Attempts in draft legislation to set down minimum benefits on withdrawals from pension funds may do more harm than good, John Murphy, the Pension Funds Adjudicator, has warned.
For the first time, in proposed amendments to the Pension Funds Act, some of the minimum benefits you must get from your pension fund if you leave before retirement are laid down.
With up to 90 percent of retirement fund members, according to some estimates, leaving their fund before retirement, the issue of withdrawal benefits is critically important.
Although welcoming the principle of set minimum benefits, Murphy warned, in a hard-hitting address to a meeting of the Pension Lawyers' Association, that the proposals did not go far enough and were "flawed".
For instance, he said, the draft legislation discriminated against people who resigned or were dismissed for reasons other than retrenchment. Members of retirement funds who resigned or were dismissed on grounds of ill-health, incapacity or misconduct would have no statutory claim to their employers' contributions to the fund - only to their own contributions plus interest (and less fund expenses). Many funds already offered better withdrawal benefits than this, Murphy said.
Discriminating against people who resigned or left for reasons other than retrenchment would lead to harsh and inequitable results. A 54-year-old member who resigned or was unfairly dismissed after 30 years' service on the grounds of being incapacitated by cancer or Aids would receive less than a 45-year-old healthy member who was retrenched - possibly half as much, he said.
"Why should persons fairly or unfairly dismissed on grounds of ill-health, incapacity or incompatibility lose half their pension benefits when retrenched members get to keep theirs?
"Such persons have done nothing wrong. They have committed no act of misconduct," Murphy said.
And even in cases of misconduct, why should a breakdown in the employment relationship determine the amount of the benefit payable? he asked.
"Surely public policy cannot justify taking away half a member's pension benefit, for instance, in a situation where in an uncharacteristic fit of rage, after say 30 years of service, a member has punched a supervisor and was then correctly and fairly dismissed?
"Unquestionably, he should suffer the penalty of losing his employment. But to penalise him further by removing his future security seems excessively harsh. The penalty simply does not fit the crime. It is punitive, disproportionate and arbitrary," Murphy said.
"I cannot imagine that the trade union federations can legitimately lend their support to such a provision."
Although some funds already treated all withdrawals equally, others still discriminated against people who resigned, Murphy said. The legislation should not entrench this discrimination, but remove it, he said.
"No matter how well intentioned, the provisions dealing with minimum benefits on withdrawal in many instances may do more harm than good. They offer a licence for unjustifiable discrimination and in some cases may lead to an illegitimate reduction in the benefits currently available."
Murphy also questioned whether the new legislation would tackle the problem of age discrimination in withdrawal benefits. Currently, two employees with exactly the same period of service and exactly the same salary, doing exactly the same job, could end up with very different withdrawal benefits, he said.
"I have struggled in vain to find a legitimate and rational justification for such discrimination," Murphy said.