Irish government confirms new funding standard for DB schemes
IRELAND - Pension schemes in Ireland will "shortly" learn of a new deadline to submit funding proposals, with the government confirming the reinstatement of previous funding standards and unveiling proposals for new standards to be rolled out over a decade.
Speaking at the Irish Association of Pension Funds (IAPF) annual benefits conference in Dublin today, minister for social protection Joan Burton acknowledged the "enormous pressure" on defined benefit (DB) schemes in the country, but stressed that it was exactly these challenges that necessitated change to the existing system.
Burton told delegates the Pensions Board would soon announce a deadline by which funding proposals were due - their submission had been repeatedly postponed as funds struggled with the impact of the financial crisis, with funding proposals otherwise likely to have revealed the need to wind up a number of schemes.
She noted that, following a number of consultations, a reformed funding standard would soon be introduced.
"The Funding Standard will be reformed and strengthened by requiring DB pension schemes to hold a risk reserve as a protection against future volatility in the financial markets," she told the audience.
The minister added that this change would be rolled out over approximately 11 years, with the previous funding standard being reinstated and allowing for a three-year window in which funds could meet these targets.
Proposals put forward in June suggested schemes hold sufficient risk reserves to offset a fall in equity value of a fifth, with a 1% fall in bond yields and an inflation increase of 0.5% also taken into account as part of the new buffer.
At the time, consultancy Mercer warned the proposals were "unsustainable" and would "kill" private sector schemes. According to latest estimates, 75% of pension schemes would fail to reach a sufficient level of funding.
Burton also announced that the Pensions Board would be given powers to wind up schemes "in certain limited circumstances", while saying there would be changes to the priority granted to pensioners once a scheme was wound up.
"A threshold will be introduced that will change the 100% priority given to pensioners to allow for a better return to existing and former employees who have not yet retired," she said.
Touching on the reforms of pension tax relief - which, combined with the 0.6% pension levy, are estimated to have led to industry contributions of €850m annually toward the country's recovery - Burton said she could not pre-empt December's Budget announcement.
However, she highlighted the Department of Finance's pledge to consider alternatives to the current cuts in tax relief.
Regarding a recent initiative by her department to examine management charges levied at pension funds, she said it was important funds understood the returns they were getting for any fees paid.
"This study will provide comprehensive information on the categories of charges applying across and within scheme types," she added.
Burton further reiterated the government's support for universal coverage and stressed that this, with a particular focus on lower-paid workers, was why plans were in place to develop an auto-enrolment scheme in the country, as first mooted in the National Pensions Framework early last year.