Workers 'to be left with no pension' in wind-ups
Many insolvent defined benefit plans will close, warn actuaries
IT is inevitable that a large number of insolvent defined benefit pension schemes will wind up, leaving those who have yet to retire with nothing, actuaries say.
The Society of Actuaries in Ireland appears to have accepted that defined benefit schemes have had their day.
Defined benefit schemes in the private sector promise to pay out two-thirds of final salary for those with 40 years' service.
But the fact that people are living longer, plus tough new regulatory rules, poor returns and tax changes have combined to put eight out of 10 in deficit.
Now the actuaries have finally come to the view that there is little future for this type of pension, a paper prepared by the society and seen by the Irish Independent indicates.
The global financial crisis and tougher rules for pensions mean it is "inevitable that a significant number of insolvent defined benefit pension schemes will wind up in the foreseeable future," the paper states.
Current rules on who gets what when a scheme is wound up mean that active members of the scheme lose out while pensions are largely protected.
Most defined benefit schemes are closed to new members, or have no benefits building up for future service of members
This means that the risk carried by the shrinking population of active and deferred members will become more pronounced over time.
This is especially as pensioners get priority over the assets in schemes, and because of low interest rates.
The high level of protection given to pensions is not compatible with the concept of inter-generational risk-sharing, the actuaries argue.
"It is possible that active members who have increased their contributions and/or agreed to reductions in their benefits in order to sustain a scheme will receive no benefits on a subsequent scheme wind-up where the deficit is such that only the pensioner liabilities can be secured," the paper says.
"In such a case, the active members have taken all the risk while the pensioners' benefits remain relatively secure."
The actuaries propose that when a scheme is being wound up pensioners should get a minimum pension, probably around €6,000 a year.
What is left is then split evenly between pensioners and the active and deferred members.
Pensioners in the scheme would also have the option of being given an approved retirement fund, where the assets allocated to them could be kept invested.