A statutory order giving effect to the Pensions Insolvency Payment Scheme (PIPS) takes effect from 1 February 2010.  The legislation establishing the PIPS was introduced last year amid growing concern surrounding the future of defined benefit schemes in Ireland.  Last December, a leaked Government memo suggested that more than 90% of such schemes would be in deficit at the end of 2009, and a series of measures were introduced to help support members of these schemes.

The PIPS will be administered by the Government through the National Treasury Management Agency (“NTMA”), and will be reviewed within 3 years of its establishment.

The scheme works by allowing pension schemes to buy annuities from the Government at a lower cost than normally available on the open market.  The reduced cost of purchasing annuities is intended to lead to additional funds being left in the scheme for members who have yet to retire.  Under the PIPS, the trustees of a qualifying pension scheme can pay the Government a lump sum which will cover the cost of payments to retired members.  Once the lump sum is received by the Exchequer, the Government will then be responsible for all future payments to beneficiaries of the scheme at the rate agreed by the Minister on approval of the application.

There are three separate stages to the PIPS application process as follows:

• The scheme’s trustees must apply to the Pensions Board to have the scheme certified as an “eligible pension scheme”.  As part of the application, trustees must submit the following to the Board: 
  • written confirmation that the winding up of the pension scheme has commenced;
  • a statement that the scheme does not satisfy the statutory minimum funding standard;
  • a statement of affairs of the insolvent employer; and
  • the notice of appointment of the liquidator or receiver.
• If the Pensions Board approves the certification, the trustees may apply to the Minister for Finance to become a participating pension scheme.  In the event that the application is approved, the Minister will request the NTMA to calculate the cost of providing pension payments to the pensioners of the scheme, and will then provide a quotation to the trustees of the applicant scheme.  The quotation will specify the amount of pension to be paid to the relevant members and will also state the associated administrative cost to be charged by the Minister.  The trustees have two weeks to accept the offer and quote provided by the Minister.
• If the trustees accept the Minister’s quote, the trustees must pay the quoted price to the Minister by electronic transfer before arrangements can be made for the future payments to relevant pensioners. 
  It remains to be seen whether many defined benefit schemes will apply to be admitted into the PIPS.  As a scheme can only be admitted to PIPS where the sponsoring employer of the scheme, as well as the pension fund, has become insolvent (the “double insolvency” criterion), it is likely that the scheme will only be of assistance in a small minority of cases.