Pension fund assets growing in relation to the size of the economy - - The ratio of OECD pension fund assets to OECD GDP increased from 70.7% in 2005 to 72.5% of GDP in 2006. The largest asset-to-GDP ratio was Iceland’s, at 132.7%. Only two other countries (Netherlands and Switzerland) had asset-to-GDP ratios above 100%. Click for full-scale chart: OECD's Pensions and Markets OECD's Pensions and Markets

IBEC Director General Turlough O'Sullivan on Sunday warned that unless the funding rules governing defined benefit pension schemes are urgently reformed, a number will collapse, with benefits being severely restricted. Also on Sunday, newspapers reported that a ministerial memo says tens of thousands of Irish workers could see their pensions wiped out in the next six months, according to a confidential briefing document sent to the government within the last week.

The Sunday Tribune reported that a number of high-profile pension schemes are expected to collapse as the total pension deficit reaches €20bn to €30bn, says the alarming memorandum sent by the Minister for Social and Family Affairs, Mary Hanafin, to Cabinet colleagues.

It is estimated that defined-benefit pension schemes, where employers carry the investment risk, have lost a third of their value in the last 12 months amounting to €20bn. Investment losses are also serious for members of defined-contribution schemes who bear all the investment risks.

The newspaper said that the memo discloses that "there is a particular concern for pensioners and those approaching pension age in the event of the wind-up of significantly under-funded schemes. This could be particularly difficult for pensioners in a mature scheme where a large number of pensioners are being paid directly from scheme funds."

More than 1 million private sector workers have no occupational pension.

IBEC's Turlough O'Sullivan said on Sunday: “It is time that the Government and the Pensions Board as the regulator, faced up to the serious difficulties that defined benefit pension schemes are facing. The current obligation on schemes to be 100% funded on a discontinuance basis is not sustainable."

According to pension industry estimates, three out of four defined benefit schemes could now fail to meet the funding standard compared to just one in four at the end of 2006. Currently there are 99,802 schemes with 800,398 members of which 66% are defined benefit schemes and 34% are defined contribution schemes - -with payouts directly linked with market performance, without any guarantee.

“The problems facing employers are being exacerbated by poor investment returns, declining asset values and longer life expectancy. Employer contributions have had to rise significantly in recent years simply to meet the draconian discontinuance funding standard. Defined benefit pension costs are increasingly regarded as a ‘bottomless pit’,” said O'Sullivan.

“The funding standard and other regulatory requirements are leading to the demise of defined benefit pensions. Employers have a responsibility to act: if they increase payments beyond what can be afforded, this threatens the viability of employment and of the business.

"In the case of defined contribution schemes the main problem is that regulation obliges the holder to purchase an annuity on retirement. In current economic circumstances this is not the best option. Regulation should be relaxed to allow the retiree to exercise flexibility in investment or to wait until the markets recover.

“Given that we are now in more difficult economic circumstances, employers will continue to examine the balance of pension costs. IBEC believes that continuing the current wind-up standard is only hastening the flight from defined benefit scheme provision.”

IBEC has proposed that where a company scheme has a difficulty meeting the actuarial funding requirement and where the sponsor employer is prepared to offer to sustain the scheme in the event that a short-fall occurs, then that employer covenant should be accepted by the Regulator, without the need for further immediate funding. IBEC has raised the issue as part of its response to the Green Paper on pensions.