Fears growing for safety of pensions
Related Articles
FEARS are growing for the safety of thousands of workers' retirement funds amid claims that many high-profile pension schemes are close to collapse.
Social Affairs Minister Mary Hanafin has warned the Cabinet in a memo that several schemes could collapse as the pension deficit reaches €30bn amid global financial turmoil.
Fuelling the growing sense of crisis, the minister said some under-funded schemes could collapse in the next six months, with an estimated 50pc failing within a year.
And she warned that some schemes would not be able to pay out on the benefits they had originally promised.
Taoiseach Brian Cowen said yesterday that the Government would engage in discussions with the pension industry and it is understood Ms Hanafin will continue to meet industry representatives on a regular basis.
However, sources said Ms Hanafin's decision to send a memo to Cabinet indicated the urgency of the issue, which financial experts say is now a crisis.
The memo warned that some defined benefit pension schemes in the private sector, where employers rather than workers carry the investment risks, were facing collapse.
Defined benefit schemes, which traditionally have better conditions, have older subscribers and workers nearing retirement age would be worst affected.
The memo said 90pc of defined benefit schemes are expected to be in deficit when they report on their solvency to the Pensions Board, the statutory regulator.
If a scheme were to collapse, the investment in the fund would not be able to guarantee a flow of money to pension subscribers in the long term. It also raises the possibility that some workers would not get the pensions they had hoped for.
The worst affected would be those approaching retirement age, who may only get a fraction of what they had planned for. Those currently drawing a pension would have a certain level of payment guaranteed and younger subscribers would be able to wait for the asset value of the fund to increase again.
The memo said that budgetary constraints would make it impossible for the Government to make up the shortfall if schemes collapsed.
"Barring some unexpected short-term recovery, it is likely the benefits promised to date by defined benefit schemes will not be fully paid," the memo added.
Employers' group IBEC said the rules regarding defined benefit pension schemes needed urgent reform. Of the 100,000 pension schemes in Ireland, about two-thirds are defined benefit schemes.
"It is time that the Government and the Pensions Board faced up to the serious difficulties that defined benefit pension schemes are facing," IBEC director Turlough O'Sullivan said.
He claimed that the current obligation on schemes to be 100pc funded on a discontinuance basis -- judging if the fund could meet its obligations to existing pensioners and future pensioners if it was closed down today -- is "not sustainable".
"The problems facing employers are being exacerbated by poor investment returns, declining asset values and longer life expectancy.
"Defined benefit pension costs are increasingly regarded as a 'bottomless pit'," he added.
Mr Cowen said yesterday that the pension schemes were affected by market fluctuations.
"Obviously, the minister for social and family affairs will be engaging with the pensions industry to review their funding arrangements and work with them in the coming months on long-term strategies," he said.
Turbulent
In a statement, Ms Hanafin said: "These are turbulent times for money markets where most pension funds are invested. Pension fund managers have yet to report on their funding standards to the Irish Pensions Board, but they have indicated that funds are subject to market fluctuations."
Although there has been a drop in defined benefit schemes with more switching to defined contribution schemes -- which are directly linked to investment returns and where the employee carries the risk -- a large number will still be affected.
Around 250,000 employees and 90,000 pensioners are in defined benefit schemes.
- Fiach Kelly
