IBEC, the employers group today issued the findings of its latest survey on private sector pension developments, which shows that Irish pension policy is failing to address the crisis in private sector pensions. Another survey sponsored by IBEC and Big 4 accounting firm KPMG, suggests that almost two-thirds of Irish companies are planning to launch new products and services in response to the recession, compared with a European average of 50%. However, the results of the latter survey should be treated with more caution or scepticism than the former.
IBEC Director Brendan McGinty said in respect of the findings on pensions: "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. While some measures have been taken to address the problem, a much more comprehensive response is needed.
"Unless the funding rules governing defined benefit pension schemes are urgently reformed a significant 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 unsustainable."
In a survey of 253 employers, of those who currently operate a defined benefits pension scheme, just under half (47%) indicated that their defined benefit scheme did not comply with the minimum funding standard set by the Pensions Board, while 62% said they had faced difficulties in funding their defined benefit pension scheme. Of the employers who said they had difficulties funding their defined benefit scheme:
- 63% have closed the scheme to new entrants and 20% have this under consideration;
- 29% have made a monetary contribution to the pension fund and 34% are considering doing so;
- 33% have increased employer contributions and 32% are considering doing so, with 10% to increase contributions in 2010;
- 24% have increased employee contributions and 50% are either considering doing so or will implement increases in 2010;
- 13% have changed from defined benefit to a ‘hybrid’ scheme and this is under consideration in 42% of cases;
- 24% are considering the introduction of career averaging in their pension plans;
- 17% have made the indexation of pension increases already provided discretionary and 32% have this under consideration;
- 8% have closed their scheme and this is under consideration in 39% of cases.
"Given the extremely difficult economic circumstances we are in, employers will have no option but to continue to critically examine pension costs. These 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,"McGinty said. “The Pensions Insolvency Payment Scheme (PIPS) established 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. The arrangement should be extended to all private sector defined benefit schemes. The Pensions Board should also allow trustees to discount for the purchase of annuities on a ‘not for profit’ basis for the purposes of evaluating scheme liabilities."
There is a glaring contrast between the situation of private sector pensions and the public sector scheme, which links pensions to current salaries and pays pensions at 70% of final salary - - a level that increased following last December's budget when the cut in public sector pay wasn't applied to pensions.
The majority of Irish private sector workers do not have an occupational pension and it is not a priority for politicians who have provided very well for their own needs.
The Minister for Social and Family Affairs, Mary Hanafin, who is responsible for pensions policy, remains a teacher on leave since 1987, from Sion Hill school in South Dublin, and in addition to 2 public sector pensions she will be paid, she is also building credits as a teacher.
About 400 indigenous Irish companies, most with a workforce ranging from 50 to 500 staff, participated in a pan-European survey of 3,200 privately owned companies, which was conducted last November.
While the pensions survey was a quantitative one, this survey is on plans/hopes for the future and maybe aspirations. Besides, it is not possible to validly compare the new products and services.
Irish medium-sized businesses are less likely to focus on exports to grow business, the survey found.
Some 27% of Irish companies plan to look at overseas markets, compared to an average of 36% in Europe.
"What we’re seeing is that Irish businesses are developing new products and services but that these are focused on the domestic market,”said KPMG’s Colin O’Brien.
Given the importance of an export-driven economy to Ireland’s long-term growth, it is essential that Irish companies bring this innovation to the next stage and promote these products abroad.”
IBEC Director General Danny McCoy said that while the survey’s figures show that there is “further scope” for Irish businesses in terms of export potential, exports in traded services have performed well in recent years, while exports of merchandise have remained relatively flat.
The survey shows that 73% of Irish companies surveyed pointed to cost reduction as the primary means by which they have tackled the recession, compared to a European average of 62%.
“Ireland’s high costs have been a major impediment to economic growth, something that the National Competitiveness Council has highlighted for some time. This survey shows that Irish businesses have confronted the issue and acted quickly on cost competitiveness – an important step for economic recovery,” Colin O’Brien said.
We at Finfacts have often highlighted that Ireland needs to do a serious reality check on exports that would identify home truths which could be a basis for improving our strategy in the sector rather depending on the pious aspirations of individuals who have likely never had direct exposure to the challenges faced when trying to open new markets for export goods.
Ireland has not had a strong exporting tradition but of course, improving cost competitiveness is a help.
For example, Germany became a net exporter of food and drink in 2008 -- for the first time in decades - - while in the only sector where indigenous Irish companies are dominant, exports fell.
SEE lower part of another current Finfacts report:
IMF chief says many of world’s leading economies fooling themselves on foreign export demand driving their recoveries