Pension provision in private sector under ‘severe threat’

PRIVATE sector pension provision is under “severe threat” as nine out of 10 companies say they are altering their pension investment strategy.

A survey by Aon Hewitt among 74 companies in Ireland also found that, in addition to a defined benefit (DB) plan, almost four out of five companies provide a defined contribution (DC) plan to employees.

However, 70% of employers have closed their DB plan to new entrants. In addition, a large number of employers have asked members to bear some of the pain of rising costs through increased contributions.

Head of corporate pensions with IFG, Gary Owens, said private sector pension provision is under “severe threat”, with the sector experiencing a significant fall-off in contributions as a result of the pension levy and the 11% cut in pension tax relief in the last budget. “The pension policy changes coupled with the economic impact have reversed the state’s positive pension promotion initiatives of the last ten years.

“We would suggest that the Government takes time to assess the impact of the cuts already made before rushing into further draconian measures that could persuade the remaining pension savers from continuing with retirement planning.”

In the survey, more than a quarter of respondents would consider increasing the normal retirement age, a possible reflection of the recently introduced change to the state retirement age.

Joint managing director at Aon Hewitt Ireland Rachael Ingle said: “Continually improving longevity, persistently low annuity rates, an uncertain legislative environment and the ongoing fallout from one of the most severe stock market crashes of all time are some of the significant challenges facing the pensions industry.”

Although one third of respondents said that the company will pay for the recently introduced pension levy by either an upfront payment or as part of a funding proposal, the vast majority of companies do not intend to fund the levy. In most cases, the survey shows that members’ benefits will be reduced in order to pay it.

“The pensions levy has collected €457m in revenue for the exchequer to fund the jobs initiative and the subsequent discussions and negotiations on this issue between employers and trustees have strained relationships at a time when cooperation between both parties is the only way to ensure a sustainable pension future for employees,” said Ms Ingle.

Mr Owens said the current pension policy appears to be heading for a “divided society” where only those in the public sector or in larger private sector companies appear to be entitled to a pension in retirement.