Inside the world of business
Are pension rules fit for purpose?
An occupational pension scheme is a contract but, unless you work in the public service in Ireland, that pension promise is becoming increasingly threadbare.
The Pensions Board, which regulates the sector, estimates that “at least” 70 per cent of defined benefit schemes are not fully funded. Such schemes have until 2023 to get back in balance, but companies already struggling with recession are looking increasingly to back away from an open-ended funding promise. A growing number of schemes are being frozen – at least to new members and often to future service of existing members. Though far from ideal, freezing at least means members retain their accrued pension benefits.
Some are going further. It was reported this week that Arnotts, one of Ireland’s oldest and most venerable businesses, was considering winding up its defined benefit pension scheme. It is not alone. The argument – as put to staff – was that the preferable option of freezing was not available because of a deficit (somewhere between €3.8 and €10 million) in a scheme with up to €130 million in assets.
Winding up the scheme means using the assets to meet liabilities – that is, buying annuities for existing pensioners and, if anything is left, providing for other members. Inevitably, assets sold under pressure, especially in the current market, are very unlikely to secure market value.
Thus, members of the Arnotts fund not yet retired will likely suffer a much greater haircut on their pension entitlements than if the scheme were frozen.
Regulation is in place to stop rogue businesses abusing workers’ pension rights – as has happened all too often in the construction sector. However, when those rules force well-intentioned companies to unnecessarily damage the pension income of members, it is time to question them.
Issues also arise over the ethics of companies imposing dramatic and irreversible loss of retirement income on employees when they plan and expect to trade profitably into the future as a business. It remains to be seen if trustees, who have a legal obligation to scheme members, can hold viable corporate sponsors to account.
If not, members may feel they have little choice but to pursue trustees over a pension’s broken promise.
Attitude of private firms key to bond success
Sticking with pensions, the ESB pension fund was a big buyer of the amortising bonds issued by the Government last month. Just how big a buyer is a mystery, but informed sources say the State company's pension fund may have bought as much as €700 million of the issue.
It's a big number but when you consider the ESB has committed to injecting €638 million into its pension fund over 10 years to cover future liabilities, the high bond was certainly attractive.
Amortising bonds pay an equal sum every year over the life of the debt, helping pension funds match their assets and liabilities.
The bond currently being offered by the Irish authorities has the added attraction of a yield in excess of benchmark French and German bonds, which bolsters the solvency of the scheme.
But the issue that cannot be ignored is that the high yield on Irish bonds reflects the higher risk of a default and thus pensioners being left in the lurch.
The extent to which State company pension schemes are donning the "green jersey" and buying these bonds is an open question. It can be assumed that they would not be investing without the tacit approval of Merrion Street, who will ultimately have to help sort out the mess if it all goes wrong.
Private sector pensions and insurance companies – which could offer annuity products based on the bonds – have so far held off.
But the dire position that most Irish defined benefit pension schemes find themselves in means that they will be sorely tempted to avail of them – not least because of the most recent changes in the pensions regulations.
The acid test of whether the NTMA will hit its target of raising €5 billion through these bonds will be if the private sector invests, and it is interesting to note that Independent News Media said yesterday it was looking at them.
Are these ads too sexy for school? Seems not
Now for something different . . . “Sex sells” is one of the oldest axioms in the book, but should Radio Nova’s “Addicted to Sex on Fire” posters have been placed on billboards located near primary schools? No, says the principal of one Dublin primary school, who, along with two other individuals, complained to the Advertising Standards Authority of Ireland.
The poster, which references Kings of Leon’s ubiquitous hit Sex on Fire, was placed on the sides of buses and 48-sheet billboards around Dublin this summer.
Pinpointing the cheeky comic device of the campaign, one of the complainants observed that the words “on fire” appear in a smaller font than “addicted to sex”, arguing that therefore the content of the ad was unsuitable when placed on a billboard located in “close proximity” to a primary school.
The ASAI has rejected the complaints. “The committee did not consider the content of the advertising was likely to result in physical, mental or moral harm to children, nor was the content likely to frighten or disturb them,” it has adjudicated.
The advertising body also accepted the response of Radio Nova, which said the song, one of the most played tracks on its playlist, was mainstream, having spent a long 42 weeks in the UK chart.
Promising to liaise with its outdoor advertising agency regarding future campaign placements, Radio Nova stressed it did not choose the particular poster site and was not trying to target schoolchildren. The station, which is celebrating its two-year anniversary, is squarely aimed at 25- to 44-year-olds – people who are old enough to remember the, gasp, 1990s.
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