IRELAND – Opposition proposals to link Irish pension liabilities to the country's sovereign debt would put public and private pension savings on the same footing, Aon Hewitt has argued.

Asked about opposition party Fianna Fáil's proposals to introduce smoothing and link liabilities to the country of origin of scheme members, senior consultant Philip Shier said he could understand the logic behind such ideas.

"It seems perverse that state pensions and unfunded public sector pensions are effectively on a particular credit rating, reflecting the state's ability to meet its obligations, whereas pension funds are required to have a much higher standard of security for the benefits that pensioners of pension funds will achieve," Shier told IPE.

He said this resulted in many questioning how appropriate it was to continue to discount private provision against AAA-rated euro-zone debt, when it increased the cost of the benefit's security.

Shier added that shifting to a reliance on Irish sovereign bonds would have the benefit of pension funds investing in local debt in order to best match liabilities.

The actuary also welcomed suggestions to introduce smoothing, which the Irish Association of Pension Funds previously said was not a "complete solution" to the underfunding problem facing defined benefit schemes in the country.

He noted that smoothing would seemingly accept the principle that pension funds were longer-term investors, managing liabilities over a period of several decades.

"It seems perverse that their entire structure should be threatened or have to be changed as a consequence of relatively short-term market movements," he said.

"If you're able to accept that as a reasonable starting point, then, logically, you'd be very supportive of smoothing, deferring and things like that."

He said there was "merit" in an element of smoothing being introduced, as it would soften the blow as Irish bond yields continued to recover.

But he said any such regime would face a question of whether to implement smoothing, or potentially allow for longer recovery periods in instances of low yields.

For their part, Fianna Fáil suggested the industry should abide by a benchmark set by the government that "does not track shorter-term market movement".

It also suggested that, as an alternative, pension funds should be able to split the benefit promise into hard and soft promises – with the core benefit discounted against a AAA bond, while the "excess" would be bound to a "softer" benchmark.