IRELAND - The Pensions Board could be given new powers relating to the investment approaches adopted by pension trustees, such as the use of lifestyling, and the option of licensing defined benefit (DB) schemes, in an attempt to protect scheme members from future turbulence in financial markets.

In its long-awaited National Pensions Framework, the Irish government said while schemes need time to recover from the present funding difficulties, "there are a number of areas where current regulation will be enhanced in order to help secure the pensions of scheme members".

These include:

Information being provided to scheme members will be kept under review and enhanced as considered necessary; The funding standard will be kept under review, and A review of the Pension Board's powers in relation to the regulation of pension schemes.

In particular, the document noted the review of the regulator's powers "will include consideration of providing the Board with further statutory authority in relation to the investment approach adopted by the trustees of the pension schemes, for example, in relation to lifestyling, and the option of licensing schemes".

The government also acknowledged in the report that there are "significant problems with the typical current design for funded DB schemes". It claimed the existing design is "too inflexible" to deal with the recent investment losses and growing life expectancy, so employers are reconsidering the sustainability of such schemes.

The government said while it hopes the measures introduced in the last year to support DB schemes will help ensure their survival, it admits more significant restructuring may be necessary for some schemes and has proposed a potential method of restructuring for trustees to consider, resulting in a type of hybrid scheme.

It said where trustees are considering a "radical restructuring" of a DB scheme an "appropriate" design might be:

Fixed contribution rates for members and employers; Flexible benefits relating to revaluations (in the event of investment losses or other adverse conditions), and The benefit design must accommodate increases in life expectancy.

The government suggested such a scheme would consist of guaranteed core benefits and non-core benefits that would be flexible depending on economic conditions. However, it argued "this is not a hybrid scheme in the traditional sense as the non-core benefits would have to be secured in years of good returns, unlike hybrid schemes which only guarantee the DB element".

Other changes announced in the pensions framework include confirmation that current tax relief contributions to existing occupational and personal pension arrangements will be replaced by a state contribution equal to 33% tax relief. All defined contribution (DC) members will have access to approved retirement funds (ARFs) at retirement, while the government plans to review the range of personal pension vehicles available "with a view to rationalising provision".

And on the issue of public sector pensions, the report reaffirmed the government's decision to introduce a single scheme for new entrants by the end of 2010, which will comprise a minimum retirement age of 66 and a pension based on career average earnings rather than final salary. The employee contribution rate is expected to stay at 6.5%, but may apply to all pensionable pay. (See earlier IPE article: Irish public sector turns to career average scheme)

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