1 in 3 Irish schemes 'will not clear deficit in 10 years'
IRELAND - Irish employers are “substantially re-evaluating their funding obligations” as a potential 30% do not have the ability to fund deficits over the next 10 years, suggests research from PricewaterhouseCooper (PwC).
A pension survey of 404 of the top 1,000 companies in Ireland showed a fifth of respondents with defined benefit (DB) pension schemes are either already winding-up their pension scheme or are considering it.
Findings also showed over 40% are considering reducing DB benefits, of which 49% are pondering a salary freeze or cap, while 39% are looking at the possibility of removing pension increases and 37% of employers may close their scheme to future service.
Figures from the PwC survey, conducted in July 2009, showed the average employee contribution to DB schemes is between 5-6% but a third of respondents have decided to increase the level of member contributions and a further third are considering the move.
PwC said the survey findings suggest pension incomes from private sector pensions will be lower in the future as questions on funding plans revealed 30% of firms are potentially unable to fund the pension deficits over a 10-year period.
Alan Bigley, partner at PwC pension solutions group, said: “There is a real sense of change coming through. Employers are looking to explore the limits of what is permitted, to defer or minimise increases in cash contributions and to identify non-cash alternatives that may be more acceptable to their business as the current challenging economic conditions continue.”
Over 70% of respondents are therefore actively considering reducing investment risks, such as reliance on equities, while the results showed over 20% are considering the use of non-cash assets to fund the pension shortfall.
Employers operating defined contribution (DC) schemes are meanwhile also cutting back on pension benefits, as although over half currently contribute 4-7% to a DC scheme, 9% have decreased their contribution levels and 32% of members plan to either reduce or cease contributions going forward.
Findings from the PwC Pension Survey also revealed 70% of employers are reviewing their DC investment strategies, while at the same time around 30% of DC members are reducing their exposure to equities, and instead switching to “more secure assets” such as cash and government bonds.
Munro O’Dwyer, director at PwC Pensions Solutions Group, added: “It is not only DB schemes which are impacted. There is no visible sign of employer contributions to DC schemes being adequate to meet the retirement needs of most of the employees who participate in these schemes, and the trends are towards lower and suspended contributions looking forward.”
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