Pension scheme fears unless rules relaxed
IT will be "game over" for many company pension schemes unless strict rules are relaxed, a leading expert in the area said.
Conor Daly, a partner at LCP, said there was a need for a radical rewriting of the funding standard for pensions. All funded defined benefit (DB) schemes are obliged to meet a statutory minimum funding standard.
The test notionally assumes that the scheme winds up and buys annuities for pensioners. But eight out of 10 DB schemes do not meet the minimum funding standard. The schemes promise a set level of pension in retirement, irrespective of fund investment performance.
Mr Daly said the reinstated minimum funding standard was "clearly" not in the best interest of DB members, as it would lead to benefit reductions "more severe" than otherwise required. Jerry Moriarty, head of the Irish Association of Pension Funds (IAPF), which represents trustees of DB schemes, backed Mr Daly at an IAPF conference.
Mr Moriarty said the DB system in Ireland was akin to a house with a leaking roof, only for somebody to insist that the house's windows needed replacing. "Maybe you should concentrate on fixing the hole first and then worry about the double glazing later," he said.
"I don't think anybody is against the concept of having adequate pensions that are going to be provided."
But he added that, if the regulatory bar was set too high, the benefits would not be paid out due to scheme closures.
Schemes that are in deficit have to present proposals to the Pensions Board by June 30, setting out how they will restructure their plans over a 10-year period. Most schemes in deficit will be forced to cut benefits for workers yet to retire.