Bid to ease pressure on DB pensions

The Government has introduced a number of measures aimed at helping under-pressure defined benefit pension schemes meet their funding proposals.

Among these will be a widening in the type of assets that can be used to reduce the reserving requirements of the funding standard; a reduction in the level of the risk reserve from 15% to 10% and various changes to reflect recent changes in sovereign bond yields.

Speaking yesterday, Social Protection Minister, Joan Burton said that her department is also delaying the introduction of proposed changes to the calculation of transfer values — which would have had the effect of increasing schemes’ liabilities.

Ms Burton, who also said that she expects all defined benefit schemes to submit their funding proposals to the Pensions Board, as compliance with the regulatory structure is essential for the future sustainability of defined benefit schemes and increased security of members’ benefits, noted that employers, unions and trustees have been making strenuous efforts to protect the viability of their schemes “and I want to support them in every way possible”.

The regulatory changes are being introduced ahead of defined benefit schemes finalising their funding proposals for the funding standard deadline of Jun 30. If a funded defined benefit scheme doesn’t meet the funding standard, its trustees must submit a funding proposal to the Pensions Board, explaining how they propose to deal with the deficit — the proposal, essentially, being a recovery plan for the scheme in question.

“I am aware that the last few years have been very difficult for defined benefit schemes and both employers and trustees may have difficult decisions to make in relation to their schemes. These measures are being introduced to enhance funding options to assist them in their submission of funding proposals,” Ms Burton said.

While the OECD’s recent review of the Irish pension system described the funding standard as undemanding, she is aware that many schemes are coming from a deficit position and that “this is a difficult problem that requires careful management”.