IAPF hits at move to guarantee semi-State pensions

MOVES BY the Government to expressly guarantee pension liabilities of semi-State bodies have been criticised by industry figures.

The Government has told a number of semi-State groups that exchequer plans to "assume the assets and liabilities" of their pension schemes and meet future liabilities on a pay as you go basis.

The subsequent status of the assets was unclear last night but the initiative came under fire from the Irish Association of Pension Funds. Details of the change emerged in letters sent by the Department of Social and Family Affairs to a number of semi-State pension funds.

"There was no mention of this in the Government Green Paper on pensions," said IAPF chairman Patrick Burke. "While it certainly is good news for the members of those funds, the whole thrust of recent arguments from the Government is that the current pension system is unsustainable but then they go and do this, which adds to it."

However, a Government spokeswoman said the letters, which follows a statutory instrument signed by Minister for Finance Brian Lenihan and Minister for Social and Family Affairs Mary Hanafin on July 24th, were sent after a review of schemes exempt from the funding standard. "This review has been ongoing for the last few years and is not part of the Green Paper process.

"Some issues that arose during the review concerned the extent of the Government's liability for the funding of certain pension schemes in the university sector and certain pension schemes in non-commercial State bodies. These schemes have been included in regulation 295/2008 on a temporary basis."

Semi-States are generally exempt from meeting the funding standard that applies to private sector occupational pension schemes because of the State's commitment to meet any shortfalls. However, a large number of agencies have been established since the last exemption list was published in a statutory instrument in 1993.

A European directive has come into force since then. It says, among other things, that institutions may not have to meet funding regulation requirements where "occupational retirement provision is made under statute, pursuant to legislation and is guaranteed by a public authority".

"The Ministers [for Finance and Social and Family Affairs] have been advised that such a guarantee does not apply in respect to this pension scheme," the letter states.

"This is something that requires debate," said the IAPF's Mr Burke. "I understand that it is good for some people but there are prudent ways of funding pensions and this is a reversal of that."

The IAPF is formulating a formal response to the Government's move. It fears the move could place further pressure on defined benefit pension schemes.

Mr Burke said that, until now, many of the semi-State agencies funded their own pension schemes. Removing the requirement to do so meant they might face temptation to be less rigorous in accounting for the full cost of new recruits, adding to pressure on the public purse in future years.