Hanafin: Retirees always have state pension to fall back on

SOON-TO-RETIRE workers fearful for their private pension funds have been assured the Government will support them — but only by giving them the standard old-age pension to which they are already entitled.

Minister for Social and Family Affairs Mary Hanafin laid down a firm marker that there will be no extra state assistance for retirees whose company pension funds collapse.

“At the end of the day, they are private pension funds and they are subject to the volatility of the market,” she said.

“There is always the state pension to fall back on. It’s €230 a week. It’s not as if somebody would be left with nothing,” added the minister, who will personally have a combined TD and ministerial pension worth more than €2,000 a week when she leaves office.

Ms Hanafin made her remarks after the leaking of a government memo, warning of a €20 million-€30m hole in private pension funds and predicting the collapse of numerous company schemes in the next six months.

The leak is the subject of an investigation but the contents of the confidential document have not been disputed. It warned that, barring an unexpected recovery in the stock market, it was unlikely that the benefits promised by defined benefit pension schemes would be paid in full.

That view was backed up yesterday by figures from consultants Hewitt Associates that showed pension funds invested by the main private investment managers have lost almost a third of their value to date this year.

Ms Hanafin warned against panic but did not sugar her predictions.

“There is no immediate risk to people who are 40 or 50 years of age and still working. The people we are anxious about are the people who are coming up to retirement. We know some funds are in difficulty,” said the minister.

She said funds which had notified difficulties to the Pensions Board were being given time to come up with proposals for finding money from other sources to meet the shortfall.

“There is no reason why employers should close a scheme or be panicked into closing a scheme.”

She also said regulations would be introduced to allow workers due to retire on the even more volatile defined contribution schemes to defer cashing in their contributions for two years.

Scheme members normally have to draw down their contributions to buy an annuity that will give them a guaranteed income in their retirement but the funds they have to make the purchase have been decimated by the stock market collapse.

However, the independent Think-tank for Action on Social Change (TASC), said it was time to devise a completely different method of pension provision as it was clear the stock market could no longer offer security.

Its members, which include economists, academics, trade unionists and business people called for the creation of a mandatory earnings-related social insurance pension which would guarantee contributors 50% of their pre-retirement salary.

“It has been clear for some time that private pension funds, with their heavy reliance on equities markets, cannot be relied upon to secure pensions,” said TASC director Paula Clancy.