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Saturday, June 16, 2012
The pensions landscape is going to be dramatically changed and private sector workers are going to have to either work longer or pay more into their pension schemes.
The era of the defined benefit pension scheme has come to an end, with Independent News & Media considering closing its defined benefit pension scheme and AIB winding up its scheme.
Defined benefit schemes guaranteed an amount of benefit to be paid to retirees for the rest of their lives, usually calculated on their final income. Nearly 80% of these schemes are now in deficit, according to IFG pensions consultant Kevin Bailey
"The reality is it’s a triple whammy... Life expectancy has increased significantly; bond yields are low and investment returns haven’t worked out as expected," he said.
A change of legislation by the Department of Social Welfare has made it more difficult for schemes to comply with the law.
"The primary change in the legislation is the introduction of a risk reserve to provide a ‘buffer’ to assist schemes absorb financial shocks in the future and improve the protection of the pension entitlements of scheme members," said a department spokesperson.
This has made it harder for schemes to be solvent, said Mr Bailey. He said the combination of these factors meant the majority of the 800-900 defined pension schemes in operation in Ireland are in trouble.
Mr Bailey said if people want to retire comfortably they are going to have to invest in their pensions.
"People are going to have to get real about their pensions. They are either going to have to put more money in or take less out," he said.
CEO of the Irish Association of Pension Funds Jerry Moriarty said a lot of people could lose out significantly if all of the defined benefit schemes in Ireland are wound up.
Mr Moriarty said that, as the law stands, the pensioners would take priority over everyone else in a defined benefit scheme. The law insures that pensioners get paid, but people who have been paying into the scheme for years may receive nothing.
"A lot of people could lose out quite significantly," he said.
"We would like to see some method of more orderly wind-up, but we don’t have this at the moment," he added.
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