The Irish Business and Employers' Confederation (Ibec) has today warned that action is needed to prevent the collapse of some defined benefit pension schemes.
Speaking at the opening of the Ibec Human Resources Summit in Dublin today, Ibec director Brendan McGinty said that unless the funding rules that oversee defined benefit pension schemes are urgently reformed a number will collapse, with benefits being severely limited.
Under defined benefit pension schemes, recipients receive a guaranteed pension based on final salary.
Mr McGinty said: “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."
It is a regulatory requirement on defined-benefits schemes that employers ensure they are fully funded to meet all liabilities.
Ibec said that, according to pension industry estimates, three out of four defined-benefit schemes could now fail to meet the funding standard compared to just one in four at the end of 2006. Currently there are 99,802 schemes with 800,398 members of which 66 per cent are defined benefit schemes and 34 per cent are defined contribution schemes.
“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," Mr McGinty continued.
Defined benefit pension costs are increasingly regarded as a "bottomless pit", he added.
“The funding standard and other regulatory requirements are leading to the demise of defined benefit pensions. Employers have a responsibility to act: if they increase payments beyond what can be afforded, this threatens the viability of employment and of the business."
“Given that we are now in more difficult economic circumstances, employers will continue to examine the balance of pension costs. Ibec believes that continuing the current wind-up standard is only hastening the flight from defined benefit scheme provision,” he said.
The employers' body has proposed that where a company scheme has a difficulty meeting the funding requirement and where the sponsor employer is prepared to offer to sustain the scheme in the event that a shortfall occurs, then that employer covenant should be accepted by the Regulator, without the need for further immediate funding.
When questioned on RTÉ's Morning Ireland, whether an easy of the funding requirement would leave these pensions not properly funded, Mr McGinty said there was a balance to be struck. "What we want is a sensible outcome, a debate on the issue of the funding standard . . . we need the Government to act, and act quickly."
He added that within six months defined-benefit schemes would be in "seriously difficulty" if funding standards were not relaxed and some would be in danger of collapse.
"We have this extremely ambitious funding standard that bears no relationship to the pressure and turmoil that business face on a daily basis. We need the regulator to face up to that, to recognise those challenges and take sensible action," Mr McGinty said.
Ibec said it had raised the issue as part of its response to the Green Paper on pensions.
