Ireland's switch to DC is less than expected
IRELAND- New research suggests Ireland’s defined benefit schemes are proving more resilient than those of the UK and that the shift to defined contribution is less marked than expected.
The latest edition of the Irish Association of Pension Funds’ benefits survey shows almost seven in ten of Ireland’s largest schemes remain defined benefit.
“The rate of closure is about 7% over three years which is not as dramatic as many envisaged,” says John Feely, chairman of the Irish Association of Pension funds.
But the gradual shift towards defined contribution is likely to continue due to rising costs associated with increased life expectancy, lower projected investment returns, the introduction of the accounting standard FRS17 and the added regulation associated with this year’s pensions act.
The survey is the most comprehensive overview of the pension industry in Ireland, covering 200 funds that represent a total of 425,000 people.
The IAPF report sends out a number of warning signals for employees. Feely says that they need to be aware that the current level of contributions to DC schemes are unlikely to be sufficient to provide adequate retirement benefits and that employees should top up their pensions with additional voluntary contributions.
According the report, more people are opting for early retirement. The normal retirement age in 14% of DB schemes is 60 or below. For defined contribution schemes, this figure rises to 33%.
“Based on current contributions, investment returns and life expectancy, this move to early retirement is unsustainable,” says Feely.
The report coincides with figures from the UK suggesting a quarter of DB schemes have either closed completely or to new members. More than a fifth of DB schemes surveyed by the research group Pension Fund Partnership say they are likely to close their scheme within a year.