Revised rules announced for defined-benefit pensions

THE CRISIS in the pensions industry is set to become worse, according to Brendan Kennedy, chief executive of the Pensions Board. Currently at least 80 per cent of defined-benefit pensions schemes are in deficit, he said yesterday.

“Some defined-benefit pensions schemes will close,” he added.

The “severe difficulties” of the majority of schemes have been brought on by historically low returns on equities over more than a decade and exacerbated by the financial crisis ongoing since 2007/08.

In order to address the shortfalls in most of the 993 defined-benefit or final salary schemes in existence, the board announced revised rules yesterday.

A new timeframe obliges schemes to draw up long-term plans designed to ensure they are sustainable. The first deadline for submitting plans to the board will be the end of the year.

Schemes will have 11 years to clear their deficits, although some exceptions could be made, Mr Kennedy said. By 2016 schemes will have to put in place a “risk reserve” that will ensure commitments are covered in a range of adverse scenarios, such as changes in interest rates or a decline in asset values.

If employers do not have available resources they will be able to put up earmarked assets as security provided the trustees are satisfied with the quality of the earmarked assets. Also, companies with an investment grade rating from a credit rating agency will be allowed make commitments to cover the risk reserve provided the commitments are legally binding.

There are 197,000 people in defined-benefit schemes who are still working.

A further 190,000 are deferred members who have not retired but are not paying contributions (usually because they have moved jobs).

Finally, there are 85,000 retirees who are in receipt of payments from the schemes they have paid into over their working lives.

The board does not have the powers to force schemes to close but the Government has committed to granting those powers. Mr Kennedy said yesterday that he expected to have those powers by the end of the year.

The board will be holding public meetings for the trustees of pensions schemes in the weeks ahead to explain the new rules.

The Pensions Board was established in 1990 to regulate occupation pensions schemes and other retirement plans.