75% of defined benefit pensions in deficit

THREE out of four defined benefit pension schemes are in deficit and those paying into them risk receiving less than they expected because of failures to reduce the exposure of such funds to equity markets.

The warning was issued as the Pensions Board’s chief executive, Brendan Kennedy, criticised the continued inaction of pensions trustees.

Revealing a worrying fall in numbers paying into pension schemes, Mr Kennedy also said an over-reliance on equity markets increased the risk of pension funds suffering additional losses from declining values of stocks and shares.

In its annual report, the Pensions Board also revealed how the funding deficit was “substantial” in many of the country’s 1,108 defined benefit schemes.

Mr Kennedy said that, on average, 60% of such funds had investments in equities and properties — far above pension funds in most other EU countries.

He expressed particular concern that there had been no noticeable reduction in exposure to equities of Irish pension funds, despite the major stock market crash three years ago.

“The unavoidable conclusion is that, in very many cases, trustees have not faced up to the issues and are continuing to expose the benefits of their members to significant risks of further losses,” said Mr Kennedy.

He also criticised trustees of defined contribution schemes for their failure to tackle the issue of high administration charges.

Mr Kennedy revealed that more than 40% of defined benefit schemes last year failed to satisfy the funding standard that stipulates it should have enough assets to meet its liabilities if wound up.

However, the Pensions Board justified its ongoing extension of a deadline for the submission of recovery plans by trustees as “a pragmatic approach”.

Reacting to the report, Social Protection Minister Joan Burton said the Government was committed to reforming the pension system to ensure its sustainability.

Ms Burton said the National Pension Framework set up by the Government last March was reviewing the Pensions Board’s regulatory powers, which would include the consideration of the investment approach adopted by the trustees of pension schemes.

Mr Kennedy declined to comment on the Government’s introduction of a levy on private pensions over the next four years to fund its jobs initiative.

However, he admitted the Pensions Board had provided “technical input” to the Department of Finance in advance of the decision.

The board’s annual report revealed that the number of members of defined benefit schemes had fallen by 6.2% last year to 550,229, while total membership of defined contribution schemes fell by 2.7% to 259,732.