Hanafin rules out workers’ pension protection scheme

THE Government is unlikely to introduce any pension protection fund for workers despite official estimates that 90% of defined benefit pension schemes are presently underfunded.

The Minister for Social and Family Affairs Mary Hanafin yesterday effectively ruled out a scheme which would provide some kind of protection to employees nearing retirement who have seen their pension funds lose a large proportion of their value over the past year.

Proposals for the introduction of a pension protection fund have been raised by trade union representatives during talks between the social partners over the past few months.

Speaking at the launch of the annual report of the Pensions Board in Dublin, Ms Hanafin said it would be premature to make a final decision on the issue. However, she admitted that the introduction of a pension protection fund would be highly unlikely given the state of the exchequer.

“Pension funds are private personal investment funds. It’s very hard for the State to come along and give blanket protection,” said Ms Hanafin.

She also warned that the €2.9 billion in tax relief for pensions, which favours higher wage earners, could be subject to more equitable distribution in future.

Ms Hanafin declined to comment on whether she would support a reduction in the state pension of €230 per week – an issue being examined as part of several Government bodies looking at ways to cut state expenditure.

Pensions Board chief executive, Brendan Kennedy, said over 90% of pension funds would have suffered losses over the past 12 months as both defined benefit and defined contribution schemes were hit badly by the crash in international stock markets.

“2008 was an extremely difficult year for pension savings and the retirement plans of very many individuals have been badly damaged,” said Mr Kennedy.

He estimated that most funds would have lost 20%-30% of their value.

The Pensions Board said there was also a significant deterioration in the solvency of defined benefit schemes with very few meeting the recommended funding standard. “A small number do not have enough assets to meet the liabilities of current pensioners,” said Mr Kennedy.

However, the Pensions Board said pension losses in 2008, while unavoidable, were worse than they could or should have been because of the failure of too many schemes to take account of investment risks.

“Too often it seems that schemes’ primary goal is to keep contributions to a minimum and they give little or no thought to risk,” said Mr Brennan.

He claimed there was a history of Irish pension funds placing a very high proportion of contributions into stocks, shares and property. He estimated that such investments accounted for at least 80% of most pension fund portfolios.

The Pensions Board expressed its regular concern that almost half of the workforce had no supplementary pension provision, especially as its own research has shown that eight out of 10 people don’t consider the weekly state pension would be adequate for their retirement.

“There is a disconnect between the pensions many expect to receive and the contributions that they make or are being made on their behalf,” said Mr Kennedy.

He pointed out that new regulations, which come into effect on July 1, will see members of defined contribution schemes being provided with annual estimates of the value of their pensions upon retirement.

The annual report also shows that defined benefit schemes, which are declining in popularity because of their high cost, still account for two-thirds of all private pension schemes.