Johnny Mulholland of EarlyRetirement.ie guides us through the process of a pension scheme wind up in Ireland. Where does all that money go?
Maryrose: Okay so will we start at the beginning?
Johnny: Yeah so we’re looking at a pension scheme wind up and you’ll find that in the last number of years there’s been about give or take four hundred or so pension schemes which have wound up or have seized.
M: Can you give me some names?
J: Well one’s that have been in the paper recently, Irish news and media, so the Independent pension scheme wind up they’re talking about that one. And we’ve mentioned before Permanent TSB wound up their scheme because it was too expensive. And Anglo-Irish bank, there’s been a lot of those. And again some large, these are the large names but there’s been a lot of smaller ones which have wound up as well. So it doesn’t have to be a big company that you’d heard or worked for, some of the smaller ones would have been winding up they’re pension scheme as well.
M: So what happens in the event of a pension scheme wind up?
J: Trustees would get in touch and tell you that the pension scheme is winding up or that there’s an intention for the pension scheme to be winding up… to wind up and what that means is that the very first people to be looked after are the additional voluntary contributions (AVCs) so anyone who’s putting in additional voluntary contributions that the trustees haven’t put in. Then it’s the pensioners. The pensioners are guaranteed to get 100% of the first 12,000 so if you’re getting 12,000 a year that’s covered, no one can touch that. They get 90% of between 12,000 and 59,000 or 60,000, so 90% of that figure. And if you have a pension of over 60,000 per annum, 80% of the balance. So even if you’ve got a pension scheme of a 100,000, there’s a large portion of that which is guaranteed. All of that’s guaranteed before any of the deferred members are even thought about.
M: So if you’re a member of a pension scheme, am I right in saying, and there’s a lot of pensioners, they’re all gonna get the money before you and you’re sitting there as a deferred going, “Wait for me, is there gonna be anything left for me in the pot?”
M: And then if there is a pot, how is that kind of divvied out then?
J: So that’s it, the pensioners are looked after. And then, from what’s left there and in certain circumstances there isn’t anything left, but a lot of cases there is an amount left, 50% of what the transfer value so the value you’d get now if you look for a statement, 50% of that is guaranteed. Then after that it’s back to the pensioners. So the balance of their money is looked after again, so they’re brought up to 100% and then, it’s the next 50% of what the deferred members. And only after that, only after the deferred members get everything, it’s then whatever increases the deferred members and the pensioners might have gotten.
M: Okay, I love the way Johnny is explaining everything very rationally, I’m actually going, “Get your money out before your scheme gets wound up. You’re gonna lose everything! 50% or more!”
J: Well a lot of the pension schemes have big liabilities and there’s a survey, you’ll look… you can find it on the papers if you Google it. But of the top 25 companies in Ireland, only one of them has a fully funded pension scheme. 24 of them were all underfunded and these are household names Bank of Ireland, AIB, so Bank of Ireland aren’t paying a dividend this year because of the pension scheme is such a liability. That was one of their main motivations and at one point their pension scheme was about a billion Euro underfunded…
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