Defined benefit schemes in decline

Irish defined benefit pension schemes have become increasingly insolvent, with the deficit hitting €10bn, according to a Lane Clark & Peacock Ireland survey.

The latest survey by the company into the largest defined benefit pension schemes found that deficits rose by €4bn in the 12 months to September.

The report also found that the difficulties posed by the challenging economic climate, changes to domestic legislation in Ireland and international accounting rules will force the closure of many defined benefit pension schemes here.

Conor Daly, partner at Lane Clark & PeacockIreland, said a number of Irish defined benefit schemes will be wound up in the next few months.

“The combination of challenges posed by the current economic climate, potential changes to tax rules, changes to accounting standards, reintroduction of the Funding Standard and Risk Reserve requirements will make the future of many defined benefit schemes untenable,” said Mr Daly.

“We believe that a significant number of these schemes will wind up in the next 18 months. In the absence of innovative measures from Government and steps to extend working lifetimes, the current trend to provide lower value defined contribution-type pension arrangements will continue.”

The only company in Ireland to report that their defined pension scheme was full funded was the former Anglo Irish Bank, Irish Bank Resolution Corporation.

IBRC is the only company to have consistently reported a fully funded defined benefit pension scheme since Lane Clark & Peacock Ireland began reporting on this survey in 2009, the report stated.

By comparison, the pension deficit at AIB almost doubled, growing from a reported €400m in 2010 to €763m in 2011.

The report also found growing evidence of pension schemes acting to address the funding challenges they face through changes to investment and benefits.

RTÉ is using risk-sharing, while Diageo is using contingent assets to try to plug the gaps in their funds. Bord na Móna has increased employee contributions.

Some companies, including AIB, plan to use defined contribution plans for future service, while Arnotts have given notice of intention to cease contributions to their defined benefit plans.