Employers seeking to continue operating defined benefit pension plans will be penalised if the proposed Social Welfare and Pensions Bill is implemented in its current format, Ibec has said.
The Bill intends to preserve a sustainable level of retirement savings for people in defined benefit schemes, but Ibec believe that the legislation in its current format could lead to the accelerated closure of such schemes.
A defined benefit company pension scheme gives members a pension based on the number of years they’ve served and their salary. Under the bill being proposed employers operating defined benefit schemes may have to include those as liabilities on their balance sheet. The knock on affect is that a company may find it more difficult to borrow because liabilities will be inflated on the balance sheet.
According to Ibec, there are less than 700 defined benefit schemes operating in Ireland. Fergal O'Brien, Ibec's director of policy and public affairs, believes those companies could be penalised for trying to operate these schemes.
Mr O’Brien points to the UK where similar legislation has been introduced and advises that this bill could simply accelerate the flight from defined benefit schemes. In the short term, he believes the legislation could cost jobs due to the fact that company’s ability to borrow will be diminished.
"Ibec shares the Government's ambition to protect scheme members, to encourage employers to ensure that schemes are well-funded and to prevent employers who "won't pay" as opposed to those who "can't pay" from walking away from the schemes they sponsor", Mr O'Brien told an Oireachtas committee on Thursday.
“However, we are also cognisant that it can be very difficult to put forward legislative proposals which have the desired effects without any negative implications.”
