Pension schemes forced to cut benefits
AS many as 850 company pension schemes will be seeking permission from the Pensions Board to make changes to their schemes in the next few weeks.
Retirement benefits are set to be cut in many of the defined benefit schemes that are seeking clearance from the board to make changes.
Seven out of 10 defined benefit pension schemes are in deficit, a spokesman for the board, the regulator for the pensions sector, confirmed.
As there are around 1,200 defined benefit schemes in the country, this translates into 850 schemes in deficit.
Defined benefit schemes traditionally involved a promise to pay a set level of pension based on a proportion of the final salary of the person retiring.
For those with full service in the private sector, the promise was to pay two-thirds of the salary level at retirement.
But poor recent returns from equities, which most funds are invested in, low bond yields and the fact that people are living longer make it more expensive to keep this promise.
In the 10 years to August, the money invested in private pensions in this country has lost an average of 0.1pc every year. This means returns have failed to keep pace with inflation.
The Pensions Board spokesman said that "only a trickle" of schemes have so far submitted proposals to tackle their deficits ahead of the November 30 deadline.
Trustees are set to seek to eliminate their deficits by seeking permission for three-, five-, seven- or 10-year "funding proposals".
Some schemes are seeking permission from the board for what is know as a Section 50 application, which involves cutting the accrued benefits of deferred and active members.
Part of this process involves taking all the schemes' assets out of equity investments and investing in safer options likes French and German bonds.
For the past two years the Pensions Board has given the operators of the schemes leeway to put measures in place to address their deficits.
However, the board is insisting there can be no more extensions and trustees must eliminate their deficits.
The schemes in question have a number of deadline dates by which time they must make their submissions to the board. The first deadline is November 30.
Trustees have been warned that any failure to produce funding proposals to plug a scheme deficit will lead to the board ordering trustees to reduce retirement benefits.
The board said in a communication to trustees: "In the event of schemes not submitting such applications by the deadline, the board will be obliged to consider using its statutory powers to ensure that schemes comply with the requirements of the act.
"These include the power under Section 50 to unilaterally direct the scheme trustees to reduce benefits and/or to prosecute trustees for failing to submit a funding proposal."