Minister acts to underpin pensions

THE GOVERNMENT has announced fundamental pension reform designed to make their cost more sustainable for employers and members.

The measures announced yesterday are aimed at easing pressure on underfunded pension schemes which faced an end-November deadline to tell the regulator how they proposed to normalise their position. That deadline has also been deferred.

Speaking at the annual benefits conference of the Irish Association of Pension Funds (IAPF), Minister for Social Protection Éamon Ó Cuív said he would “expedite” a proposal in the National Pensions Framework to create a “new” defined benefit model.

Defined benefit, or final salary, schemes promise to pay a set pension to retirement members on the basis of pay and the number of years served. A survey of funds presented at the IAPF conference said more than 70 per cent of such schemes are suffering shortfalls. More than two-thirds have closed their doors to new members and over a fifth are no longer allowing existing members to accrue further benefits, or plan to do so.

The model outlined by the Minister would offer a promise on “core benefits”. Additional “flexible benefits” would be paid if investment returns merited it.

The funding situation would be monitored annually by trustees.

A significant selling point of the system is that contributions into the pension fund would be fixed for both employer and members.

The escalating cost of funding underperforming schemes has been a key driver in employers moving to defined contribution schemes which carry no pension promise and rely entirely on the performance of contributions, or even the closure of schemes.

The Minister said last night that his initiative was designed to ease what IAPF chairwoman Marie Collins had earlier told the conference was a crisis.

“Anything that we are doing is to create a realistic and sustainable future for defined benefit schemes in an uncertain funding environment,” Mr Ó Cuív said.

While the precise level of core benefits and contributions has yet to be decided, along with most other aspects of the scheme, the Minister said he hoped to have it in operation by July 1st next year. It is unclear whether or not existing benefits will be affected.

A new deadline for schemes to file funding proposals with the regulator, the Pensions Board, would then be set. Mr Ó Cuív said the Government did not envisage revisiting the position on pension funding following the introduction of the new arrangements.

Ms Collins had told delegates that defined benefit pension schemes in Ireland were on a “knife edge” with many facing “total wipeout of the savings of their workforce”.

“Time is running out to stop the widescale destruction of defined benefit savings. If we destroy what is there now, what will be left is a generation of workers other than public servants facing retirement hardship.”

She said members of occupational schemes were not looking for bailouts but rather “a fair and equitable way that they can save for retirement”.