ROUGHLY 90 per cent of defined benefit (DB) pension schemes are underfunded. And a small number do not have sufficient assets to meet the entitlements of current pensioners, according to the Pensions Board.
However, Minister for Social and Family Affairs Mary Hanafin said the introduction of a pensions protection fund, as exists in the UK, is very unlikely. It would prove, she said, “extraordinarily expensive”. Under such a scheme the State would partly guarantee pension funds when a firm with an underfunded pension plan fails.
“Pension funds are private personal investment funds. It’s very hard for the State to come along and give blanket protection,” Ms Hanafin said yesterday at the launch of the board’s 2008 annual report.
Chief executive Brendan Kennedy criticised the investment approach adopted by many DB schemes which he said was “based on aggressive investment return assumptions” and failed to take enough account of potential downsides. Consequently, the pension losses incurred in 2008 were worse than they should have been.
“Too often it seems like the schemes’ primary goal is to keep contributions to a minimum and they give little or no thought to risk,” he said.
The “perceived wisdom” that a very high proportion of pension funds must be invested in shares and property is not always appropriate, he explained.
The problem with DB schemes is that employers are “more or less signing a blank cheque”, Ciarán Phelan, chief executive of the Irish Brokers Association said in response to the board’s report.
Most employers will find it increasingly difficult to meet the necessary funding standards and will be left with little choice but to wind up DB schemes or review the benefits being provided for their employees, Mr Phelan added.
Mr Kennedy said that only a small number of DB schemes closed last year, but he “has no doubt” that more will close in the future.
One of the major concerns of the board in 2008 was the failure of many employers in the construction sector to pass on pension contributions deducted from their employees to the Construction Worker’s Pension Scheme.
In March last year, the board successfully applied for an order in the High Court directing a construction sector employer to pay arrears of pension contributions in excess of €180,000.
The board is investigating more than 150 cases in this area.
* Ms Hanafin said that she expects “a lot more” judges to make voluntary contributions in lieu of the public service pension levy by the end of the year.
To date, just 19 of the State’s 148 judges have made such a contribution. “Judges, like politicians, are well paid. Also they are people in society that others look up to,” she said. “I would have welcomed more of them taking a voluntary surrender of their salaries.”
