Defined benefit move expedited

The Government has agreed to expedite a proposal to move to a new defined benefit model as outlined in the National Pensions Framework.

Minister for Social Protection Eamon Ó Cuív said his department was aiming to introduce the new model, following legislative changes, on July 1st next year.

The new scheme provides for fixed rate contributions from both employers and employees and more flexible benefits should the investment encounter losses. There would, however, be a core level of benefits that would be guaranteed.

The promised level of benefits would be significantly lower than under a current typical defined benefit scheme but participants would be provided a greater level of certainty about their investment.

The department said such a scheme allows employers greater predictibility on their contributions and scheme members a clearer understanding of the benefits the scheme will provide them in retirment.

In an address to the annual benefits conference of the Irish Association of Pension Funds this morning Mr Ó Cuív said his department would look at issues regarding the governance of defined benefit schemes, the basis for the funding standard.

These include areas such as risk management, smoothing out effects of changes in the bond markets and strategies for transitioning schemes to this new model.

"Full consultation will, of course, take place with the pensions industry, employers, trades' unions and other stakeholders in developing the new model," he said.

Mr Ó Cuív said a broad number of measures had been taken to assist scheme trustees to maintain the viability of their schemes, including the introduction of the Pensions Insolvency Payment Scheme.

He also noted that in considering further changes, “thorough consideration is being given to the Sovereign Annuity proposal into which significant work has been put by the Irish Association of Pension Funds and the Society of Actuaries in Ireland.”

Such a move would allow Irish pension funds to buy more of the State's sovereign bonds.

The Pensions Board said in June that despite improved investment returns three-quarters of Irish defined-benefit pension schemes remain firmly in the red, running a combined deficit of about €25 billion.