Pensions Board advises trustees to urgently address funding shortfalls

Four out of every five defined benefit pension schemes are in deficit, with a number of them unlikely to survive under new statutory rules, according to the chief executive of the Pensions Board, Brendan Kennedy.

New regulations mean companies will have to address funding shortfalls in their schemes and produce plans for the board by the end of this year.

Schemes unable to meet those targets are likely to be wound up, with the youngest members suffering the most, Mr Kennedy said in his review of the board’s activities during 2011.

“Undoubtedly, some defined benefit schemes will close, and their members may not receive the benefits that the scheme intended to provide them.”

He said the objective of the board must be to see as many defined benefit schemes as possible put on a secure footing and prudently managed for the future benefit of their members.

Mr Kennedy said the trustees and administrators of pension funds should address urgently any funding shortfalls, as delay could affect a scheme’s viability.

“It is important that the decisions be made and implemented as soon as possible. Until this is done, the contributions are likely to be inadequate, and the position of the scheme will be getting worse,” he said in the 2011 annual report and accounts of the board, launched yesterday by Social Protection Minister Joan Burton.

Mr Kennedy said trustees must focus on the long-term sustainability of the scheme, not just on the short term.

There was nothing to be gained by an overoptimistic assessment of a scheme and, in particular, of likely future investment returns.

“Over-optimism is unfair to the younger members of the scheme, whose contributions will be most at risk and who are least likely to receive their full benefits.

“As many as 80% of defined benefit schemes are in deficit and in a number of cases, the deficit is substantial. The board has published deadlines by which these schemes must submit funding proposals to tackle these deficits. The first of these deadlines falls on Dec 31, 2012. It is now up to trustees to prepare and submit proposals which will put the finances of their scheme on a long-term stable footing.

“Defined benefit pension schemes have made long- term pension promises to their members. Our objective must be to see as many defined benefit schemes as possible put on a secure footing and prudently managed so that the members receive the pensions they are expecting.”

Speaking at the launch, Jane Williams, chairperson of the Pensions Board, said it was concerned at the apparent decline in the number of people paying into occupational pension schemes.

“The state pension is the first pillar of pensions’ provision. Occupational pensions are an important second pillar. This year’s annual report shows that the total number of active members in occupational pension schemes at Apr 2012 was 771,878, a decline of some 38,083 members over 2010 levels.

“While the fall in occupational pension scheme membership can be expected as a consequence of declines in employment and contractions in the economy it is of serious concern for the board given the importance of personal savings to provide for retirement in addition to the state pension.”