Many pension funds face collapse - report


Taoiseach Brian Cowen has said the Government will be consulting with the pension industry on funding arrangments after a report claimed that many pension funds face collapse

A confidential memo to Government from Minister for Social and Family Affairs Mary Hanafin said more than 90 per cent of defined benefit schemes are expected to report a deficit to the Pensions Board.

Workers’ pension schemes face a deficit of between €20 and €30 million over the next six months, according to Ms Hanafin's memo.

It predicts the public collapse of a number of schemes over the next six months and warns that it would be impossible for the Government to pick up the shortfall because of budgetary constraints - no matter how strong the pressure might be.

The contents of the leaked memo were reported in the Sunday Tribune .

Commenting on the memo, Taoiseach Brian Cowen said: "Obviously the Minister for Social and Family Affairs will be engaging with the pension industry to review their funding arrangements and work with them in the coming months on long-term strategies."

Currently, there are about 100,000 pension schemes in Ireland, of which about two-thirds are defined benefit schemes. Under this arrangement, workers are guaranteed a certain level of income on retirement and the employer bears the risks associated with the plan.

Many employers have moved in recent years to defined contribution schemes, which do not guarantee a fixed sum on retirement because workers bear the risk of stock market fluctuations.

Responding to today's newspaper report, Ms Hanafin said: "These are turbulent and difficult times for money markets where most pension funds are invested. Pension fund managers have yet to report on their funding standards to the Irish Pension Board, but in public comments they have indicated that funds are subject to market fluctuations."

She said the Government was continuing to closely monitor the situation and that it was preparing proposals on the long term strategy on pensions, following the submissions made on Green Paper on pensions earlier this year.

The employers' body Ibec said this afternoon there was a "major worry" about the deficits in pension funds and that a number of schemes had the potential to wind up over the next 12 months.

“It is time that the Government and the Pensions Board as the regulator, faced up to the serious difficulties that defined benefit pension schemes are facing. The current obligation on schemes to be 100 per cent funded on a discontinuance basis is not sustainable,” said Ibec director general Turlough O'Sullivan.

“The problems facing employers are 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 added.