Oct 8, 2009 - 7:53:26 AM
|Ireland’s private pension funds have been heavily hit by the financial crisis, with real losses of 37.5% in 2008 - - the worst investment performance for private pensions in the 30 OECD countries. In
a report published last June, the OECD - - the Paris-based Organisation for Economic Co-operation and Development - - said more than 30% of Ireland’s pensioners live in poverty (on international measures). This is the third highest old-age poverty rate among the OECD countries and well over double the OECD average.
The number of Irish defined benefit schemes - -where benefits payable to members are determined by the scheme rules rather than for example investment performance i.e guaranteed - - which will be closed to new members is likely to double from 35% two years ago to 70% in the near future according to research from the Irish Association of Pension Funds (IAPF). The research was presented in Dublin today to the IAPF’s conference on “The Defined Benefit Challenge” which was sponsored by Alder Capital.
The IAPF also called for the establishment of a Commission on Retirement. “This should pull together all of the recent reports prepared on pension provision and look at these in the context of other issues and needs that face us as an aging society such as health, long-term care and lifestyle,” commented Mr Jerry Moriarty, Director of Policy at the IAPF.
He said that the commission could also update the assumptions underlying the Green Paper published two years ago as they were now largely obsolete due to the changes in the demographic and economic environment. “Within a relatively short period it could make the recommendations necessary to provide a clear road-map for all future generations of retirees,” he said.
“Many pension funds are on their knees and some are struggling for survival. The reality for pension provision is that companies and schemes are closing, many in deficit with severe consequences for the members.”
He pointed to new research which finds that 35% of organisations had closed their defined benefit scheme more than two years ago and 18% in the last two years. Another 17% said they were likely to close their DB scheme to new members. 60% of organisations that have closed defined benefit schemes have moved to defined contribution. However, the majority of schemes are looking to restructure and continue in existence for current members.Brian McCarthy, director Alder Capital, which sponsored the conference, warned pension fund members and trustees that, despite the apparent recent recovery in equity markets, there was a 40% chance of the value of managed balanced pension funds falling by 25% or more over the next ten years.
McCarthy said that it was possible to reduce the risk profile of an individual or company pension fund without sacrificing potential returns by diversifying into new asset classes such as currency funds that have shown that their periods of good and bad performance occur at different times to equities.
The majority of Irish private sector employees do not have an occupational while public sector workers have a defined benefit scheme that links future pensions to the current pay for the last position held in the public service. So payments for phantom productivity gains also benefit pensions who may be 30 or more years retired.
In a separate development, Pensions Ombudsman Paul Kenny has signed an agreement with Paul Appleby, the Director of Corporate Enforcement, which will enable information to be transferred between the two offices.
The Pensions Ombudsman has existing agreements in place with the Pensions Board, the Financial Regulator and the Financial Services Ombudsman, and with the UK Pensions Ombudsman.
Kenny said that during the course of his investigations, he could become aware of activities or actions by companies or directors which should be brought to the attention of the Office of the Director of Corporate Enforcement (ODCE).
"This is particularly so in case of smaller companies in the construction industry where a mandatory pension regime exists," he said.
Finfacts report Feb 2009: Lenihan says total cost of State pension for an Irish public sector worker hired after 2004 is 26.1% of pay
Finfacts report Jan 2009: IBEC calls for ending of pay parity link in Irish public sector pensions that gives them a six-star standard status