Mercer said it also welcomes the measures announced today which will restructure pension scheme priorities in the event of wind-up. In the current economic environment, in particular, it said it is appropriate that future increases to pensions in payment should have a lower priority than benefits for active and deferred members.

The Minister has also announced an extension of Section 50 of the Pensions Act. If the employer cannot afford to continue to fund the pension scheme in full, Section 50 may be used to make changes to pension benefits that have already accrued. Until now, however, changes could only be made in respect of current employees. The Minister has indicated that in future changes can also be made in respect of benefits for former employees who remain entitled to benefits under the scheme and future increases that have been promised to pensions that are already in payment.

Mercer says this is a welcome development, as in many cases the pension benefits that have been promised in the past are now unaffordable, both having regard to current economic circumstances and also significant increases in life expectancy, and it was not appropriate that all of the pain involved in restructuring such schemes should fall on current employees. However, Section 50 requires intervention by the Pensions Board in each individual case, and Mercer says it fears that the approval process may be cumbersome, particularly given the number of schemes likely to need this kind of restructuring.

Mercer said it also notes that the measures announced today do not change the statutory minimum funding standard for defined benefit pension schemes and therefore do not alleviate current funding difficulties, unless benefits are reduced as outlined.

Hanafin, who is building up public sector pension entitlements as a Minister, TD and teacher (she is still a teacher even though she ceased teaching 12 years ago) indicated this morning that the long awaited National Pensions Framework will be published "by the summer". Previous indications had been that the Government's overall proposals for pensions would be available by now, Mercer said. It has also been indicated that the position in relation to tax relief on pension schemes is under review by the Commission on Taxation.

Mercer said it is extremely difficult, arguably impossible, for pension schemes to develop funding proposals with a view to securing their long term viability, without full knowledge of the regulatory and tax structures that will apply.

"We therefore believe that the many pension schemes that have a deadline of 30 June 2009 to put funding proposals to the Pensions Board should be granted a further extension,"it said in a statement.

The Irish Association of Pension Funds (IAPF) has welcomed the announcement . “The changes in wind up priorities will provide for better equity between pensioners and members while still protecting those already in retirement,” commented Maurice Whyms, director, IAPF.

The IAPF, a pensions industry group which says its "aim is to promote financial security for all retired people," also backs the Minister’s move to establish a Pensions Insolvency Payment Scheme which will reduce the cost of buying annuities in cases where an employer becomes insolvent.

Whyms said that this move could make a considerable difference as it would leave more assets available to provide benefits for active and former employees. “What this means in real terms depends on the maturity of the scheme winding up. For example, in a mature scheme with say 60% of its commitments relating to pensioners, this could mean that active and former employees get an extra 15% to 30% of what they are due depending on how the NTMA prices the pension purchases.”

He pointed out that apart from being of benefit to members there is also some benefit to the Sate as it keeps capital in Ireland which would otherwise effectively flow through the annuity market into foreign Government bonds.

“While the IAPF welcomes this measure, we believe it is critical that the change carries through to the Minimum Funding Standard which would ease pressures on the funding of continuing DB schemes as well,” said Whyms.

However, speaking in Dublin this morning, TASC Director Paula Clancy said that the limited pension changes announced by failed to address the fundamental problems facing the Irish pension system.

Last year, in collaboration with the TCD Pension Policy Research Group, TASC published a set of proposals aimed at reforming the pension system by increasing and universalising the State pension, and introducing a Social Insurance earnings-related pension.

“While TASC welcomes the fact that the cost to employees associated with an annuity will be slightly reduced, and the risk will be reduced since the State will be providing the annuity, these changes are very limited both in extent and in terms of the numbers of people benefited.

“We are concerned by certain aspects of the new scheme. In particular, we are concerned that – in the event of the restructuring of a Defined Benefit scheme – pension payments will effectively be a function of salary on retirement. This means that, when wages increase, there will be a growing divergence between the incomes of those at work and the incomes of pensioners. This will have serious implications for retirement income adequacy in the future”, Ms. Clancy said.

“What is of more concern, however, is that the limited changes announced by Minister Hanafin do not address the fundamental problems facing the Irish pension system. The collapse in the values of assets and equities means that most Defined Benefit schemes are insolvent, while Defined Contribution schemes will not yield the anticipated returns. It has become abundantly clear that a pension system based on the shifting sands of the market cannot be relied upon to provide a secure retirement income.

“The current pension crisis requires a complete re-think of how we provide an adequate income for our citizens in retirement.

“The promised Framework Document on Pensions must now be brought forward without delay and used to kick-start a national debate on what we expect from our pension system, and how we can best meet those expectations”, Clancy concluded.

IBEC Director Brendan McGinty said: “While we welcome the announcement, these are modest measures. It is time that the Government and the Pensions Board faced up to the scale of the difficulties that defined benefit pension schemes are facing. We need a comprehensive response to the pension crisis.

IBEC has been saying for some time that unless the funding rules governing defined benefit pension schemes are urgently reformed a number will collapse, with benefits being severely restricted. The current obligation on defined benefit schemes to be 100% funded on a discontinuance basis is draconian and is not sustainable.

According to pension industry estimates, 90% of defined benefit schemes cannot meet the funding standard compared to just one in four at the end of 2006. Pension costs have risen because of declining asset values, stricter funding standards, higher pay, low long-term interest rates, poorly performing equity markets and longer life-expectancy. Defined benefit pension costs are increasingly regarded as a ‘bottomless pit’.”

“Given that we are now in extremely difficult economic circumstances, employers will have no option but to continue to critically examine pension costs. IBEC believes that maintaining the current wind-up standard is only hastening the flight from defined benefit scheme provision,” said McGinty.

The new Pensions Insolvency Payment Scheme (PIPS) introduces a State Annuity Fund to assist employees and former employees of companies, but only where the employer becomes insolvent and the defined benefit pension fund is in deficit. This will allow the scheme trustees to pay a sum to the Exchequer to cover the cost of paying the pensions of retired members on a not for profit basis, instead of buying annuities. Savings will then be used to reduce pension shortfalls leaving more funds available for those who retire. A discount of 8% to 18% of current market rates is envisaged, which IBEC regards as too low, and the proposal does not address the funding position of ongoing schemes. A minimum discount of 20% would generate cash flow savings of €400m annually out of an estimated €20bn in pensioner liabilities.

"The changes to the way that funds are disbursed if a defined benefit pension scheme is wound-up with a deficit will help employers in managing deficits. Pensioners will continue to get first priority for their pensions, but any future pension increases will not be granted until workers who have also contributed to the scheme and have yet to retire, receive their share of benefits. This will move pension increases lower in priority, but it means that workers, who may have been contributing to the scheme for decades – get more of a share of their entitlements," said McGinty.

The majority of Irish private sector workers do not have an occupational pension.

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