IRELAND - Irish government proposals aimed at plugging the deficits of defined benefit corporate pension schemes could wipe them out instead, according to consultancy Mercer.

A consultation document issued last month by the department of social protection mooted a series of options for reducing deficits, at a time when around 75% of Irish private sector schemes were said to be in deficit.
The most stringent option mooted would require pension schemes to hold sufficient risk reserves to provide a buffer for a 20% fall in equities, a 1% fall in bond yields and an inflation increase of 0.5%, which was expected to increase funding standard liabilities by more than 50%.

However, Mercer partner Michael Walsh said that the option could add €20bn to scheme shortfalls.

"At the extreme end, it would mean adding 50% and that's unsustainable. It would kill private-sector pension schemes - though, oddly enough, it won't affect public sector schemes at all," he said.

"Even if it's something not quite as harsh, it will have a detrimental impact," he added. A less onerous option contained in the proposal would require pension schemes to hold sufficient reserves to provide a buffer for an annual fall in equity values of 15% and a fall in bond yields of 0.5%. This would increase funding standard liabilities by around 10%.

Far from ensuring schemes provide "reasonably predictable benefits with a high level of security", as the ministry claims, its proposals would prove "a huge disappointment" and a potential threat to the schemes' existence, according to Mercer.

Walsh earlier this week urged a rethink on the timing of the government's move, pointing out that Irish pension schemes had come up against a "perfect storm" of global financial crisis and domestic economic uncertainty.

But he was adamant today that longer lead-times for implementation wouldn't fix a fundamentally flawed proposal. "It's not just about timing - it's about what they might do," he told IPE.

"The feedback from us, from the employers' organisation and from the Irish Federation of Trade Unions has all been against the proposal, certainly. My sense is that they won't go for the extreme option but you never know. Everything is uncertain in the Irish economy at the moment."

Under the proposals, the Pensions Board will gain a statutory mechanism to wind up schemes that are clearly unsustainable.