IRELAND - The Irish Association of Pension Funds has said there are "substantive issues" with new pension legislation recently passed by the country's parliament and upper chamber, saying the initial draft did not contain any proposals to reduce the pressures facing defined benefit (DB) schemes.

In a submission to the Department of Social Protection, the IAPF was critical of the Social Welfare and Pensions Bill's proposals.

But it conceded that, because it was enabling legislation, it would be hard to predict its impact until regulatory guidance from the Pensions Board had been published.

The association noted that several of the "key" changes announced by government in October last year did not make it into the Bill's final draft - which legislated for a revised funding standard, as well as mandating the introduction of risk reserves for schemes.

It criticised that the priority order for members on scheme wind-up had not been addressed, with current regulation giving absolute priority to pensions in payment over any benefits for active and deferred members a scheme may have.

"The absence of any provisions to deal with this issue will only continue uncertainty for schemes, trustees and members and will also lead to very adverse outcomes for active and deferred members," the association's submission said, adding that the changes were a "key element" for funding standard reforms.

The IAPF also echoed concerns from other industry members over the use of euro-zone government bonds to offset a higher 15% funding reserve requirement, saying it ignored the volatility seen in the Continent's sovereign bond market in recent years.

The submission said the regulation put schemes under pressure to increase fixed income exposure when this contradicted advice they would receive from their consultants.

"While we recognise the general need to reduce risk in schemes over time," it noted, "adopting an approach built on the basis that EU government bonds and cash are non-risky, and everything else is, is far too simplistic and needs to be altered."

It also argued that schemes should be given more clarity on how non-EU sovereign debt would be accounted for and how secure these would be considered, echoing concerns from Towers Watson that the Bill created a situation where Irish and Greek debt would be deemed less risky than that of Norway or Australia.

The industry group also warned about the impact of powers granted to the minister for social protection to increase the 15% funding reserve to as much as 50% - previously criticised as granting a "blank cheque".

"The existence of such a power, without any indication of why it might be used, will be of great concern to sponsors of DB schemes, as it could vastly increase the funding requirements for schemes without any advance warning," the IAPF said.

It said that insufficient time had been spent analysing the impact of the Bill and dismissed as "questionable" the premise that the holding of any EU sovereign bond reduced risk to an equal measure.

Adding that the absence of Pensions Board guidance on the issue was "disappointing" - with the regulator expected to publish its thoughts this month - the IAPF concluded: "We are concerned the Bill does not contain any of the provisions that were intended to alleviate the pressure defined benefit schemes are under."

It added that the changes did not help ensure a sustainable DB system, or address problems with equity within it.

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