September 2013        

Pension benefits being wiped out

The market crisis, and the subservience of our leaders to its demands, regardless of the consequences, will crucially affect workers and their dependants for decades to come.
     In this article I set out how the pension benefits of workers are being wiped away without a thought for the consequences, focusing mainly on the ESB defined-benefit pension scheme. In a follow-up article I will outline the political, industrial and legal approach of these workers to defending themselves in this, the biggest crisis any of them will face, in terms of an attack on their core terms and conditions, in their working lives.
     First, some perspective. There are seven main semi-state companies facing large pension deficits in their defined-benefit pension schemes, now regulated through the statutory minimum funding standard (MFS). These companies are the ESB, CIE, Aer Lingus/DAA, Coillte, Bord na Móna, An Post, and the Irish Aviation Authority. The total deficit of these companies is almost €3,500 million, or 3½ billion, if you prefer shorthand for mind-boggling amounts of money. Of this figure, the ESB scheme accounts for almost half the total, with a €1.6 billion deficit.
     The ESB scheme, though, is a statutory scheme, enacted in 1942 at the instigation of Seán Lemass, then minister for industry and commerce. The scheme initially provided for separate schemes for the “executive” and a lesser, contributory scheme for the “manual workers,” who, it was originally proposed, would have to sign a no-strike clause to be allowed join the scheme. That proposal was jettisoned, and the scheme evolved into a single scheme, with one-eightieth of salary for each year of service, up to a maximum of forty-eightieths, i.e. half, of salary on retirement.
     Staff members pay in significant contributions, and at present 8½ per cent of their pensionable salary goes into the scheme. A key tenet of the scheme, not widely known, is that the ESB has, for decades now, paid a radically reduced rate of employer’s PRSI, the vast majority of whom joined the scheme before 1995. This means that those staff members have no basic state pension at all, and the ESB gets major profit and dividend-boosting tax benefits in lieu of taking on this element of pension liability for fund members.
     Of course on a number of occasions the actuary has reported a deficit in the scheme to the trustees. This requires, as a matter of statute, negotiations to address the deficit. On each occasion that this has happened the ESB has contributed significant additional contributions, either as continuing payments or as lump sums, to close the gap. Staff members have also contributed with additional contributions or other changes to the scheme.
     The process of workers and management jointly contributing to solving such problems is a tried and tested precedent with a statutory basis. The last of these agreements was as recent as 2010, when a deficit of €1,957 million, the biggest in Irish pension history, was eradicated by changes to the scheme and a €591 million capital injection from the ESB. The agreement explicitly confirmed that the scheme remained a defined-benefit one.
     Within months, however, something remarkable happened. From 2011 the ESB unilaterally began describing the scheme in its annual report as a defined-contribution scheme, and added follow-up statements that it would not provide more funding for the scheme in any circumstances whatsoever, i.e. including in a future deficit situation.
     This astonished the ESB unions, as it created a fiction whereby the ESB could simply drop pension liabilities off its balance sheet and then borrow more than €2 billion on the bond markets at consequently reduced interest rates.
     The unions, having issued warnings that were bluntly ignored, waited for the fiction to be exposed by a funding crisis.
     It didn’t take long. When Joan Burton enacted legislation in 2012 giving the Pension Regulator power to wind up schemes facing major deficits without funding to address those deficits, the fact that this scheme has a €1.6 billion MFS deficit became a massive problem. As if that wasn’t enough, Burton’s government colleagues (who sign off on the ESB accounts!) are simultaneously demanding a massive €600 million plus in dividends from the ESB in 2013/14—this from a company with a crater-sized pension hole that the government, through inappropriate regulation, signing off on the accountancy fiction and asset-stripping, has contributed significantly to.
     As a result of all this, ESB employees will get only 3 per cent of their pension benefit if the scheme is wound up by the Regulator, and most have no state pension benefit. Meanwhile the company is making record profits, based on tax breaks and accountancy fiction, while the owner takes record amounts of these profits, leaving the staff high and dry.
[Brendan Ogle]

■ In next month’s issue I will outline what ESB staff and their representative organisations are doing to defend themselves against this attack on their bought-and-paid-for pension benefits.

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