IBEC’s pension funds warning

EMPLOYERS’ group IBEC has called for an urgent review of pension rules and has warned of the death of many defined benefit schemes if funding standards – put in place by the Pensions Board – are not altered.

The body is urging Government to reduce the current minimum funding standard facing DB pension schemes, in order to give firms “necessary flexibility” to make the best long-term investment decisions. It added that the current funding standard is “draconian” and “does not reflect the current economic reality” and is “hastening the demise of otherwise viable DB schemes.”

According to IBEC director Brendan McGinty: “Many private sector defined benefit pension schemes are facing a November deadline from the Pensions Board to submit proposals on how they plan to address scheme deficits. However, firms are concerned they are being forced to make investment decisions that will meet the draconian minimum funding standard in the short-term, but will negatively impact the long-term viability of these schemes.

“Currently, the Pensions Board requires pensioner liabilities to be measured by reference to market annuity costs. However, lower bond yields have meant that annuity costs have increased by approximately 15% since the start of 2010. This has increased funding standard liabilities and the level of deficit that needs to be funded, as well as impacting the assumed level of future investment return,” he added.

Both IBEC and the ICTU have raised the issue with the Departments of Finance and Social Protection and have expressed support for a sovereign annuity, as previously proposed by the Society of Actuaries and the Irish Association of Pension Funds.

“One solution is to revise the minimum funding standard. A sovereign annuity would moderate the minimum funding standard by allowing pension schemes to price certain liabilities against Irish bonds rather than German bonds. In this scenario, the state would relax the minimum funding standard to allow pension funds to provide for future liabilities by allowing them to fund pensioner annuities by purchasing Irish bonds in the future,” said Mr McGinty.

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