The Sunday Times - Money Comment 11/01/09

Posted by Jill Kerby on January 11 2009 @ 22:41


With a US private equity fund looking as if it will acquire at least some of the assets of the Waterford Wedgwood group, which is in receivership, the question on workers’ minds in Waterford (and no doubt those at the Derbyshire china factory) is not just whether they will still have their jobs, but also their pensions. 

Last October the precarious state of the vast majority of defined benefit pension funds was raised at the Irish Association of Pension Fund’s annual conference by Maurice Whyms, a director of the Dublin pension and actuarial consultants Attain. He said then (and I reported his comments here) that a combination of the credit crunch, collapsing stock market asset values, pensioner longevity and tough accounting and funding standards had created a perfect storm that could pack a devastating financial blow to members of defined benefit pension schemes like Waterford’s which has a funding deficit of €110 million and several thousand existing and future pensioners. 

In the UK, the increasingly burdened Pension Protection Fund (PPF) offers 100% pension income guarantees to existing pensioners and a limited guarantee of up to 90% or £27,770 whichever is the greater to remaining pensioners as they reach retirement, but here, there is no such scheme. Under our statutory rules, when a defined benefit pension scheme is involuntarily wound up, pensioners and AVC fund-holders gets first crack at what money is available; only then will existing worker members of the scheme and deferred members, who left the company early but still expected to collect a partial pension, receive any payment from what is left in the fund. 

The great injustice of this system, says Mr Whyms of this payment priority, is that someone who is 64 and three quarters, and had worked alongside others for decades but who retired a few months earlier, will have no more entitlement to his life’s savings – the pension fund - than a young worker who may have only been in the scheme for a few years. 


The Waterford insolvency and the involuntary winding up of its defined benefit scheme probably won’t be the last one this year. Last October it was reckoned that 75% of DB schemes were in deficit; that number is undoubtedly higher as stock market losses continued through the final quarter and the trading environment worsened for so many firms. 


Even in the UK, where the PPF has been in operation only since 2007, it has only £2.7 billion in assets and a deficit itself, and is struggling with a £517 million deficit. 


So what happens to the thousands of Irish Waterford group pensioners and employees if the new buyer buys the company assets, but not its pension liabilities?  With no compensation scheme of any kind in place here, should the Irish government step in and even part-guarantee those pensions? 


The members of the Waterford pension scheme and their representatives will no doubt demand such an intervention, given how Irish bank depositors and creditors have been bailed out. 


But then so will every other worker and retiree whose company and defined benefit pension fund ends up in liquidation or receivership.  



the total value of the fund, which is funded by employers and not the taxpayer it’s total value is just £2.7 billion and it is quickly being drained by large, high profile insolvencies like 


Three months later, as predicted, the 8,000 existing and future pensioners of Waterford Wedgwood – 800 of whom still work in the Kilbarry factory - are about to find out exactly how vulnerable they are. 


The Waterford DB scheme is reported to have a funding deficit of c€111 million. Under current legislation, existing pensioners If the Irish government isn’t willing to act quickly to address the apparent unfairness in the priority payment rules – and it would require a change of legislation to do so – a similar case currently in the UK courts could become very significant, says Maurice Whyms. 


In that case, a man called Robins, who believed he was unfairly treated when his company DB scheme was wound up went to the European Court.  He claimed that his government hadn’t done enough to enact an existing EU directive that directs member states to protect all worker’s pension benefits in the event of a scheme wind-up. He won that case but it is back in the UK courts.


Let’s hope it doesn’t take similar action to bring more fairness to the Irish pension system. 


I’m looking forward to reading the new Fine Gael universal health insurance strategy when it is published later this month, and I’m sure the three existing health insurers are keen to see it also, if only to see what role FG see for the wholly owned government insurer, the VHI.


Universal health insurance, in which insurers and hospitals compete for clients under community rated regulation that eliminates the gross inequality of our existing two tier system, will undoubtedly attract many more insurers into the Irish health insurance market which only has two genuine private sector companies competing against the dominant government-owned VHI. 


If universal health insurance were to work as well here as it does in Holland, which is the model that Fine Gael are advocating, the VHI cannot remain in the ownership of the Department of Health, which should be reducing its role in the day to day operation of the public health service anyway.  


Under a universal health insurance system the government’s role should be confined to setting the standards of care and service that the hospitals and all health providers must meet and of course, ensure that those who cannot afford even the most basic insurance package are still fully covered.  It will certainly have to result in changes to the volume and method of, effectively, double taxation – that currently applies to those 2.2 million people who both contribute to the public and private systems. 


If we eventually get a universal insurance system conquerable to that of Holland, the queue jumping that exists for the insured will hopefully end, but so will the terrible waiting lists.  


The Minister for Health says this will happen anyway under the new hospital consultant’s reforms, but the difference is that the army of HSE and Department bureaucrats will still be in control, rather than consumers, their insurers and the people who actually work in and run the hospitals.


In the same way that we would never want the government running the way food is distributed and sold in this country, we should commend Fine Gael for finally realising that under their watch, at least, they wouldn’t be entirely running the delivery of health services either. 


My Canadian family and friends were stunned to hear how the Irish economy had suddenly collapsed.  “I couldn’t believe it when I read how people are immigrating again,” my brother remarked over Christmas dinner with the extended family in his cottage in the snowy Laurentian hills, north of Montreal. “Every year that I visited you in Dublin, things seemed to be getting better and better.”


He was right about those years during the 1990s and early 2000s, but that was before we abandoned genuine commerce and trade to blow up a property bubble. 


“Oh, we started doing that too in the last couple of years,” the brother replied, “but a lot of people remembered the crash of ’91, and the Canadian banks are heavily regulated so subprime and 100% mortgages never really took off to any huge degree.”


Lucky Canada.  But some property bubbles have burst – in the Mont Tremblant ski area where a flurry of for sale signs litter the ski hills and, says a nephew who now teaches at Memorial University in St John’s Newfoundland, at the exclusive Humber Valley holiday development which was aggressively flogged to UK and Irish investors about five years ago.


Back in 2003 the Humber Valley development on the remote west coast of Newfoundland was literally, a million dollar, all year sporting paradise. Last November, it lost its single direct air link to the UK.  The credit crisis didn’t help and property values plummeted and an appeal by the management company, which arranged sales and rentals, for help from the Newfoundland ministry for tourism was turned down flat. 


Newfoundland is a beautiful place, but it’s freezing cold in the winter, bleak, damp and foggy for much of the rest of the year and is regularly cut off from the Canadian mainland. Canadians shook their heads in awe at the million dollar price tags on the Humber Valley properties…and mainly left it to Americans, Brits and any Irish foolhardy enough to do so, to pay those ridiculously inflated prices. The Algarve, it is not. 


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