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Irish actuaries call for 'urgent' changes to pension wind-ups

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  • Irish actuaries call for 'urgent' changes to pension wind-ups

IRELAND – The Society of Actuaries in Ireland has argued in favour of changes to the country's current pension wind-up order – which grants pensions in payment absolute priority over payments active and deferred members – as it is incompatible with inter-generational solidarity.

Unveiling the Society's proposals, Cathal Fleming, principal at Mercer and chairman of the actuarial association's pension committee, said that, in an ideal world, the risk on wind-up of a defined benefit (DB) fund would be equally split among all members, but conceded that this would be difficult to implement at the current time.

He argued that the concept behind DB schemes was that there would be a sharing of risk and assets among members, which did not exist when a scheme ceased to exist.

"The current framework is certainly not compatible with inter-generational solidarity," he told delegates at the Irish Association of Pension Funds' annual benefits conference in Dublin earlier this week as he presented the joint proposals, backed by employer organisation IBEC, the IAPF, union SIPTU and union umbrella group ICTU.

The joint proposals for changes to Section 48 of the Social Welfare and Pension Act recommended that priority should be granted to a minimum level of pension for all pensioners.

In securing any additional payments in excess of such a minimum, a set percentage of accrued benefits should be transferred to an Approved Retirement Fund (ARF), into which members can save post retirement in place of buying an annuity.

Additionally, the principles urged a greater amount of risk-sharing across all members.

"I'm not saying the risk should be shared equally between all members," Fleming said, "but certainly it could be shared in a fairer manner than it is shared at the moment."

He added that reform of the Section 48 order was "essential and urgent" for those pension funds currently considering wind-up, despite conceding that any changes would be "problematic" and that there would be "no perfect or easy solution".

The actuary noted that the existing problems would only become more acute in future, as the number of closed pension funds saw members retire and the shrinking number of remaining actives and deferreds shouldered the burden.

"The risk for those is that they may well receive no benefits on a scheme wind-up in future, particularly if a scheme is very mature and was forced to wind up in an underfunded situation that is based on the current framework."

Friedman also presented one of the actuarial society's proposed frameworks, suggesting that pensions in payment up to €6,000 should be secured through an annuity, while payments in excess of the threshold could be secured through a payment of 75%, or 25% to an ARF.

Additionally, in the case of a 25% transfer to the ARF for pensioners, a further 25% in transfer value would be set aside for active and deferred members, or, in instances where no further payment to pensioners were made, as much as 75% of transfer value could be offered to other members.

Priority order has recently been subject to significant controversy, as underfunded DB schemes, faced with the revised minimum funding standard, closed rather than meet new requirements.

The union representing employees of electricity company ESB recently called for a cap on pensions in payment upon wind-up and suggested that a minimum level of benefits be secured initially.

It further calculated that if the ESB superannuation fund were to wind up, actives and deferreds would be left with only 5% of benefits.

A similar calculation for the Irish Airlines Superannuation Scheme – covering employees of Aer Lingus and Dublin airport – estimated that actives and deferreds faced losing all but 4% of accrued benefits.

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