Irish business group slams 'draconian' pension funding standard
IRELAND - The Irish business lobby has slammed "arbitrary" new pension funding requirements, warning that the current framework does not adequately recognise the long-term nature of defined benefit (DB) schemes.
Speaking at a conference hosted by IBEC, the business lobby's director Brendan McGinty said the "scale" of the pension crisis was not being appreciated, with numerous members at risk of seeing their benefits significantly reduced or even being left with no benefits.
"New arbitrary rules for defined benefit pension schemes will cause otherwise viable schemes to close," McGinty told the attendees. "When these schemes are wound up, existing pensioners will have priority, leaving many of those that have not yet reached retirement age with significantly reduced benefits.
"This wind-up standard fundamentally misunderstands the long-term nature of pension provision."
His criticism echoes concerns raised by the pensions industry, with the Irish Association of Pension Funds repeatedly calling for a change to the priority of member payments on wind-up.
Currently, pensions in payment are granted absolute priority.
These concerns were shared by the chief executive of the Pensions Board Brendan Kennedy, who said everybody would have preferred that changes to the wind-up order be introduced before the reinstatement of the funding standard.
McGinty meanwhile said government policy had not addressed the "key issue" of scheme underfunding.
"The emerging alternative, given the current inadvertent direction of policy, is to face the prospect of how best to wind up all schemes, whilst fulfilling all the promises made as best as possible," he said.
He insisted it was important to break the link between liabilities and German or other AAA-rated bonds, used as a benchmark on a buyout basis.
"Healthy schemes do not need to buy annuities, yet the health of schemes is measured against annuity prices, and the capacity of a scheme to meet the statutory minimum finding standard based on annual testing," he said.
"A new model needs to be developed that reflects how schemes actually keep their promises to members in order to assess whether they are in a position to continue to keep those promises."
McGinty said sovereign annuities were a step in the right direction and that scheme trustees should be offered "enhanced" statutory immunities when buying the product, as they can transfer the risk of a sovereign default directly to a member, reducing benefits.
He said the new risk reserve proposals, introduced as part of the Social Welfare and Pensions Act, were unrealistic and only added to existing problems, resulting in the unnecessary overfunding of schemes, while IBEC branded the requirements "draconian".
The lobby head also urged for an end to the 0.6% pensions levy, instead suggesting that the funds be diverted to an infrastructure bond or similar measure.
"This should be considered a means of encouraging funds to invest in return-seeking assets, which would, as part of the scheme design, target investment and job creation in the wider economy whilst ensuring the funds are not lost to employers and workers," he said.
However, McGinty said IBEC's concerns over the recent regulatory changes also concerned employers' ability to retain stable workplace relations, saying the "imposition of new, arbitrary rules" risked undermining this extraordinary level of cooperation between business and employees, which had largely seen no strikes despite the changes triggered by the financial crisis.