Irish sponsors may wind up pension schemes in wake of downturn – LCP
IRELAND - Irish companies could choose to abandon their pension schemes in the wake of this week's stock market turbulence, consultancy LCP has warned.
Speaking to IPE, Martin Haugh, a partner in the consultancy's Dublin office, noted that Irish companies were not restricted by "debt upon the employer" legislation - such as exists in the UK and other European states - which requires a sponsor to return a scheme back to full funding.
While funding proposals are to be filed with Ireland's Pensions Board in the near future, details of what would be asked of pension funds has not been finalised yet, following a consultation earlier this year.
Haugh added that any submissions would need to take into account lower funding levels, which would make the proposals "a lot more difficult".
He suggested that, instead of changing investment strategies to counteract markets, some employers might simply choose to reassess the type of benefits offered to employees.
"Some companies have done that anyway, in response to 2007-08," he said. "For those that didn't and were trying to put together a funding plan, this latest shock might just make companies reassess things, and where they were prepared to stand by schemes, they may now not [be]."
He noted that sponsors could therefore simply choose to wind up a scheme instead.
The flight to safe-haven bonds and the resulting drop in AAA bond yields has directly impacted Irish scheme liabilities, as these are directly linked to government bonds within the euro-zone.
He also noted that the decline in global stock markets had impacted scheme funding.
"So it's a bit of a double-whammy for the Irish pension schemes under the funding standard in that the liability assessment for the pensioners will go up," Haugh said.