Ireland’s pension sector should not expect any relaxation of the defined benefit (DB) funding standard despite prevailing low interest rates exacerbating deficits, the head of the Pensions Authority has warned.

Brendan Kennedy said he accepted that low interest rates, triggered in part by the European Central Bank’s stimulus measures, made pension provision much more difficult.

But he also stressed that scheme members needed predictable and reasonably secure income.

In the foreword to the regulator’s annual review, he acknowledged requests to relax funding requirements “to reflect the problems this is causing to defined benefit schemes”.

“However, the increase to the standard resulting from the falling rates reflects (and may underestimate) the difficulties faced by these schemes, and there should be no question of changing the standard in order to give schemes and their members the false impression the situation is easier than it actually is,” he said. 

Kennedy’s comments come only weeks after the Irish Association of Pension Funds (IAPF) called for a review of the regulatory framework to take account of “artificial and unprecedented conditions” in bond markets.

Speaking at the organisation’s annual investment conference in late March, IAPF chief executive Jerry Moriarty said that while 60% of DB funds now complied with the funding standard, the impact of quantitative easing was “effectively reversing” the improvements.

Moriarty also questioned why DB trustees were coming under pressure to increase bond holdings and de-risk ahead of 2016’s introduction of new risk reserve requirements when many bonds were posting negative yields.

The Irish pension industry was previously granted a reprieve, with the funding standard suspended for several years in the wake of the financial crisis.

It was reinstated in 2012.

Kennedy addressed the question of de-risking in his foreword, making the case that those wishing to continue with higher-risk strategies were often doing so to minimise the cost of providing benefits.

“For the trustees of defined benefit schemes, this approach is unlikely to be consistent with their obligations as trustees, especially as the risks bear disproportionately on the younger members,” he said.

The Authority earlier this year revealed that 30 DB schemes had yet to submit funding proposals, nearly two years after they were due.