Defined pension schemes in deficit

EIGHT defined benefit pension schemes closed down last year and more closures are expected by year’s end – with as many as 75% of schemes in deficit, according to the Pensions Board.

The representative body for the pensions industry said yesterday – at the launch of its 2009 annual report – that despite good investment returns evident “for almost all” schemes last year, 75% of defined benefit schemes were still in deficit at year’s end.

It added that in many cases that deficit is substantial; ultimately meaning that the returns seen last year didn’t claw back the losses seen in the previous two years.

Those previous losses came about due to what the board called “substantial investment risks” being taken. It warned yesterday that the level of investment risk being taken by funds is still “very high”.

According to Pensions Board chief executive Brendan Kennedy: “The lessons of the past are clearly still not being applied today. Investment strategies must focus on the risk as well as the return.”

Mr Kennedy warned that the same situation is the case with defined contribution schemes.

“There is very little risk reduction in the funds in which many members are invested. Recent stock market losses show the ongoing risks of this approach. It’s difficult to avoid the conclusion that the good investment returns of 2009 are a result of the same strategies that caused much of the recent losses, and that the chances of further losses are – therefore – too high,” he added.

The board doesn’t hold any powers to direct pension fund investment, only to warn against excessive risk taking – as it claims it is continuing to do.

Mr Kennedy warned that pension fund trustees who fail to submit a funding proposal by the revised deadline of November, risk prosecution and/or an order to reduce scheme benefits.

He added that the level of pension fund administration is not totally adequate, “or even competent”, but most administration is good.

Meanwhile, the board’s chairperson, Tiarnan O’Mahoney, added that the body is not sufficiently resourced with adequate staff numbers at present and must be done so at no direct cost to the taxpayer.

Mr O’Mahoney also welcomed the Government’s National Pensions Framework document – published last March – saying that it can lead Ireland to a position, over the next 20 years or so, where most, if not all, workers can look forward to some sort of supplementary pension.