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Ireland eases DB funding over market worries

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  • Ireland eases DB funding over market worries

IRELAND - The Irish government has announced a series of measures designed to ease funding pressures on defined benefit (DB) schemes following the recent market volatility.

Concerns over recent investment losses for Irish pension funds, with figures from Hewitt and Rubicon reporting a 4% drop in November, had previously led Mary Hanafin, the minister for social and family affairs, to ask the Pensions Board to adopt some temporary measures to help pension funds. (See earlier IPE article: Irish funds drop 4% in November)

These included temporarily allowing schemes additional time to prepare funding proposals, and for the Pensions Board to be more flexible with applications for the approval of funding plans.

However, the government admitted today "in view of the ongoing difficulties in the investment markets", more steps need to be taken so Hanafin has asked the Pensions Board to make further alterations to the supervision of the funding of DB schemes.

The new measures introduced by the Board will allow:

Longer periods for recovery plans - greater than 10 years - in appropriate circumstances; A replacement recovery plan can extend beyond the date of the original plan if the pension fund is already partway through the original funding proposal but has gone off track because of investment losses, and Voluntary employer guarantees to be taken into account when approving recovery plans

That said, the Pensions Board warned to stop the amendments being taken as a "weakening of the supervision" it would reject any recovery plan that fails to demonstrate an "appropriate investment approach".

Hanafin said: "The department of social and family affairs and the Pensions Board are actively monitoring the impact of global financial market developments and the effect of investment losses on DB pension schemes. The current significant funding pressures on pension schemes which reflect the unprecedented developments in worldwide financial markets are a particular concern."

The government confirmed the Board will publish the technical details of the changes in early January, and the effectiveness of the new measures be kept under review, with the changes expected to be reviewed, at the latest, by 1 January 2011.

The announcement follows calls from the industry to reform DB funding rules to avoid a collapse of the DB pension system, after a leaked memo by the department of social and family affairs was reported to have claimed the total pension deficit was €20-30bn with 90% of DB schemes expected to be in deficit. (See earlier IPE article: NPRF may be used to shore up Irish banks)

In particular, the Irish Business and Employers Confederation (IBEC) claimed the funding rules governing DB schemes "need urgent reform or a number will collapse, with benefits severely restricted".

Turlough O'Sullivan, director general of IBEC, said: "The value of pension funds have been seriously undermined by poor investment returns, declining asset values and longer life expectancy. Employer contributions have had to rise significantly in recent years simply to meet the draconian discontinuance funding standard."

One of the solutions put forward by IBEC earlier this month to ease the funding pressures, and which appears to have been adopted, was that the "employer covenant should be accepted by the Regulator, without the need for further immediate funding".

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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