Pensions Board may alter defined schemes

The Pensions Board is considering relaxing its funding requirements for defined benefit pension schemes in response to sustained weakness in the stock markets.

The move would give pension funds which have fallen into deficit as a result of the market downturn extra time to prove that they remain in a healthy state.

Under existing rules, defined-benefit schemes must have sufficient resources to cover pensions for all retirees at any given time.

The Pensions Board requires all defined-benefit schemes to produce actuarial certificates to this effect every 3½ years.

In the event of a fund being unable to meet all of its liabilities when the periodical check is being performed, it must draw up a funding proposal outlining how it will be back in the black within a further 3½ years.

The chief executive of the Pensions Board, Ms Anne Maher, said yesterday that this limited time period might now be extended to reflect the "unprecedented" falls recently witnessed in equity markets.

Pension funds in the Republic have shed about one-fifth of their value in the year to date, and about a quarter in the last three years.

A number of pension trustees are understood to have contacted the board warning that the current funding requirement may be difficult to meet next year, as the full extent of stock-market upheaval is reflected in the negative performance of funds.

A practical instance of this trend came last month when hundreds of IFI workers discovered that the liquidated company's pension fund would be unable to meet all of its liabilities.

The board is concerned that if current strict funding requirements are maintained, employers may be persuaded to move from defined-benefit to defined-contribution schemes.

This model transfers the pensions risk from employer to employee, a shift which the board considers to be undesirable.

Currently, there are more than twice as many Irish workers in defined-benefit schemes than in defined-contribution schemes.

"We don't want any knee-jerk reactions driven by regulatory requirements," said Ms Maher, adding that the Pensions Board did not want trustees to feel pressurised by funding requirements.

Ms Maher said, however, that funds in deficit purely as a result of bad management would not be allowed to avail of any time extension.

The chairman of the Irish Association of Pension Funds, Mr John Feely, said yesterday that he would welcome a change of approach from the board.

Mr Feely believes that funds should be judged over a period rather than at a particular point in time, suggesting that funds be given 10 rather than 3½ years to recover any shortfalls due to market downturns.

"The funding standard is not designed for current circumstances," said Mr Feely.

The Pensions Board is in discussions on the issue with interested parties, including the social partners and the Society of Actuaries.