Reacting to local conditions
The Northern Ireland (NI) economy is made up of small businesses – the figures from the Equality Commission that monitors employment patterns in the province for businesses over 11 employees, show that of the 3,800 businesses in the private sector, over 2,700 had less than 50 employees in 2000, and there were only some 161 concerns with over 250 employees. Altogether, these employed 276,000 of the 400,000 employees in the NI workforce, the balance being in the public sector.
The core of the local economy that is not involved directly in farming is this raft of smaller, some of them in traditional industries, often agriculture-related such as milling and feedstuffs, and while there has been inward investment including a number of high tech companies, it has so far been nothing on the scale of what has happened in the republic.
The tables below give the range of pension schemes by size, and while care must be taken in interpreting these figures from the regulatory authority OPRA, arrangements in NI do reflect this preponderance in the smaller scheme bracket.
While some of the big traditional industries such as the shipbuilding giant Harland & Wolff have seen a sharp decline in numbers over the last decade, others like aero-space company Short Brothers, part of the Bombardier group, have expanded. As has the NILGOS scheme which covers over 68,000 in local government (see IPE March 2002).
There has been an influx of call centres establishing themselves in the province attracted by the well educated workforce and a lower wage environment compared to much of the UK. Telecoms group BT, financial services giants like Prudential and Halifax, have established sizeable operations employing large numbers of people by NI standards and others are reportedly on the way.
From a pensions perspective, these UK-based organisations won’t have much impact on the pensions scene in NI, as they will normally include eligible employees in their UK-based plans and not set up anything locally.
“As part of the UK, the trends within pensions follow the same broad pattern as in the UK,” says Brian Ross, head of the pensions practice for consultants Mercer Human Resource Consulting in Belfast. “So the issues that are affecting the UK affect us here very similarly. In particular, the issue of the continued viability of defined benefit (DB) plans is very much under the spotlight.”
Peter Turkington, group pensions manager for the province’s main electricity supplier Viridian, who also runs the local group of the National Association of Pensions Fund certainly believes this is on the agenda: “There is a trend for employers to question the overall cost of benefits and the issue of providing final salary benefits is becoming more exposed,” says Turkington. “Final salary schemes are on the back foot.” Viridian is one of the groups to have made the move to closing its DB plan to new entrants and it made its DC move two to three years ago. “We believe our new DC plan is a very good one, which stands up well in comparison with others, and we have had a very good take-up rate for it.”
But it is not all doom on the DB front, with some long-established schemes very committed to the approach. Belfast Shipbuilders, Harland & Wolff, despite the sharp decline in the workforce, has maintained the scheme on its traditional basis, a spokesman confirms. The £130m (E206m) fund has 500 active members and some 2,500 pensioners and a large number of deferreds.
At Ulster Bank in Belfast, where a number of schemes are run for over 5,000 members in both NI and the republic, pensions manager John Hart, says: “Our group is totally dedicated to the final salary concept, there are no discussions about changing this.”
But NIGen, which is part of the electricity generating industry, is a plant based in Carrickfergus. The £69m fund’s active members number just 139, with some 240 pensioners and 200 deferred members covered by a defined benefit scheme. “But no new members are expected to join the scheme,” says a spokesperson.
Ross at Mercer thinks the trend to opt out of DB is very strong among those small to medium-sized enterprises that he regards as the backbone of the local economy. Many of these companies have mature schemes and they are now the first to come under pressure.
“We first saw closure of DB for new entrants, but this is being followed by a secondary trend to close them to existing employees as well. Much of this is being driven by financial conditions, as we see companies trying to control the risks from open-ended liabilities, or at least trying to cap their liabilities.”
Some employers that had reasonably big pension liability exposures, despite being 100% or more funded in terms of the legal minimum funding requirement decided to make the move while in this good financial position.
“A number of schemes have gone the full distance of moving to DC and triggering a wind-up of their schemes,” says Ross. “But some employers want to preserve their accrued benefits and some trustees prefer that when a scheme stops, it is run as a paid-up scheme.”
In his view, the trend to close DB schemes for DC in the private sector in NI is ahead of the UK generally. “This change is happening reasonably quickly now.” Those who are no longer covered by a DB plan, are likely to find themselves in DC arrangements, most probably stakeholder plans, Ross reckons.
While this trend develops, there is the more general issue of pensions coverage. Turkington of Viridian says this applies to NI, particularly among younger people, as much as in the rest of the UK. “Those who are at risk are not being embraced by the pensions system. A large scheme like ours can put the time and resources into making people aware of the benefits of the scheme and encourage people to join, but smaller companies cannot afford to do this. The result is many younger people are still not thinking pensions at all.”
He harkens back to when pension scheme membership could be compulsory, with the result that many of those now leaving employment had substantial benefits, having been in a scheme since they started to work and became eligible to join.
Ross agrees that the authorities will have great problems getting most small and medium-sized enterprises in NI to commit to pensions. “If they want greater take-up, then they will have to go the compulsory route.”
A feature of NI schemes, is that a number of employers will have operations throughout Ireland. Here the debate has been whether or not to run cross-border schemes, or to have separate plans for the two jurisdictions. Hart of Ulster Bank says: “Up to 1998, we used to have a scheme that provided benefits for members in both places.” But because of increasing difficulties due to changing tax and legislation between the two jurisdictions, it was decided to close the main scheme and start two separate plans under the different rules. “The rules were not so different. One effect was that we had to make the change to euros for the southern scheme last year. There were no real problems with this. We had been doing the projections and quotations in euros for sometime. So we are well ahead of the game, should the UK decide to adopt the euro. It was quite a big exercise, but we were on top of it well before the deadline.” Just another way that NI is ahead of the UK in pensions terms.