Government policy will lead to reduced pensions, warns Ibec
IBEC, THE national organisation that represents businesses and employers, has called for a radical change to the Government’s policy on pensions, arguing that workers may be left with dramatically reduced benefits under current policy.
Addressing a conference on pensions yesterday, Ibec’s director of industrial relations and human resources services, Brendan McGinty, said employers “cannot pay the sums required to bring schemes up to regulatory standards,” pointing out that many employers voluntarily sponsored mechanisms of pension provision that they then thought to be sustainable.
The Government recently reintroduced minimum funding standards for pension funds, gave companies 11 years to clear their deficits and introduced a new risk reserve scheme, which must be in place by 2016.
Mr McGinty said the government’s decision to introduce an additional risk reserve of 15 per cent of liabilities is likely to cause “extreme difficulty”, pointing out that it is being introduced at the “worst possible time”, as most pension schemes are already distressed.
“The reserve . . . requires the people who pay for pension schemes – employers and employees – to overfund each scheme,” he said, adding that such “overfunding” will discourage voluntary occupational pension provision.
Figures released by the Pensions Board last week showed that some 38,000 people left occupational pension schemes over the past year.
Ibec is also calling for the introduction of an “employer covenant” that would recognise employers’ commitment to the scheme, instead of the Government proposal to allow employers to offer security, such as charges on property, to stand in place of all or part of the risk reserve. “The Pensions Board needs to accept a broader range of commitments as being valid underpinnings for the viability of a scheme,” Ibec said.
Addressing delegates, solicitor Loughlin Deegan highlighted the issues that are facing the industry as a result of the Government’s decision to raise the State pension age to 66 from 2014. Pointing out that up to 14,000 people would have been expected to qualify for the State pension at 65 in 2014, around a quarter of whom were expected to retire immediately before receipt, he said this was of “urgent concern” to employers.
He pointed to a potential surge in equality litigation relating to compulsory retirement ages, pointing out that the Equality Tribunal in Ireland has rules that individual employers who set retirement ages must objectively justify those retirement ages.
Brian Mulcair of Towers Watson questioned the overall benefits of the Government’s proposed sovereign annuity scheme, pointing out that pensioners could receive no income for a period of months or years under the proposed scheme.
He also questioned whether the expected price discount of 20-25 per cent offered by Irish sovereign annuities relative to conventional annuities, based on a yield of 6 per cent on NTMA coupon-only bonds, would fairly reflect the risk being transferred to the pensioner.