PTSB and Aviva become latest to shut defined benefit schemes
TWO financial services groups have become the latest to announce the closure of their defined-benefit schemes as funding pressures and strict rules mean more companies are turning their backs on traditional retirement schemes.
Permanent TSB is to stop paying into its defined-benefit plans – which means three schemes with 2,000 members will be wound up. The deficits amount to €300m.
Staff will be moved to a new defined-contribution (DC) scheme from June 1, the Irish Independent has learned.
The bank is to contribute 12pc of staff salaries into the new DC plan. The move to stop contributions to the defined benefit (DB) scheme will save it €10m a year.
A letter to the UNITE union from the bank states: "Based on actuarial advice, the group has come to the conclusion the DB schemes are no longer viable, given its inability to meet the minimum funding requirement of the Pensions Act."
Insurance company Aviva also plans to close its defined-benefit pension scheme in Ireland next month with the backing of union UNITE. Staff will move to a new DC pension from the start of next month, an Aviva spokeswoman confirmed. Promised benefits under the DB scheme will be reduced.
The scheme had been closed to new staff members since 2001. The plan had a £371m (€436m) deficit at the end of last year.
Some 93pc of UNITE members voted to close the plan, Aviva said.
Earlier this week, the Organisation for Economic Co-operation and Development (OECD) criticised the the fact that employers can "walk away" from their pension-scheme deficits with no financial consequences.
It recommended that employers should not be able to walk away from the deficits unless assets cover at least 90pc of the liabilities. The OECD said that it was not acceptable that profitable employers could pass on the deficit to employees.
Defined-benefit schemes promise to pay a set level of pension, depending on the years of service. But the promises have become impossible to keep because people are living longer and investment returns have been too low.
Eight out of 10 defined-benefit plans are in deficit, while pensioners have first call on the assets in schemes.
Bank of Ireland said yesterday that talks were ongoing on reducing its pension deficit, which has trebled to €1.2bn at the end of 2012.
AIB's pension deficit ballooned to nearly €800m last year, despite the bank pumping more than €1bn into the scheme.
Benefits are being reduced or schemes are shutting at AIB, Independent News and Media (the publisher of this newspaper) and Grafton.
Retailer Arnotts told the trustees of its DB pension scheme that it would cease making contributions to the plan.
Social Protection Minster Joan Burton is considering changing the rules where at present pensioners have first call on all the assets of schemes that wind up.
The OECD has called for a fairer distribution of the assets to existing workers and deferred members.
The Society of Actuaries and the Irish Pensions Funds Association have presented proposals along these lines, that would also have the effect of easing the funding standard for schemes that are not winding up.