Pension proposal could be ‘win-win’
The move will provide relief for defined benefit pension funds in particular, as it will allow them to lower their deficits by being able to set aside less money to cover liabilities.
More than 75% of the country’s defined benefit pension schemes are in deficit to the tune of an estimated €13 billion.
Over 250,000 workers are in impaired schemes.
Finance Minister Brian Lenihan said yesterday: “The Irish Association of Pension Funds (IAPF) and the Society of Actuaries put forward a proposal under which Irish pension funds would have the opportunity to invest in longer-term Irish bonds at higher yields than are available elsewhere, and to price their liabilities to pensioners on the basis of those higher yields.
“Following extensive consultation with these bodies, the Government has decided to proceed with such a measure.”
IAPF director of policy Jerry Moriarty last night welcomed the decision and insisted the plan did not constitute a bailout of private sector schemes. He said the plan could be a win-win situation for both pension schemes and the Government but that pension trustees would have to weigh up their options carefully.
“We have not seen the detail yet and there is no doubt that the bond market is more unsettled now than when we made our proposal last February.
“While the concern is that pensioners could lose out if the Government defaulted on the bonds, the same risk is there already for public sector workers and old age pensioners too.
“Overall, this is good news for pension funds.”
His views were echoed by Frank O’Dwyer, chief executive of the Irish Association of Investment Managers. “This is a new departure and will offer trustees more options,” he said, adding that it could be of benefit to both trustees and members of defined benefit schemes.
“It will also provide another source of funding for the Government,” Mr O’Dwyer added.
A spokesman for the Society of Actuaries in Ireland said it would not comment until it saw the legislative detail of the plan.
“At this stage we are waiting to see the detail the Minister for Social Protection is going to announce, so we have nothing to add to our recent statement.”
As part of its submission to the Government, the Society of Actuaries in Ireland stated: “We believe that the sovereign annuity concept could play a significant role in alleviating the funding difficulties currently faced by most defined benefit pension schemes, and it could alleviate exchequer funding requirements at the same time.
“However, we emphasise that the concept is not a substitute for the fundamental reform of the pensions system that is urgently needed — it is a short-term tactical measure, and one that should be introduced only in a way that averts potential unintended consequences and market distortions.”
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