Defined-benefit pensions get time to regain fully funded status

TROUBLED DEFINED-BENEFIT pension funds will have more time to get their house in order under revised guidelines issued yesterday by the Pensions Board.

The news comes as new data shows Irish pension fund members are facing further uncertainty with the average managed pension fund losing 0.4 per cent of its value every year for the past decade, according to new research from Hewitt.

The figures show Irish pensions lost further ground in January, slipping by up to 2.7 per cent. Every one of the 10 fund managers surveyed recorded a negative performance for the month. After allowing for annual inflation of 3.6 per cent over the 10-year period, pension funds have now shed 4 per cent of their value, on average, every year since January 1999 in real terms.

None of the fund managers surveyed managed to better the average rate of inflation over the 10-year time frame, according to Rubicon managing director Fiona Daly, with more than half now recording negative returns over the past decade.

For the first time, the industry regulator has expressly held open the prospect of allowing companies more than 10 years to restore pension funds to fully funded status.

In general, defined-benefit pension funds – where the employee receives a certain pension income in retirement based on years served and final salary – have to receive an actuarial funding certificate (AFC) every three years, stating they are fully funded. Those that fail to do so can approach the Pension Board seeking more time.

Until now, the guidelines stated “the policy of the board is to only consider granting a later effective date no longer than 10 years from that of the funding proposal”.

Under the revised guidelines issued yesterday, the board “has now adopted a policy under which it will consider granting an effective date more than 10 years after the effective date of the relevant AFC in appropriate circumstances”. It is holding open the prospect of pension funds which have already received time to restore their status returning for further deadline extensions. This will be a significant boost for companies that have found their proposals to restore the balance of their pension funds undermined by global stock markets turmoil.

The average Irish pension fund lost more than one-third of its value in 2008.