Pension deficits estimated at €8bn

Up to 80% of defined benefit pension schemes are failing to meet funding standards, with the total deficit estimated to be €8bn.

The figures were revealed at a special seminar hosted by Irish Life & Permanent & yesterday, looking at the move from defined benefit to defined contribution schemes.

Less than two years ago, the Pensions Board suggested about 1,000 defined benefit schemes were in existence, but closing at a rate of 200 per year. Irish Life & Permanent &yesterday said there are less than 900 schemes in existence.

“The pensions industry simply can’t stand still,” said David Harney, chief executive of Irish Life Corporate Business.

“The majority of defined benefit schemes are closed to new members and there is a growing pattern of defined benefit schemes being wound up and converted into defined contribution schemes.”

Mr Harney said sovereign annuities can go a long way towards addressing the funding difficulties facing pension schemes.

He said conventional annuities are too expensive and that normal defined contribution schemes involve the transfer of too much risk to the employee. “Sovereign annuities will be significantly cheaper than traditional annuities for pensioners, and will have the added bonus of providing a new source of funds for the State.”

Irish Life yesterday announced it is in the final preparations for the launch of what will be the first sovereign annuity product available in the Irish pensions market.

Using bonds issued by the National Treasury Management Agency, it is aimed at providing a completely new source of finance for the exchequer, as well as new funding options for the corporate pensions industry.

Mr Harney said: “Finding a solution to the crisis affecting Irish defined benefit pension schemes will require radical thinking, including the introduction of sovereign annuities and development variations on traditional defined contribution schemes that will make the switch from defined benefit to defined contribution schemes more palatable to scheme members.

“What we’re doing is putting in place the structure which will give members of pension schemes the tools they need to manage their pension and a range of easy ways to plan for their retirement,” he said.