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Defined benefit pension schemes see sharp drop

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Patrick Burke, chairman of the Irish Association of Pension Funds addressing the IAPF annual conference held in Dublin Castle.

Patrick Burke, chairman of the Irish Association of Pension Funds addressing the IAPF annual conference held in Dublin Castle.

Patrick Burke, chairman of the Irish Association of Pension Funds addressing the IAPF annual conference held in Dublin Castle.

THERE has been sharp decline in the number of companies providing defined benefit pensions for their staff, a new survey reveals.

The Irish Association of Pension Funds (IAPF) said the results of a survey it had commissioned showed that the number of companies offering DB schemes has crashed from 67pc in 2002 to just 37pc today.

The research also found a significant increase in the number of firms closing their defined benefit scheme to new members.

IAPF chairman Patrick Burke claimed at a pensions conference many employees were not fully aware of the implications of defined contribution schemes.

Defined benefit schemes, where a pension based on a final salary and years of service is guaranteed, have become unpopular with companies as they have to bear the risks if there is a funding shortfall.

With a defined contribution pension plan, an employee is not promised a percentage of your final salary when you retire. Instead, the pension income depends on the value of the pension fund when the worker comes to retire.

The research was conducted by the UCD Smurfit School of Business for the IAPF and shows that more and more employers are winding down expensive defined benefit schemes.

The number of employers closing off their defined benefit scheme to new members has jumped to almost 40pc.

Mr Burke said that the number of firms offering defined contribution-only schemes had tripled from 8pc to 24pc.

Sufficient

"Because of the growth in the number of DC schemes a major challenge moving forward will be to ensure pensions adequacy not just coverage."

He added that the report found a concern amongst many companies providing pensions that employees were not taking sufficient interest in their scheme.

Mr Burke said that it was positive that more and more employers are paying into defined contribution schemes. Some 70pc of employers are now contributing more than 5pc of salary compared with 46pc in 2002.

At the moment members of DC schemes must buy an annuity on retirement and do not have the option of an Approved Retirement Fund (ARF).

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Some 96pc of the companies surveyed by UCD believe that this anomaly should be changed. And 84pc also urged that DC members should have flexibility in their retirement date and given the option to stagger the draw-down of pension benefits.

IBEC's Brendan McGinty said that 40pc of defined benefit schemes were closed to new entrants and that this would increase to 60pc by mid 2009.

"The cost of providing DB has escalated due to strict funding standards, international accounting requirements, low long term interest rates, higher pay, poorly performing equities, and a rise in life expectancy."

Jerry Shanahan of the Unite trade union said employers and employees could get the best of both worlds by implementing a hybrid scheme of pensions which combines the most beneficial features of DB and DC schemes.


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