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Scheme funding & restructuring

Scheme wind-ups

A funded pension scheme may be wound up if the employer (1) goes into liquidation; (2) is bought by another company that decides not to continue the scheme; (3) fails to make contributions to the scheme within a set period; or (4) notifies the trustees that it intends to stop contributing to the scheme.

In these circumstances the Pensions Act requires trustees to wind up a scheme without undue delay. The Act also requires that pension benefits be paid in the following order (where the employer itself is not insolvent):

  1. Benefits relating to additional voluntary contributions (AVCs), including AVCs that were transferred from another scheme and defined contribution benefits
  2. Benefits owed to pensioners and members who have reached normal retirement age (NRA) (excluding future pension increases) in accordance with the following limits:          
    (a)  if the annual pension is €12,000 or less, 100% of the pension; 
    (b)  if the annual pension is more than €12,000 and less than €60,000, the greater of €12,000 and 90% of the pension; and
    (c)  if the annual pension is €60,000 or more, the greater of €54,000 and 80% of the pension.
  3. 50% of benefits owed to members who haven’t yet reached NRA (excluding future pension increases)
  4. Remaining benefits owed to pensioners and members who have reached normal retirement age (NRA) (excluding future pension increases)
  5. Remaining benefits owed to members who haven't yet reached NRA (excluding future pension increases)
  6. Future increases on benefits if any.

If the employer itself is insolvent the order is slightly different.

When a scheme is wound up, trustees must:

  • transfer each member’s benefits into a new pension scheme; or
  • purchase an approved assurance policy with a life assurance company on behalf of each member (a buy-out bond for active members and deferred members or an annuity for pensioners); or
  • transfer each member’s benefits into a PRSA, subject to certain conditions.