The Government has approved a range of new proposals that it hopes can address potential problems arising in defined benefit pension schemes.

Under the Pensions (Amendment) Bill 2013, people actively paying into defined benefit schemes will be given a greater level of protection should the scheme be wound up or restructured. However, retired members earning above a certain threshold may no longer be entitled to their full payment if the scheme falls into difficulty.

At present if a scheme is restructured or wound up existing pensioners retain their full pension entitlements and whatever is left over, if anything, is divided up between the contributors who have yet to retire or those who have left a company but deferred their pensions until retirement age.

The Government has guaranteed to pay 100 per cent of existing pensions worth up to €12,000 annually.

In the event of both scheme and employer being deemed insolvent, members (both active and retired) who are entitled to more than €12,000 annually are to be protected up to 50 per cent of their entitlement.

The Department of Social Protection said Minister for Finance Michael Noonan had approved the use of funds from the pension levy to pay the shortfall up to 50 per cent. The new proposals are modelled on changes applied to civil service pensions, the department said.

In the case of single insolvency (either the scheme or company being declared insolvent), retired members will no longer be given full priority and higher paid pensioners will contribute to improve the benefit of current workers.

Some 90 per cent of pensioners’ benefits of between €12,000 and €60,000 and 80 per cent of pensioners’ benefits above €60,000 will be guaranteed with the deduction distributed among those not already drawing the pension up to a level of 50 per cent.

There is no obligation on the employer or the State to meet the 50 per cent threshold in single insolvency cases.

In cases where he scheme is restructured, the 100 per cent priority for pensioners earning above €12,000 annually will be removed to ensure a fairer level of benefits for contributing members.

The legislation was approved by the Government today. It is to be published tomorrow, brought before the Oireachtas next week and enacted by the end of the year.

The number of defined benefit schemes operating in the State has fallen from about 2,500 in the 1990s to 800 at present. About 40 per cent are regarded as being fully funded, compared to 80 per cent 10 years ago.

Between 80,000 and 85,000 people are currently paying into defined benefit schemes in the State at present. The State pension is not affected by the measures.

The current rules are particularly hard on workers who are close to retirement as they can be left with little or nothing and do not have time to build up a new pension entitlement.

The Bill also includes measures designed to prevent schemes from becoming severely underfunded.

Minister for Social Protection Joan Burton said the measures were about “fairness in the first instance” and ensuring workers receive a greater share of their pension benefits in the event of restructuring or insolvency of their scheme.

“The State could not be expected to solve employers’ funding problems given the financial implications it would have for taxpayers,” Ms Burton said.

“However, the State can intervene to ensure a fairer deal for workers and sufficient protection for pensioners while allowing employers to get to grips with their pension problems.”

The move to change the rules comes after an unprecedented call by the Irish Congress of Trade Unions, employers’ group Ibec, the Irish Association of Pension Funds and the Society of Actuaries to change what is called the priority order in a wind-up.

Around 65,000 workers have been impacted by the closure of 400 defined benefit schemes since 2008, the three bodies said recently.