IRELAND - The Pensions Board has been accused by the Irish Business and Employers Confederation (IBEC) of setting the bar “too high” for trustees and employers who are seeking to reduce accrued defined benefit (DB) entitlements to help stabilise scheme funding.
The Pensions Board last week clarified guidance to the Section 50/50a legislation in a series of Frequently Asked Questions (FAQs), detailing what it takes into account when deciding if the future operation of a scheme is “robust” enough to make a future application to reduce benefits unlikely.
These factors listed by the Pensions Board include:
the proposed contribution rate; the ability of the scheme to withstand investment losses based on the proposed investment strategy; the proposed responses to short and long-term risks, and any other relevant factors which the trustees bring to the attention of the Board.
However Brendan McGinty, director of industrial relations and HR services at IBEC, claimed the guidelines are now “seriously more prescriptive than envisaged earlier in the year” and added: “The Pensions Board is taking a more rigorous approach than anticipated.”
IBEC said around 95% of Irish DB schemes are estimated to be unable to meet the minimum funding standard. Yet the FAQs suggest any DB scheme seeking to cut accrued benefits would have to fund the scheme based on a ‘stress test’ of a further 15% fall in equity markets and a 0.5% fall in interest rates.
McGinty argued: “This places an onerous burden on schemes that are trying to survive the downturn and trying to avoid a wind-up situation. So we have requested a meeting with the Pensions Board next week and with Mary Hanafin, the minister for social and family affairs, to discuss the implementation of the rules and try and persuade them to be changed.”
He claimed the “bar has been set too high” and warned should it remain in place then proposals currently under discussion between employers and trustees, to solve a scheme’s funding situation, might not meet the requirements of the Pensions Board.
This could potentially force a scheme to enter a wind-up situation, or require an increase in future contributions or a decrease in benefits that is not acceptable to all parties, and may inevitable trigger industrial action in some cases, suggested IBEC.
The body is therefore calling for schemes to be given yet more time to submit their funding proposals, as most pension funds have to file proposals at the “worst possible time”, despite the recent market rally, claimed IBEC.
It has also suggested that the Pension Insolvency Payment Scheme (PIPS) should be extended to all private sector DB schemes so they have the option to secure benefits through discounted annuities, at a time when it will be of service rather than when the employer is insolvent.
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