Defined benefit pensions in danger of collapse, says Ibec

EMPLOYERS’ GROUP Ibec has said that unless funding rules governing defined benefit pension schemes are urgently reformed, a significant number will collapse.

Ibec said a survey of 253 employers which it carried out, found that of those who operated a defined benefit pension scheme, just under half (47 per cent) indicated it did not comply with the minimum funding standard set by the Pensions Board, while 62 per cent said they faced difficulties in funding their scheme.

Under a defined benefit scheme the payout on retirement is guaranteed as distinct from defined contribution schemes where benefit is reliant on the performance of the fund.

Ibec said yesterday that the findings of the survey showed pension policy was failing to address the crisis in private sector pensions.

It said defined benefit pension costs were increasingly regarded as a bottomless pit.

Ibec director Brendan McGinty said: “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 per cent funded on a discontinuance basis is draconian and unsustainable,” he said.

Ibec said that of the employers who said they had difficulties:

• 63 per cent had closed the scheme to new entrants and 20 per cent had this under consideration.

• 29 per cent have made a monetary contribution to the pension fund and 34 per cent were considering doing so.

• 8 per cent had closed their scheme and this was under consideration in 39 per cent of cases.