The Act provides for both a single insolvency priority order for underfunded schemes where the employer is solvent at the date of wind-up and a double insolvency priority order for underfunded schemes where the employer is insolvent at the date of wind-up. It should be noted that for a scheme with a number of participating employers, all of the employers must be insolvent for the double insolvency priority order to apply.
Single insolvency priority order
The single insolvency priority order secures the entitlements of pensioners above the entitlements of active and deferred members on the winding-up of a scheme. For pensioners, the value of benefits (excluding post-retirement increases) to be secured will depend on the annual pension in payment. Where the annual pension is: €12,000 or less, 100% of the pension will be secured; between €12,000 and €60,000, 90% of the pension will be secured; in excess of €60,000, the greater of €54,000 and 80% of the pension will be secured. Following the distribution of pensioners' benefits as outlined above, the scheme trustees must then secure 50% of the benefits (excluding post-retirement increases) of active and deferred members. Any remaining funds must be used to secure the remaining benefits (excluding post-retirement increases) of pensioners in the first instance, followed by active and deferred members, followed by any remaining outstanding benefits, including post retirement increases, of all members.
Double insolvency priority order
The double insolvency priority order broadly requires trustees to first secure 50% of pensioners' benefits (including post-retirement increases), following which 50% of the benefits of active and deferred members (also including post-retirement benefits) fall to be secured. Subsequent to the above distributions, funds must be allocated to "top-up" pensioner benefits to a maximum of €12,000 per annum (excluding post-retirement increases), and then to secure the remaining benefits (excluding post-retirement increases) of pensioners, active members and deferred members in that order. Any funds remaining must be put towards paying any remaining benefits, to include post-retirement benefits. In the event that a scheme in wind-up under a double insolvency does not have sufficient funds to secure 50% of pensioner, active and deferred members' benefits (including post-retirement increases) and to top-up pensioner benefits to a maximum of €12,000, the Act provides that the State will, subject to certain criteria, provide the necessary funds to cover the shortfall. The introduction of revised priority orders on scheme wind-ups is long overdue in light of the rulings of the Court of Justice of the European Union in Robins and Others v Secretary of State for Work and Pensions1and Hogan and Others v Minister for Social and Family Affairs and Others2 (which were discussed in our July 2013 e-zine). It remains to be seen whether the decision by the Irish Government to limit the protection offered in respect of the benefits of active and deferred members to 50% of those benefits as set out above will be challenged on the basis that it may not meet the obligations of the State under the Insolvency Directive.
Benefit reductions under section 50 of the Pensions Act 1990
In addition to the new priority orders, the Act also implements an amendment to section 50 of the Pensions Act 1990 to allow pensions in payment to be reduced in line with the new single insolvency priority order. Section 50 provides a mechanism whereby trustees of a scheme may apply to the Pensions Board to reduce the members' benefits where, in the opinion of the scheme actuary, the reduction is required to enable the scheme to meet the statutory funding standard. The Act allows for pensions in payment of between €12,000 to €60,000 to be reduced by up to 10%, and for pensions in payment of €60,000 or more to be reduced by up to 20%. It should be noted that no pension can be reduced below €12,000; and no individual who is entitled to a pension of €60,000 or more can have their pension reduced below €54,000. It is expected that the Pensions Board will provide further guidance on the changes to section 50 in due course.
2  Case-398-11
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