IRELAND - The Irish government has admitted it is “not in a position” to offer occupational defined benefit (DB) schemes the protection of a state guarantee through a pension protection fund.

In response to a written question on the funding situation of DB schemes in the Dáil Éireann on Friday, Mary Hanafin, the minister for social and family affairs, told members of the Oireachtas of the 1,355 schemes subject to the minimum funding standard “it is estimated that in excess of 90%” are in deficit.

However, following further questioning from Deputy Olwyn Enright, from the opposition Fine Gael party, on whether the government is considering any type of state guarantee for schemes in deficit the minister argued a pension protection fund would “transfer the risk to the State, which is a major risk”.

Hanafin also claimed a protection fund would require an agency to administer the scheme and make payments, but when it was suggested an existing system is already in place for the National Pension Reserve Fund (NPRF) the minister hinted the cost of such a scheme would be prohibitive, as the liabilities of existing schemes are estimated at €100bn with a €30bn deficit. 

She argued: “If we consider what has happened in other countries, the USA established such a fund that is now €11bn in deficit. The UK has 68 schemes that are part of its protection fund with 20,000 members. Some 7,500 schemes are eligible to enter it with a potential deficit of €200bn. This is what is happening in other countries that have a state protection fund.

“The government is not in a position to offer such protection to such funds. Obviously we will try to ensure we make the process as easy as possible and support it in whatever way we can. At the moment the 1,300 or so DB schemes here have liabilities of approximately €100bn and the provisional estimate is that they would be €30bn in deficit,” stated Hanafin.

However she added, “the long-term policy framework is being considered by government”, and highlighted there should be “further obligations on pension fund managers etc to ensure that their clients know the consequences of the payments they are making”.

The debate on the security of DB schemes follows preliminary figures from AIB - one of the banks bailed out by the NPRF with a €3.5bn cash injection in the form of preference shares - which showed the value of its pension liabilities almost trebled over the year.

Figures from the group’s consolidated balance sheet showed the banks retirement liabilities were valued at just €423m at the end of 2007, but by the end of 2008 the figure had increased to €1.1bn.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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