Pension sector alarm over board stance

THE IRISH pensions industry responded with alarm yesterday to guidelines issued by the Pensions Board in relation to rescue plans for struggling schemes.

Benefits consultant Mercer said the measures were “far more prescriptive” and “rigorous” than has generally been expected.

The new guidance relates to “section 50” applications, which seek permission from the board – the industry regulator – to reduce benefits previously offered within occupational pension schemes, in order to meet the minimum funding standard required.

A large number of defined benefit schemes are considering such applications as they struggle to bridge funding holes exacerbated by 2008’s stock market collapse.

The Government estimated earlier this year that over 90 per cent of all defined benefit pension schemes in the State were nursing significant funding shortfalls.

In its initial guidance last May, the Pensions Board said it would consent to a section 50 application only “where it is satisfied that the proposed future operation of the scheme is robust enough to make any further application unlikely”.

This week, it got more specific, indicating it would only accept growth projections based on the yield of long-term government bonds and subjecting section 50 applicants to a stress test involving a 15 per cent fall in the value of stock markets. It also reduced the possibility of pension schemes being given more than 10 years to get their funding back in order.

In a note to clients yesterday, Mercer said: “In many such cases, it may not be feasible to formulate a recovery plan that complies with the new requirements, and schemes will therefore have to be wound up.”

Pensions Board chief executive Brendan Kennedy last night said the new guidance was not going farther than previous measures.

“It has to be far better for members to be in a pension scheme that can meet its promises,” he said. “We do understand that we are talking here about real people, real money, real hurt but people are entitled to as much certainty as they can receive.”

He said the regulator was not trying to eliminate risk but to be sure that schemes are able to cope in adverse conditions.