Pension plans given year to solve deficits

The Pensions Board has given company pension schemes running at a deficit until the end of this year to come up with a viable long-term survival plan.

The board, whose job it is to regulate occupational pension schemes, published a detailed set of funding rules for defined benefit schemes yesterday.

It noted that schemes will normally be given until 2023 to entirely clear their existing deficits, but that they will need to have a minimum capital reserve — typically 15% of the value of their holdings — in place by 2016.

However, with regard to the estimated 80% of DB schemes in deficit, a deadline of Dec 31, 2012, has been set for them to submit funding/restructuring proposals. After that, extra tests will be carried out on a case-by-case basis.

“Defined benefit schemes have made long-term undertakings to their members. Our objective must be to see as many schemes, as possible, put on a secure footing and prudently managed so that members receive the pensions they are expecting,” said Pensions Board chief Brendan Kennedy.

He added: “It is now up to trustees to familiarise themselves with their obligations, and to prepare and submit proposals which will put the finances of their scheme on a long-term stable footing.”

However, the new rules have already been criticised. Although welcoming some much-needed clarity and blueprint for the future of DB schemes, consulting giant Mercer said the proposals will only add to the stress felt by the majority of schemes.

“Having taken nearly four years to decide on this structure, the authorities haven’t been so accommodating to employers and trustees. Giving them only six months — in most cases — to do the work necessary.”