Government policy is triggering the demise of good quality pensions in favour of bargain basement schemes, many of which are of limited value, an IAPF pensions conference in Dublin heard today.
Vincent Boyle chief executive of Allied Pension Trustees said that Government policy was 'squeezing the life' out of quality defined benefit schemes due to an impractical and naïve funding standard.
"We have the alarming scenario where many employers have set up skeleton PRSA schemes with no takers because they have to, while at the same time blue chip employers with valuable defined benefit schemes are being hassled by over demanding Government regulations leading many to consider moving to bargain basement defined contribution schemes or PRSAs," Mr Boyle told delegates.
He said that the funding standard was a naïve mechanism which did not take account of how pensions were funded in reality and which was putting unnecessary pressures on companies.
"Encouraged by Government policy many of these companies are voting with their feet and closing defined benefit schemes to the detriment of employees."
The conference also heard that the new EU pensions directive which comes into force on tomorrow has the potential to create thousands of jobs for Ireland over the next ten years.
Brian Buggy, a partner in Matheson Ormsby Prentice, said that the directive contained provision for the administration of cross border pension schemes for the first time and that Ireland, along with the UK and Luxembourg, was an international front runner to benefit from this.
"By their wise interpretation of the EU directive, Irish legislators will open the door to potentially making Ireland the pensions administration capital of Europe," said Mr Buggy. "In addition, we already have the tax structure and pensions expertise in place to make this a reality."
Mr Charlie McCreevy, European Commissioner for Internal Market & Services told the conference that there is a pensions time bomb "ready to explode some time after 2010".
He added: "I take the view that the main responsibilities lie with citizens, who have to take their future in their own hands and make the necessary provisions now. However, our governments have a facilitating role to play by providing the appropriate incentives."
Referring to the pension fund directive he said it intended to create an internal market for pension funds. "It is my responsibility to make sure we succeed in our objective. I will therefore not accept that Member States abuse the requirement for pension funds to comply with host member state social and labour law in order to protect their pension market. The potential benefits are just too big."
Ray McKenna, managing consultant at Watson Wyatt, told the conference that the real pensions 'time bomb' was in defined contribution schemes which were held by some 200,000 people.
He said that the real pensions nightmare was not only in pensions coverage but pensions adequacy. "The reality is that most people are not saving enough and, more worrying still, they are unaware of this."
Mr. McKenna said that the average contribution to a defined contribution scheme was 10% of salary. For a person on €50,000 a year IAPF research suggested that this would need to double to 20% of salary to provide an adequate retirement income at 65. Those on the average industrial wage would need to increase contributions from 10% to 15% of annual salary.