Thursday 18 January 2018

New rules could add €20bn to pension hole


New proposals from Joan Burton's Department
New proposals from Joan Burton's Department

Charlie Weston, Personal Finance Editor

NEW rules being proposed by the Government for company pension plans could add €20bn to the deficits of these schemes, it was claimed yesterday.

Consultants Mercer called on the Government to postpone plans to introduce the tough new rules for defined benefit schemes.

Mercer's Michael Walsh said any attempt to impose the new rules without a long lead-in time would force the winding up of many of the schemes.

Three out of four defined benefit schemes are in deficit. With these pensions, workers are promised a set level of pension based on their final salary and their years of service.

New proposals from the Department of Social Protection would require all defined benefit schemes to put aside more reserves.

It has been estimated that the two main options under consideration would increase liabilities by between 10pc and 50pc.

This would mean the liabilities of all defined benefit schemes would balloon by between €5bn and €20bn.

And it is proposed that schemes would be allowed a much shorter period to recover from deficits.

Mr Walsh said most employers would not be able to hike their funding levels to meet the tough new funding standards. Instead, they would have to wind up their company pension schemes, said the Mercer executive.

"Changes in regulation need to be timed appropriately. In our view, it is not appropriate to impose a new funding standard while pension schemes are still recovering from one of the worst financial crises in history," he said.

Any changes must be phased in on a basis that does not adversely affect schemes that have invested a lot of time and effort, and incurred significant costs, in putting in place recovery plans under the current regulatory regime, said Mr Walsh.

There was a "complete inconsistency in Government policy", Mercer said. On one hand, the Department of Social Protection wants more money to be set aside to meet pension fund liabilities.

On another front, the Government was raiding private pension funds with the recently announced pensions levy.

The levy will add to current pension scheme deficits and will mean that further increases in contributions will be required.

"Pension scheme members, trustees and employers are understandably dismayed at the detrimental impact of the levy," Mr Walsh said.

All of this meant that defined benefit pension schemes have faced the "perfect storm" of the global financial crisis, an extremely difficult domestic economic environment and the fact that people were living longer.

Given this, it was hardly surprising that the majority of schemes are currently in deficit.

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