Monday 19 February 2018

'In deficit' pensions have just six months to restructure

Charlie Weston

Charlie Weston

COMPANY pension schemes that are in deficit will have just six months to put in place a plan to restructure their scheme.

The Pensions Board is to release new rules today setting out how defined benefit schemes are to get back on track financially.

Schemes will have until the end of this year to submit a funding proposal to the Pensions Board.

The new rules will encourage schemes to move away from equities and shift assets into bonds, including high-yielding, but risky, Irish bonds.

The National Treasury Management Agency will issue these sovereign annuity bonds which are likely to have a yield of around 6pc. Buying these could help ease the pressure on some distressed pensions fund.

Downside

But the downside is that any default on Ireland's national debt would be borne by the members of the scheme, including the pensioners.

The so-called minimum funding standard, to be outlined today, will set out in minute detail how schemes that are in deficit are to get back into surplus over a 10-year period.

Under pensions' legislation, defined benefit schemes must meet a minimum funding standard. The requirement is meant to ensure that, in event of a wind-up of the pension plan, members' benefits are protected.

More than three-quarters of defined benefit pensions are in deficit due to the higher costs of running schemes because people are living longer, while bond yields have fallen.

However, there is concern among pension experts that imposing rules that are too strict will encourage companies to close up schemes.

With a defined benefit scheme people in the private sector who have 40 years' service were traditionally promised a pension based on two-thirds of their final salary.

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