IRELAND - Defined benefit pension schemes in Ireland have reached the "tipping point", and the government will need to take urgent action to save them, according to Mercer.

The consultancy said the key factor for Irish schemes was the exceptionally low yield on German government bonds, which has ramped up annuity prices and, in turn, pension schemes' liabilities.

Michael Walsh, leader of Mercer's retirement risk and finance consulting business in Ireland, said: "It is not sustainable to fund pensions on the basis of a yield of 3% per annum or less. 

"As matters stand, however, pension schemes are required to buy annuities on this basis for pensioner members if they wind up.

"They must therefore make provision for this cost in setting their contribution rates."

Walsh said most pension schemes had spent months building recovery plans that might no longer work. 

"Without time or appetite to go back to the drawing board," he said, "employers could now decide there is no option other than to wind up."
The Society of Actuaries and the Irish Association of Pension Funds have called on the government to approve 'sovereign annuities' linked to Irish government bonds and thus much cheaper than conventional annuities. 

Mercer said this would improve pension schemes' chances of making good current funding deficits.
The consultancy added that if sovereign annuities were not introduced, an alternative to annuity purchase would be needed for schemes that were wound up.