The closure of the Irish Independent’s Defined Benefit scheme is part of a wider attack by employers on the very idea of contributing to a liveable pension scheme for workers.
Defined benefit schemes typically give a worker about two thirds of their final salary and are guaranteed as such.
This two thirds figure often takes account the amount the worker will receive from the state (contributory) pension. If a worker is due to €600 a week from a particular company but gets a €200 a week state pension, the company will reduce its payments by the equivalent of the state payment.
The worker may pay anything from 5 to 10% of their wages into the scheme with the employer paying anything from 10 to 15% plus as needed.
If the pension fund needs more, the employer has to increase their contribution. But if it’s in surplus it’s not unusual for the employer to take a “contributions “holiday.
Generally in the past the employer would pay double what the employee pays.
However, employers want to scrap defined benefit schemes or move to a defined contribution scheme for a couple of reasons:
– Defined contribution schemes transfer the risk to workers. Workers build up a pension fund through their own and their employers contributions. The pot of money is then invested and the worker only gets the accrued earnings. There is no guaranteed benefit.
– Defined contribution schemes are also less costly to employers. Their contributions are fixed , and if the scheme is not funded or performing poorly it is the workers responsibility not their boss.
– While defined benefit schemes can be placed on a company’s balance sheet as a liability, a defined contribution scheme is not necessarily. Thus the financial position of the company can cosmetically appear must better if they don’t carry a defined benefit scheme for their workers.
Independent News & Media already cut their workers’ pension by 40% in 2013 and moved many of them to a defined contribution scheme.
This new proposed cut would mean another 30% cut; a total cut in their expected pension of 70%. By doing this, INM can add €24 million on to their cash reserves and start paying dividends to shareholders including Denis O Brien and Dermot Desmond.
(If INM also buys NEWSTALK this will again result in a boost to O’Brien’s fortunes).
Workers protested against the changes at an INM emergency meeting last Monday. One worker said their expected pension had gone from €24,000 euro in 2013, to €14,000 and after this could be €8,000; despite decades of contributions.
From around 2,500 such defined benefit schemes operating a decade ago there are now less than 700 today.
It is not just loss making or insolvent companies who are closing Defined Benefit schemes- AIB stopped new workers getting a DB pension in 1997, by 2012 they forced all workers off it. 90% of Defined Benefit schemes are now closed to new entrants.
Company propagandists and hack journalists claim that the pension crisis is caused by workers living longer.
But even if the modern workforce lives longer, they are also vastly more productive. If workers could reap the benefits of their own productivity, there would be more than enough to guarantee them security in their old age.
The key problem is that the pension funds have been entrapped in the madness of the capitalist markets. Pension funds are normally invested in equities (company shares) and Bonds (mostly sovereign or Government bonds)
Up to 60% of Irish pension funds were invested in company shares and, if property is included, this form of investment consumed about 75% of pension funds. This is known as ‘the cult of equity’ and is a reflection of the extreme free market ideology that was prevalent here. In their search for higher returns the private pension industry took more risks. In countries like Germany, only 30% of investment was re-cycled through company shares and instead there was a search for more steady, secure investments.
The 2008 crash blew apart the strategy of the private pension industry. The figures above in pic show how Ireland suffered the worst pension crisis – mainly because of its over-reliance on stock market speculation.
Allied to the fact that people are living longer, these failures meant companies had to make good the shortfall. But this something they hate.
To make matters worse, the Irish government then added to the problem in three key ways.
In the 2012, Social Welfare Act, they changed the Minimum Funding Standard. Under the new rules, trustees of a scheme must buy annuities to cover the future costs of the pensions based on winding it up at current rates. In other words, there was no allowance made for the possibility that employers – or even workers – increase their contributions at a future date. In addition, new rules required the regulator to insist on a requirement that they hold a reserve of 15% to cover future costs.
SIPTU’s Jack O Connor described this as ‘blatant sabotage of the Defined Benefit Pension Schemes in which 310,000 private sector workers have invested their retirement savings.’ He forgot to mention that it was Joan Burton, the Labour Party leader who introduced the change.
Second, the government increased the retirement age for many workers and, linked to this, deferred payment of the state pension to 66. As a result workers who retired at 65 were forced to apply for Job Seekers Allowance – which only lasted 9 months. It was a further disgraceful attack on retired workers.
Third, the government has refused to force companies to pay into a pension insurance bond scheme that would protect workers against ‘double insolvency’. This occurs where both the company and the pension fund is insolvent.
Waterford Glass workers found themselves in this situation and had to fight very hard to get back 90% of their pension entitlements. In this case, the government stepped in and paid it out of central funds. This was a welcome victory for the workers concerned but it begs the question: what happens to future workers who find themselves in this situation?
PEOPLE BEFORE PROFIT ADVOCATES:
– A Mandatory pension contribution scheme. Employers should be legally obliged to contribute to their workers pension fund. In most cases, it should be in the order to 12% of the payroll costs.
– Workers should have a right to automatic pension transfer. When they move jobs, their pensions fund should travel with them because all employers should be part of a mandatory scheme.
– No company making profits or granting dividend payments should be allowed to close down or restrict entry to their pension schemes.
– Payment of the state pension should be brought back to 65.
– A National Pension Fund should be established to re-cycle pension funds into socially useful enterprises – such as a council house building programme. The government should be prohibited by the constitution from raising such a fund – as they did for the bank re-capitalisation programme. Over a period, funds in the private pension industry be transferred to this publicly controlled fund.
If you agree forward this to your contacts. Join People Before Profit. Text JOIN to 0872839964.