Pensions lifeline for up to 300,000 in company schemes
UP to 300,000 workers who are members of company pension plans were thrown a lifeline yesterday after the Government said it would allow more time for the schemes to sort out their finances.
Large numbers of workers were facing big cuts in their pension pots under rescue plans put in place to save struggling funds. But the cuts may not be as bad as feared after the Government announced it planned to make technical changes that would make it less costly to provide company pensions.
Schemes are likely to be allowed to change the way their deficits are calculated in a move that means workers could face smaller cuts in their pensions when they retire.
However, pensions experts last night warned that the changes would not wipe out pension deficits and stressed that the proposed new changes were not without risk.
Under the new plan, workers may have to accept lower pensions than they expected because people are living longer.
Stock market returns have also collapsed in recent years, while low interest rates have also hit the value of pensions.
The Government's new move comes amid a deepening crisis in private pensions, with three out of four company schemes in financial trouble.
Some 850 schemes have combined deficits of €13bn, which means they will not be able to pay out the level of pensions promised to members.
The majority of schemes that are in deficit were facing a deadline of the end of next month to spell out to the regulator, the Pensions Board, how they were going to plug the shortfall.
Other schemes had until May to put detailed proposals to the Pensions Board on plugging their deficits.
Many of these pension schemes, known as defined benefit (DB) plans, were expected to seek permission from the board to cut the pension to be paid to workers when they retire in order to balance the books.
Now the deadline for submitting funding plans is to be extended, for the third time.
Social Protection Minister Eamon O Cuiv last night confirmed that the November 30 deadline was being extended. He did not give a date for the new deadline. However, pensions experts said it was likely to be after July next year.
Mr O Cuiv also promised to produce new legislation outlining what he called a "new defined benefit model". He told an Irish Association of Pension Funds conference in Dublin the new model would be implemented following legislative changes next July.
Mr O Cuiv held out the prospect of easing the funding standard. This is the rule that measures the finances of a pension fund if it was forced to close immediately and provide everyone with a pension when they retire. The standard has been criticised as being too harsh and inflexible.
Mr O Cuiv said the Cabinet was giving "thorough consideration" to allowing funds to use Irish government bonds to put a cost on providing a pension.
At the moment, low interest rate German bonds are used to calculate the cost of providing a pension, or annuity, as part of the minimum funding standard rules. But the Government is considering changing some technical rules that would allow high-interest Irish bonds to be used to calculate the cost of buying an annuity.
This would ease the cost of providing a pension for someone when they retire.