PENSIONS WARNING:THE EMPLOYERS' group Ibec has warned that unless funding rules governing defined benefit pension schemes are reformed urgently a number will collapse, severely restricting benefits.
At the launching of its annual human resources summit in Dublin yesterday Ibec director Brendan McGinty said it was time that the Government and the Pensions Board faced up to the serious difficulties defined benefit schemes were facing.
He said that about 100,000 company pension schemes were in operation, with about two-thirds of these being defined benefit schemes which guaranteed a particular level of salary on retirement. However, the difficulty was that the regulator of the sector, the Pensions Board, and ultimately the Government, had insisted on a funding standard that required employers to finance the defined benefit schemes on a wind-up basis - in other words that they could meet 100 per cent of their liabilities in the event of the employer folding.
"In the current environment, where business costs are rocketing and where we have seen the kind of turmoil on the international markets, it is simply not sustainable that that funding standard remains."
Ibec has proposed that where a company scheme has a difficulty meeting the actuarial funding requirement and where the sponsor employer is prepared to sustain the scheme in the event of a shortfall, then that employer covenant should be accepted by the regulator, without the need for further immediate funding.
Mr McGinty said that about three out of four defined benefit schemes were failing to meet the current funding standard, up from one in four just two years ago.
"The problems facing employers is being exacerbated by poor investment returns, declining asset values and longer life expectancy. Employer contributions have had to rise significantly in recent years simply to meet the draconian discontinuance funding standard.
"Defined benefit pension costs are increasingly regarded as a bottomless pit," he said.
Mr McGinty said the funding standard and other requirements were leading to the demise of defined benefit pensions. "Employers have a responsibility to act," he said. "If they increase payments beyond what can be afforded, this threatens the viability of employment and of the business."
Ibec said there were 99,802 pension schemes covering 800,398 members; 66 per cent were defined benefit pension schemes, with 34 per cent defined contribution schemes, in which the payout is dependent on the value of the fund at that time.
Ibec said it had raised the issue of the requirement for schemes to be 100 per cent funded on a discontinuance basis in response to the Green Paper on pensions.