IRELAND -  The Irish Association of Pension Funds has called on the government to establish a Commission on Retirement to update the assumptions underlying Ireland's two-year old Green Paper on Pensions, following the recent changes in the economic environment.

Speaking at yesterday's IAPF conference on "The Defined Benefit Challenge", Jerry Moriarty, director of policy at the association, suggested the Commission "should pull together all of the recent reports prepared on pension provision and look at these in the context of other issues and needs that face us as an ageing society such as health, long-term care and lifestyle".

Echoing comments made by Mary Hanafin, Minister of Social & Family Affairs, Moriarty argued the assumptions used in the Green Paper, published on 17 October 2007, were now "largely obsolete" because of the changes in the demographic and economic environment.

But he suggested "within a relatively short period it [the Commission] could make the recommendations necessary to provide a clear road-map for all future generations of retirees".

In her speech to the conference, Hanafin admitted that on previous occasions "I had expected that the National Pensions Framework would have been published by now. However, we must all acknowledge that we live in very different times to when the Green Paper was published in October 2007".

She noted, like Moriarty, that the assumptions are now very different. In particular, she explained: "GNP growth was at 5.7% in 2007 - it is now at minus 8%. Employment growth was at 4.4% - it is now at minus 7.8%. Unemployment was at 4.6% - it is now at some 12%."

In addition, she admitted: "The Social Insurance Fund, from which we pay the contributory State pensions, is now in deficit and the current surplus will be exhausted next year. This will require the government to subvent this Fund some five years earlier than planned. This uncertain economic climate increases the complexity of the decisions we must make but, let me stress that it does not cancel or deviate the government from making these vitally necessary decisions."

That said, Hanafin claimed the current situation requires very careful consideration, and suggested "it is precisely because the development of the framework involves decisions on such a wide range of future and complex issues that we have been spending a considerable amount of time developing the framework."

In the meantime Hanafin highlighted short-term measures introduced to try and ease the problems facing DB schemes, such as changes to wind-up priorities, and the ability to cut accrued benefits. But research from the IAPF revealed the number of DB schemes closing to future members is likely to double from 35% in 2007 to 70% in the near future.

Figures from the short survey of 137 members and non-members of the IAPF showed 35% of companies had closed their DB scheme more than two years ago, however 18% had done so in the last 18 months and another 17% admit they are likely to shut the scheme to new members in the near future.

Of those that have closed already 60% have switched from DB to defined contribution (DC), meanwhile 4% of DB schemes closed to future accrual more than 18 months ago, while 2% have either completed or are in the process of doing so in the last 18 months, with a further 20% considering it a likely option going forward.  

However other possible actions, including the new power to reduce past benefit levels is only being considered as a likely event by 12% of respondents, with just 2% either completing or in the process of cutting accrued benefits and 74% stating they will not consider it.

Instead the most popular option for respondents was to reduce investment risk, with 11% already implemented the strategy, a further 30% in the process of completing it in the last 18 months and further 38% expecting they will implement it in the future.

This issue was highlighted in a presentation by Brian McCarthy, director of Alder Capital, who warned members and trustees that despite the apparent recent recovery in equity markets, there was a 40% chance of the value of managed balanced pension funds falling by 25% or more over the next 10 years. But he claimed the risk profile could be reduced by diversifying into new asset classes such as currency funds.
 
Moriarty said: "Many pension funds are on their knees and some are struggling for survival.  The reality for pension provision is that companies and schemes are closing, many in deficit with severe consequences for the members."

Elsewhere, at a debate in the Dáil Éireann, Hanafin reiterated to parliament that while pensions reforms had been delayed by the changes in the economic environment they "remain a priority for us during this term", and confirmed the development of the Pension Insolvency Payment Scheme (PIPS) is ongoing at the department of finance.

She said: "Officials from that Department have been working on the scheme over the summer because technical issues have arisen. However, they continue to make progress on it. The fact that regulations are not in place has not impacted on the funds because it is not as if they have not been wound up. The fund managers know the scheme is coming and the funds will be included in the scheme if they qualify".

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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