Board set to propose pension scheme revamp

RULES governing defined benefit pension schemes, which provide for employees to receive a set percentage of their salary when they retire, are set for a revamp.

The Pensions Board, the Government-sponsored body responsible for monitoring pension schemes to ensure they are adequately funded, has invited unions, employers, individuals and consumer groups to submit their views on the future of defined benefit schemes before September 10.

Pensions Board chief executive Anne Maher said yesterday that the consultation process aimed to get a wide a range of views before deciding on a minimum standard for funding pension schemes.

Pension funds are currently required to demonstrate that they could meet all the scheme’s liabilities in the event of winding up. But this is considered by some to be excessive, as it requires schemes to set aside more funds than necessary to provide their members with reasonable security.

“If a funding standard provided absolute security to members, it would be so demanding and inflexible that it would be likely to end defined benefit scheme provision,” Ms Maher said.

“On the other hand, a funding standard that has no effect from time to time, especially in terms of requiring increased contributions, is unlikely to be providing any useful protection to scheme members.”

Almost 70% of defined benefit schemes failed to meet the minimum standard last year, but this has fallen after scheme managers improved their funding by increasing the level of employers’ contributions.

The Pensions Board wants a standard that protects the benefits of scheme members but is still flexible enough to encourage employers to provide defined benefit schemes. The number of defined benefit schemes has fallen as employers opt for defined contribution schemes, which shift the risk of poor investment performance over to individual employees.

The results of the consultation process will be incorporated into new legislation to be enacted next April.