Pensions funding ‘not compliant’

HALF of businesses operating defined benefits pension schemes do not comply with the minimum funding standard set by the Pensions Board, according to the employers’ body IBEC.

There are close to 600,000 members of defined benefit (DB) schemes in Ireland and they are currently billions of euro in deficit.

Last month independent analysis by according to Attain Consulting showed that pension deficits at Irish-listed companies have soared 15% to €5.4 billion since the start of the year.

Analysis by the accountancy Lane Clark and Peacock analysis also calculated the pension deficits at the ESB, An Post, CIÉ and RTÉ have ballooned to €4.5bn and that the state companies now hold just 60% of the assets required to meet the pension benefits already earned by members.

Yesterday, IBEC director Brendan McGinty said: “It is time that the Government and the Pensions Board faced up to the scale of the difficulties that defined benefit pension schemes are facing. While some measures have been taken to address the problem, a much more comprehensive response is needed.

“Unless the funding rules governing defined benefit pension schemes are urgently reformed a significant number will collapse, with benefits being severely restricted. The current obligation on defined benefit schemes to be 100% funded on a discontinuance basis is draconian and unsustainable.”

An IBEC survey of 253 employers released this morning found that of those who operate a defined benefits pension scheme, just under half (47%) indicated that their defined benefit scheme did not comply with the minimum funding standard set by the Pensions Board.

The research found that 63% of employers have closed the scheme to new entrants and 20% have this under consideration.

As many as 29% have made a monetary contribution to the pension fund and 34% are considering doing so.

The survey also found that:

* 33% have increased employer contributions and 32% are considering doing so, with 10% to increase contributions in 2010

* 24% have increased employee contributions and 50% are either considering doing so or will implement increases in 2010

* 24% are considering the introduction of career averaging in their pension plans

* 17% have made the indexation of pension increases already provided discretionary and 32% have this under consideration;

The survey also found that 8% of employers have closed their scheme and this is under consideration in 39% of cases.

Mr McGinty said that given the extremely difficult economic circumstances, employers will have no option but to continue to critically examine pension costs.