Wednesday 18 October 2017

Tough new rules 'will force swathes of company pension schemes to close'

Charlie Weston Personal Finance Editor

LARGE numbers of company pension schemes will be forced to shut down as they will not be able to meet tough new rules, experts predicted last night.

The new rules are coming in as it emerged that eight out of 10 defined-benefit company schemes have not got enough money to pay out the pensions promised to their members.

Some 200,000 people are active members of schemes, with another 200,000 having pensions rights even though they have left the company providing the pension, while another 85,000 draw pensions.

But now the regulator, the Pensions Board, has revealed that 80pc of the 1,000 defined-benefit schemes are in trouble.

It has now told them to submit a recovery plan by the end of the year, setting out how the deficit will be reduced by 2023.

Pensions Board chief executive Brendan Kennedy conceded that the tough new rules would force schemes to close, while a number will also be forced to reduce the pensions benefits they pay out.

Defined-benefit schemes promise to pay a pension based on the final salary and the number of years the member was in the scheme.

The new rules set out how schemes must clear their deficits within a decade and demand that between 10pc and 20pc of the scheme's liabilities will have to be set aside if the scheme invests in what is considered risky assets such as equities.

Jerry Moriarty of the Irish Association of Pension Funds, a body representing fund trustees, said: "This is really going to put pressure on a lot of schemes. It puts it up to employers to decide if they want to keep funding, and up their contributions, in the long run," he said.

Risky

However, pension schemes that buy risky Irish bonds will be rewarded by having their liabilities reduced by up to 20pc.

Mr Kennedy denied that this was a contradiction. This is because the thrust of the rules was to lower the risk of schemes running out of funds. But he conceded that sovereign bonds meant that the risk of default would shift to the pensions. This would mean that if Ireland failed to pay its state debts, pensioners' income would be hit.

"The sovereign annuities transfer potential risk to the pensioner and before scheme trustees do that they will have to communicate very clearly to scheme members what they are doing," he said.

Partner at consultancy firm Mercer, Michael Madden, said: "We fear that some schemes that might otherwise have been able to continue will now be forced to wind up, with poor outcomes for members."

Irish Independent

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