Pension disputes referred to labour court

In recent months, companies have been seeking to introduce changes to traditional pension arrangements, highlighted in two high profile cases currently under dispute. The disputes are a challenge to the new provisions for tackling such cases, as contained in Ireland’s latest social partnership agreement: ‘Towards 2016’.

Within weeks of the social partners ratifying the national partnership agreement, Towards 2016 – Ten-year framework social partnership agreement 2006–2015 (2.9Mb PDF), proposed changes to pension arrangements by two major companies have posed an immediate challenge to the new procedures for dealing with pension disputes (IE0606019I). The disputes are also testing the state’s dispute resolution agencies, in particular the Labour Court.

Under the ‘Towards 2016’ agreement, disputes regarding pension schemes can be referred to the National Implementation Body (NIB) – the social partner body that oversees industrial relations disputes over the course of national agreements. The national partnership agreement stipulates that the NIB ‘will endeavour to assist the parties to such disputes on the basis of the active engagement of its constituent members in seeking solutions to complex problems’.

Background to disputes

The two cases in question concern the Independent Newspapers group and the Bank of Ireland. Independent Newspapers has already succeeded in altering its pension scheme, while refusing to bring its case before the Labour Court. Meanwhile, Bank of Ireland was due to attend the Labour Court on 9 November 2006 to present its argument for maintaining a scheme that it has already put in place, despite considerable trade union opposition.

Both Independent Newspapers and Bank of Ireland have introduced pension schemes that move away from the traditional ‘defined benefit’ (DB) pension plans, and towards schemes either based on a ‘defined contribution’ (DC) system or a hybrid of both schemes. In contrast, the Irish Congress of Trade Unions (ICTU) and its constituent trade unions are seeking to protect DB schemes, which ensure a specific percentage of salary on retirement, unlike DC schemes which offer no such guarantee.

The NIB is made up of representatives from ICTU, the Irish Business and Employers’ Confederation (IBEC) and the Department of the Prime Minister (Taoiseach). In relation to the two disputes concerned, it is difficult for the NIB to reach a consensus, as ICTU and IBEC also directly represent the parties involved. As a result, the disputes have been referred to the Labour Court.

While the outcome of such Labour Court hearings on bargaining issues, referred to as recommendations, are not binding on either party, traditionally almost all the main employers agree to attend the court and abide by its findings. Trade unions, on the other hand, while they usually attend, often reject the Labour Court recommendations.

Pension trends

In recent years, an increased trend has been observed towards the use of DC schemes. The human resource consultants, Mercer HR, have found that almost 40% of DB schemes in Ireland are now closed to new employees – a level which is expected to rise to around 60% over the next few years.

Other factors cited by employers, which help to explain the move towards DC schemes, include: increased mortality; the fall in long-term interest rates or bond yields; and new accounting rules (FRS17), which stipulate the accounting provisions for retirement benefits, requiring companies to recognise pension surpluses or deficits on their balance sheets.

The trade unions argue that employers are using these often legitimate pressures as an excuse for switching schemes – a practice which is, in fact, driven by a demand from shareholders for ever higher profits. For example, in the case of Bank of Ireland, the Irish Bank Officials’ Association (IBOA) has commented that the bank will reap higher profits if final retirement income is reduced from the current two thirds to between 26% and 50% of retirees’ final salary.

In the case of Independent Newspapers, the unions have accused management of forcing an outcome by refusing to go to the Labour Court and by implementing a new DC scheme for new employees, while changing the contributions to the DB scheme for existing DB scheme members.

Further information

Meanwhile, the value of pension provisions is a key issue in the benchmarking exercise regarding public sector pay (IE0608019I).

Brian Sheehan, IRN Publishing

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