UK trend in benefit scheme causes concern

Irish workers could be excluded from their own defined benefit pension schemes if their employers chose to close them down. Employees here have no legal protection from the trend which has accelerated in the UK in the past year.

While it is now common for traditional final salary or defined benefit schemes to be closed to new employees, some British companies have begun to close down such schemes to any future contributions from existing employees.

Mr Fergus Whelan, pensions spokesman of the Irish Congress of Trade Unions, said that any moves by employers to do away with defined benefit schemes or change them would be met with strong union resistance. "It may be legally possible but that doesn't mean we would let it happen," he said.

Under most pension scheme rules, a company scheme can be terminated by the employer with six months' notice. Defined benefit schemes are effectively being phased out in the private sector, something which is of great concern to the Pensions Board. The chief executive of the board, Ms Anne Maher, said 44 per cent of pension schemes in the private sector were now defined contribution schemes, shifting the investment risk onto the employee.

Ms Maher said some Irish defined benefit schemes had closed to new entrants and the board was monitoring this development. Almost all new schemes coming on stream are now defined contribution or money purchase schemes with a lower level of employer contributions.

Mr Paul O'Brien, actuary and associate director with KPMG, said many of the same factors which have led to the restrictions in the UK also applied in the Irish pensions context. "Companies have been reviewing the costs involved in providing defined benefit schemes against a background of lower investment returns, increased longevity and index-linked benefits."

This week Ernst & Young and Iceland blamed new accounting standards for their decision to close down their defined benefit schemes. The new standards, which also apply here, require companies to show the assets and liabilities of their pension scheme on the company balance sheet.