Huge losses have made many retirement funds insolvent
LOSSES in pension funds are so large that most of them are now insolvent, pension fund managers told the minister with responsibility for pensions, Mary Hanafin, last night.
The Irish Association of Pension Funds (IAPF) told the minister there was an urgent need for an examinership process for pension funds.
The Minister for Social and Family Affairs was also told there was a need for later retirement, a State annuity scheme and a bar on companies walking away from pension fund responsibility when there was a deficit.
IAPF chairman Patrick Burke said that in the last 20 months Irish pension funds had suffered the largest losses ever recorded, with deficits of €30bn.
"These losses have left most defined benefit schemes in circumstances of very serious insolvency and many at the edge of an abyss with little or no assets to pay the liabilities due to current and former employees who have yet to retire," he told the annual dinner of the association.
Urgent action was needed to protect the benefits of members of pension schemes, he said. But the current legislative framework was utterly deficient, he told Minister Hanafin.
"On the legislative front, much more remains to be done from the critical perspective of protecting members and the sustainability of defined benefit provision in the private sector," Mr Burke added.
The IAPF, along with the Society of Actuaries, have submitted a number of proposals to rescue defined benefit pensions, where employers take on the investment risk and promise a set level of pension.
The two bodies said there should be a change to benefits given out as part of defined benefit schemes.
Examples of this include people drawing down their pension at 67 rather than 65, or getting a reduced pension from 65 until some later date.
Other proposals include a formal employer covenant which would force employers to honour promises made to pay certain levels of benefits.
Minister Hanafin was also asked to ensure that those paying into a pension scheme were treated the same as pensions drawing from the scheme in a wind-up situation.
At the moment existing pensioners have first call on the assets of the scheme if it is closed down, which can mean a 64-year-old gets nothing.
The State should set up a scheme to provide annuities as this could be done up to 30pc cheaper than commercial operations, the IAPF said. Mr Burke said the package of proposals was akin to an examinership process for pension schemes.
"The situation is deteriorating week by week," he said.
"Hundreds of schemes are facing the possibility of collapse and in the absence of change the pensions of tens of thousands of employees may be lost or drastically reduced."