OPINION:Allowing later funding proposals will help only if regulatory system aims to protect pensions, writes FERGUS WHELAN
EMPLOYERS’ BODY Ibec recently announced the closure of its defined benefit pension scheme for staff. This was a defining act in that it represents the employers’ acceptance of defeat in the battle to stave off a meltdown of Ireland’s defined benefit schemes.
The Irish Congress of Trade Unions, Irish Association of Pension Funds, Ibec and Society of Actuaries were to the fore in a battle to stop the unnecessary closure of such schemes.
Many thousands of workers will now lose part, if not all, of their pensions next year. Almost 1,000 defined benefit pension schemes exist, covering some 200,000 workers. Their losses will be entirely attributable to the insistence of the Pensions Board in imposing artificially high valuations on pensioner liabilities, making many defined benefit schemes untenable overnight.
Trustees will be forced to close schemes they would prefer to keep open. They will have to buy annuities for retired members at a time when annuities are at their most expensive. They will have to distribute any remaining assets in a most inequitable fashion.
Many workers who have paid for their entitlements over 20 or 30 years will be left high and dry.
Workers in their mid to late 50s will be hit twice, as they have already lost up to three years of their State pension – as the State pension age in Ireland is being raised to 68.
The Department of Social Protection and the Pensions Board seem determined to raise the funding standard bar to unreasonable heights.
Regulators in the US, Sweden, Denmark and the Netherlands have acted to mitigate distorting effects of the debt crisis. The regulator in Ireland insists trustees make assumptions based on the worst conceivable financial conditions. The belief seems to be is better to kill off defined benefit schemes now than give them the flexibility to weather the crisis.
The decision last week to postpone the December 31st deadline for defined benefit schemes in deficit to submit funding proposals to the Pensions Board is an empty gesture unless backed by a serious intention to alter the regulatory system and change how liabilities are valued.
For more than a decade, congress has sought to influence public policy on pension provision and to highlight problems over defined benefit schemes.
In recent years we have been frustrated by the refusal of the Department of Social Protection or the regulatory system to give due weight to our views. This is unacceptable and undemocratic.
Congress sees pension funds as deferred wages: the funds belong to members. Yet, government dictates how the assets are allocated after a wind-up.
The Pensions Board forces employers and workers to pay for revaluation of deferred members’ pensions, while the workers themselves face wage freezes and pension benefit reductions.
A basic principle of collectively funded occupational pension provision in Ireland is that it involves three parties: employers, workers and the State. In most cases, employers and workers have kept their part of the deal. By failing to regulate pensions appropriately, the State has not.
Huge damage has been done and many thousands now stand to suffer massive losses to benefits. The reputational damage to the pension system will be immense.
Time is short and it may already be too late. Extending the deadline for submitting new funding proposals will help, but only if the political system decides pension regulation should aim to protect pensions rather than regulate them out of existence.
Fergus Whelan is a senior industrial officer at the Irish Congress of Trade Unions