Low interest rates hurting pension funds
PLANS to fix company pension funds risk going off track due to low interest rates, the Irish Association of Pension Funds (IAPF) has warned.
The chairwoman of IAPF, Rachael Ingle, said this made it even more unfair that taxpayer funds were being used to pay for unfunded pension schemes for public servants and State pensions.
Low interest rates push up the cost of funding pensions.
When people retire they buy a form of insurance contracts called an annuity. Annuities guarantee a certain income payment for as long as you live.
When interest rates fall, the future returns the annuity providers can get falls. This means more money is needed to get the same income.
Defined benefit pensioner liabilities are also calculated based on annuity prices, so an increase in these also increases the liabilities in those schemes.
Ms Ingle told the annual dinner of the IAPF that half of defined benefit schemes have disappeared in the last five years.
Low market and European Central Bank rates threaten many of defined benefit schemes still in existence, but subject to a funding proposal in a bid to reduce deficits.
"There is a strong likelihood that defined benefit funding proposals will go off track, driven by the incredibly low and unprecedented interest rate environment we are experiencing," she said. There are strict rules for defined benefit plans.
"It seems unfair that we have such a significant short term focus on private sector schemes, while we have no rigour in measuring and remediating for the liability of the unfunded public sector and the State scheme which is far greater."
Ms Ingle appealed to the Government to promise not to raid private sector pension schemes in future, in reference to the levy on private schemes.