April 25, 2013 6:52 pm

EU pensions ruling saddles Dublin with huge bill

Sean Maher worked for 39 years as a glass cutter at Waterford Crystal, the glass manufacturer that became a global brand and put Ireland on the map for many tourists. When the company collapsed in 2009 with an insolvent pension scheme, he stood to lose most of his contributory pension because Ireland has no pension protection scheme.

“I was due to get only about €50 a week after saving for 39 years because the company pension fund was insolvent,” he says. “It was pure negligence by the state not to protect workers.”

On Thursday Europe’s highest court agreed when it issued a landmark ruling which found Ireland had made “serious breaches” by failing to live up to its obligations under European law to protect workers’ pension contributions.

Dublin could face a bill of hundreds of millions of euro to cover the shortfall in the Waterford Crystal pension fund, which covers up 1,700 staff. It may also face many other claims by workers at other defunct firms and be forced to establish a pension protection scheme at a time when four out of five defined benefit pension funds in Ireland are technically insolvent.

“This is a very serious judgment for the state that will end up costing it a lot of money,” said Paul Kenny, Ireland’s pensions’ ombudsman. “Any worker whose company went out of business and where the pension scheme is insolvent now has the right to make a claim,” he said.

Ireland is Europe’s third-largest defined benefit pension market after the UK and the Netherlands; asset values in Ireland were worth more than 44 per cent of total output in 2009, according to the Organisation for Economic Co-operation and Development.

The country’s economic crisis, low interests rates and poor asset allocation has had a devastating impact on many pension funds. The pensions’ regulator has set a June deadline for the 80 per cent of schemes that are technically insolvent to outline a plan to address their spiralling deficits.

During the European Court of Justice hearing on the Waterford Crystal case, Dublin said it did not have the money to pay claims because of the economic crisis. This was dismissed by the court, which ruled it did not “constitute an exceptional situation capable of justifying a lower level of protection of the interests of employees”.

The Waterford Crystal case was taken by 10 former workers who faced the prospect of receiving payments worth 18 to 28 per cent of their pension entitlements due to a €110m deficit in the company’s pension fund.

The ECJ judgment did not specify the value of pension entitlements that a Waterford Crystal worker should receive. But it does refer to a previous judgment it made regarding an English woman, Carol Robins, against the British government in a similar case in 2007. In this case a company’s insolvency left her with only 49 per cent of her pension, which was judged too low by the ECJ. The case prompted a change in UK law, where workers are now entitled to 90 per cent of their accrued pension entitlements in the event of insolvency.

Dublin’s High Court will rule on the exact level of entitlements that should apply in the case of the Waterford Crystal workers.

The Unite trade union, which represented the Waterford Crystal workers, said that if the government contests the liability in the courts it could cost the state €258m in a one-off payment to the pension fund. It said if the state accepts the judgment, it could face a payment of about €15m per year.

Dublin said it could not comment until Dublin’s High Court had ruled.

In January Joan Burton, Ireland’s minister for social protection, told the FT she favoured introducing some kind of pension protection scheme.

“Down the road I think it is something I would like to see. But currently the cost of funding such a scheme would be outside the capacity of the government. But in other countries it has been funded by industry and that is something we will look at,” she said.

Mr Maher said he was hopeful the ECJ ruling would enable him to get most of his pension entitlements back, possibly €150 per week.

“It is only right and proper that people who have worked for years have something to look forward to,” he said.

Related Topics

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.


Sign up for email briefings to stay up to date on topics you are interested in