SIPTU seeks boycott of pension accounts rule

State's largest union fears the introduction of FRS17 will lead many companies to close defined benefit pension schemes

The State's biggest trade union, SIPTU, has called on pension fund trustees not to implement the new FRS17 accounting standards and has refused to comply with the controversial provision in its own accounts.

FRS17 is a new accounting rule that requires companies to disclose changes in the value of their pension fund investments in the company's own accounts.

It has been generally seen as the catalyst that has led many companies to close defined benefit pension schemes and introduce defined contribution schemes for new employees.

Defined benefit (DB) pension schemes provide a guaranteed level of pension for employees related to their length of service and their final salary.

In contrast, employees in defined contribution (DC) schemes have no guaranteed level of pension, with retirement income from these schemes dependent on the performance of investment markets over the employee's employment period.

SIPTU's president, Mr Des Geraghty, said: "This proposed new standard, orginating in the UK, is threatening to undermine work done over decades by trade unions and others to provide adequate pension cover for hundreds of thousands of workers in Ireland and the UK."

The Irish Congress of Trade Unions has already contacted the Trade Unions Congress in the UK about a joint campaign as the FRS17 accounting standard applies in both Ireland and the UK.

Mr Geraghty said that FRS17 threatened the independent status of pension scheme accounting.

In addition, it created an inappropriate link with the financial affairs of individual enterprises and drove employees towards defined contribution rather than defined benefit schemes. "This is now undermining the long-established collective approach to pension cover which caters for all ages, spreads risk over a longer cycle than the traditional accounting practice and shares the responsibility for adequate pension cover between employers and employees," said Mr Geraghty.

There has been a general movement away from final salary defined benefit schemes and industry sources believe that most new employments, especially multinationals, will offer only DC schemes to their employees.

The sources added that one Irish employer in 12 was currently considering closing its existing DB schemes and instead putting them into DC schemes.

Earlier this year the chief executive of the Pensions Board, Ms Anne Maher, said 44 per cent of pension schemes in the private sector were now DC schemes, shifting the investment risk from the company to the employee.

While FRS17 is one factor that has led the move towards DC schemes, industry sources said the issue of liability was another major factor.

People are now tending to live longer and thus drawing down a pension for a longer period and this has led to potentially serious implications for the funding of DB pension schemes.

So far, there have been no concerted moves to close off existing Irish DB schemes.

But in the UK, there has been a wave of high-profile closures of such final salary schemes, including the likes of Lloyds TSB, Sainsbury, ICI, Iceland and Marks & Spencer.

A survey by the National Association of Pension Funds in the UK suggests that more than 75 per cent of employers with final salary DB schemes are considering ending them mainly because of FRS17.