Employees of semi-state companies may be asked to contribute more to pension schemes or face reduced benefits at retirement as a result of benchmarking payments to public service workers, it was claimed yesterday.
Mr Patrick Burke of the Irish Pensions Trust told an Irish Association of Pension Funds (IAPF) conference that, in semi-state companies where salary inflation is linked to the public sector, pension fund actuaries would have accounted for inflation at a rate of 4-5 per cent per annum.
"Because of benchmarking, salaries are now due to inflate at larger percentages," he said.
If more money is not put into the schemes, companies will have to reduce the level of benefit payable for each year of service going forward, he said.
The same logic applies to public service pension funds, Mr Burke said.
Pension schemes in the public and semi-state sectors are defined-benefit schemes, under which employers guarantee to provide workers with a pension based on a proportion of final salary for each year of service. The higher the final salaries, the higher the employers' liabilities.
Defined-benefit pensions were also being put at risk by international accounting standards and by the same statutory funding requirement that was designed to protect them, according to Mr Burke, chairman of the IAPF's Trustee Forum.
He said pension scheme members could see benefits reduced as trustees sought to satisfy short-term solvency requirements imposed by the Government.
It is estimated that 50 per cent of defined-benefit pension schemes are technically insolvent following three years of stock market losses.
Two-thirds of members of occupational pension schemes belong to this type of scheme, traditionally the most generous and secure available.
When actuaries confirm that a scheme has failed to meet the minimum funding standard, the employer must agree to put more money into the fund to recover the shortfall. Otherwise, scheme members could see their supposedly guaranteed pensions cut.
Employers may decide to close defined-benefit schemes to new members and replace them with inferior schemes.
"It would be ironic if steps taken by the regulator to protect the interests of scheme members had the opposite effect and, for many schemes, this may well be the case," said Mr Burke, who called for more flexibility in how the funding standard operates.
The Pensions Board, the body regulating pension schemes, is reviewing the nature of the funding standard, which values a company's pension scheme as if it were to break up and be discontinued at that exact moment.
The rules on the length of time companies have to recover shortfalls and meet the standard were already relaxed earlier this year.
Mr Burke added that new accounting standards requiring companies to report pension scheme deficits on their balance sheets do not reflect the long-term nature of pension funds.
He said the accounting standards were not in the interest of either employers or employees and called on the Government to make its opinion known to international accounting bodies.
Employers may seek to fund schemes using fixed-interest assets that protect against market volatility. However, this could result in lower long-term returns, which would make some schemes unaffordable.
