IRELAND - Around 22% of Irish defined benefit (DB) pension schemes have modified their benefits in the last two years, and have generally reduced future benefits in some form, according to consultancy firm Mercer.

A survey of Irish DB schemes earlier this year also shows 55% of current DB pension schemes, up from 38% in 2006, are now closed to new employees, and around 10% of these closed schemes are frozen, meaning existing employees do not accrue any further benefits.

A counter-trend, however, has been the financial services sector, where DB schemes have been re-opened to staff.

The number of employees with access to DB schemes has not declined as quickly as the number of schemes in total, since funds that have been closing have tended to be smaller in size, while 78% of employees are still in open DB schemes, Mercer said today.

Employee contribution rates have also increased to an average of 5.5% while approximately 10% of schemes have increased employee contributions since Mercer’s last survey in 2006.

However, funding standard difficulties remain, as one-third of schemes fail the funding standard under the Pensions Act at their latest measurement date. Mercer also expects this trend to worsen given recent market falls.

Moreover, Liam Quigley, a senior consultant with Mercer, said for companies with larger schemes today, the risk associated with their pension scheme can become crippling.

“Where the value of the pension scheme is small relative to the size of the company, the risks are modest.  But when the pension scheme liabilities begin to approach 20% or 30% of the market capitalisation of the company, the risks associated with the pension scheme can become the biggest single area of risk for the company - even bigger than any risks in its core business,” said Quigley

Tom Geraghty, head of Mercer’s investment business in Ireland, added one of the largest risks of pension schemes is the investment risk.

Around 33% of DB funds have changed their investment strategy over the past two years and many have increased the amount of bonds they hold, with the aim of limiting volatility in the contribution rate and the solvency level in future years, the survey also found.

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