Serious drop in value of pensions predicted

IRISH workers face serious falls in the future value of their pensions, as 40% of defined benefit plans face employer cutbacks.

An extensive review covering both defined benefit and defined contribution pensions warned that “incomes from private sector pension schemes can be expected to be lower in the future”.

In the case of defined benefit plans, two thirds of employers have closed their scheme to new entrants and nearly half of employers are considering imposing a salary freeze or cap.

Another 39% are considering removing pension increases with a similar number considering closing their defined benefit schemes to future service.

Employers are “substantially re-evaluating their funding obligations as they plan to correct their pension scheme deficits while dealing with the current difficult economic backdrop”, the survey said.

The results show that 20% are winding up or considering winding up their defined benefit schemes. It also warned up to 30% of firms may not be able to fund their pension deficits over the next 10 years.

The PricewaterhouseCoopers exercise involved over 400 of the country’s top 1,000 firms.

A third warned they intend to increase member contributions even more, with a further third considering that option.

Over 70% are also looking at ways to reduce investment risks by reducing exposure to equity markets, within their defined benefit schemes.

Many employers are looking at a range of funding options “to enable a compromise between the security sought by trustees and the level of cash contributions that is feasible for the business”, the report said.

Munro O’Dwyer, director PwC Pensions Solutions Group, warned it was not only defined benefit schemes which are being hit in the more difficult funding environment. “There is no visible sign of employer contributions to defined contribution schemes being adequate to meet the retirement needs of most of the employees who participate in these schemes, and the trends are towards lower and suspended contributions looking forward.”

Other points to emerge from the survey showed 10% of employers operating defined contribution schemes had already planned or have plans to decrease the contributions they were paying into those schemes.

Evidence is emerging too that contributors are changing their pension savings behaviour, by reducing their personal contributions or by reducing their exposure to higher risk assets, he said.