Pension funds call for reform as losses hit €30bn

IRISH PENSION funds are calling for radical reform, part of which could undermine the position of pensioners in schemes that become insolvent.

Outgoing Irish Association of Pension Funds (IAPF) president Patrick Burke told the group’s annual dinner last night that pension funds had lost almost €30 billion in the past 20 months.

“These losses have left most defined benefit pension schemes in circumstances of very serious insolvency and many at the edge of an abyss with little or no assets to pay the liabilities due”, he said.

Mr Burke said that the IAPF, along with the Society of Actuaries, had submitted proposals to Government recently to address the crisis.

These include “a more equitable distribution of assets on wind-up”.

This would end the absolute protection currently afforded to existing pensioners in an insolvent scheme and replace it with “priority protection at a socially desirable level and thereafter treat all scheme members equally”.

The move is part of a package of measures which would, Mr Burke said, be akin to an examinership process for pension schemes.

He also called for a “State pension purchase scheme” but opposed a pension protection fund (funded by the industry to meet claims of insolvent funds on wind-up). He said a protection fund would be unsustainable and present moral hazards the State could not afford.

Calling for urgent action, Mr Burke said: “The situation is deteriorating week by week. Hundreds of schemes face the possibility of collapse and in the absence of change, the pensions of tens of thousands of employees may be lost or drastically reduced.”

In defined contribution schemes – where the pension paid is determined by the amount invested and the performance of those investments – Mr Burke said contribution levels continue to be too low. He also called for more flexibility in how such pensions were paid in place of the rigid annuity system.

Mr Burke said the State’s “history of not tackling mafeasance” had allowed a culture to develop that was putting the good name of the country at risk.

“Our international reputation as a country in which to invest has been severely damaged over recent weeks and years by evidence of weak regulatory policies and practices, poor standards in business and unacceptable corporate governance.”

Ireland needed to move beyond rhetoric, he said, and impose stronger regulatory practices “with more teeth to ensure visible and swift prosecution where regulatory and legal breaches are proven”.

Directors needed to act decisively in tackling company executives who breach “the standards of office (not just the legal threshold)”, he added.

Mr Burke also defended the tax reliefs available for pension contributions, saying that taxation was simply deferred with pensioners paying tax at their marginal rate when pensions were drawn down.