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, 1990 as amended 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 at the date of the wind-up):
- Benefits relating to additional voluntary contributions (AVCs), including AVCs that were transferred from another scheme and defined contribution benefits
- 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.
- 50% of benefits owed to members who haven’t yet reached NRA (excluding future pension increases)
- Remaining benefits owed to pensioners and members who have reached normal retirement age (NRA) (excluding future pension increases)
- Remaining benefits owed to members who haven’t yet reached NRA (excluding future pension increases)
- Future increases on benefits if any.
If the employer itself is insolvent at the date of the wind-up 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