.

While the British government has introduced a pension protection fund to provide compensation to members of defined pension schemes in the case of insolvency, no comparable system was in place in Ireland, hence yesterday’s announcement of a radical overhaul of the distribution of pension entitlements in the event of insolvency. The Government stressed that yesterday’s announcement also aims at delivering a broader resolution of pensions difficulties across the defined benefit sector.

In its ruling in April, the European Court of Justice dismissed two key arguments put forward by the State in its defence.

It ruled that neither the economic situation of a member state, nor the entitlement of citizens to the State pension, justifies the provision of a lower level of protection.

Because EU law takes precedence over national law, all member states must comply with the rulings of the European Court of Justice, though there is no specific timetable to implement the ECJ ruling.

While yesterday's announcement was a response to the European Court of Justice ruling, the specifics of the Waterford pensions case will return to the High Court in Ireland, which will consider if any compensation is due to the specific workers in question. A date has yet to be set for the full hearing.