Pension Schemes addressed in new publication

The financial challenges posed by Defined Benefit Schemes are being addressed by pension experts, Mercer Human Resource Consulting.

Approximately 232,000 Irish people are members of defined benefit pension schemes and Mercer believes that a revised solvency test is urgently needed.

Current solvency requirements for Defined Benefit Pension Schemes, changes in priority orders on scheme wind-ups and the introduction of a monetary limit on the amount of benefits subject to the funding standard, are among the issues tackled in the "Solvency, some new ideas" publication.

It's aim is to examine better ways to strike a balance between providing security to scheme members and facilitating employers to continue their Defined Benefit Schemes.

Defined Benefit Pension Schemes have been facing some serious financial challenges.

The solvency test - introduced through the Pensions Act - has become a bone of contention, according to Mercers.

They also claim that schemes which have been hit by several years of poor investment performance face a heightened impact of other problems.

The "solvency" hurdle has caused many employers to reconsider whether they can continue to finance their defined benefit pension schemes.

Mercers' Senior Retirement Consultant, Anne Kershaw said today: "One possible solution might be to amend the solvency test so that it only covers benefits up to a specified monetary limit. Arguably, pensions above a monetary limit should be less stringently protected.

"This would also mean that in the event of a scheme wind up, employees would receive a higher priority than at present. Currently, high earning pensioners receive an annuity for their full pension in the event of a scheme winding up before any assets are allocated to current employees," Kershaw added.

The Society of Actuaries in Ireland is currently conducting a study on the life expectancy of Irish pensioners, which should provide additional data on whether the allowance made by insurance companies for life expectancy is overly conservative or not.

Initial results of a similar study carried out by the Institute of Actuaries in the UK indicate that the allowance made for life expectancy in pricing annuities is more conservative than the experience of pensioners retiring from company pension schemes.