IRELAND – Trustees of Irish defined benefit (DB) schemes are facing a "huge predicament" over delays to reform the country's wind-up order, James Kavanagh, managing director of Trustee Decisions, has said.
Speaking with IPE a few weeks after minister for social protection Joan Burton publicly confirmed that the wind-up order, which currently awards absolute priority to pensions in payment, would me amended, Kavanagh said trustees faced a "fine balancing act" to weigh up the options of all fund members.
Asked about the conflict that could arise from trustees awaiting changes to the priority order before winding up, likely to reduce the entitlements of pensioners while boosting the rights of active and deferred members, he said: "I don't think it's appropriate, fair or reasonable to put one party over another.
"That, you might say, works against the pensioners. But, at the end of the day, you have to look at the whole thing in its entirety."
Kavanagh said the decision whether or not to await changes posed a "huge predicament" for him, as, while he should always act in the interest of members, he should also never act against members' interest.
"At the end of the day, I need to be able to sleep at night and know that I acted reasonably and have taken the best advice to recommend an action or take an action," he said.
Kavanagh, who also chairs the Irish Association of Pension Funds DC committee, also said he remained "quite nervous" about the use of sovereign annuities.
The sovereign products can be linked to any European Union's government debt, offering a higher yield than the German bonds traditionally used for other annuities.
In practice, trustees have so far mostly expressed an interest in using Irish debt, as the sovereign annuity also transfers any default risk of underlying bonds onto the policyholder.
Kavanagh said that, observing his fiduciary duties, he would question the use of sovereign products and has in the past had difficulties agreeing to their use.
"At the end of the day, if something is going to happen in a number of years' time, members are going to hold me accountable for making a decision about their pension fund," he said, noting that the case was "not clear cut", a likely reference to concerns voiced by a number of trustees as to whether they could be sued over future defaults.
Irish Life earlier this month completed a €20m buyout, employing a blend of sovereign and regular annuities.
The company said the sovereign products, linked to Irish government debt, still offered an 18% discount over traditional products, despite the recent decline in yield.