Leo Varadkar (Dublin West, Fine Gael) | Oireachtas source

I am taking this topical issue on behalf of my colleague, the Minister for Social Protection, who is currently travelling overseas.

It is acknowledged that the fundamental problem facing occupational pension schemes is that pensions are significantly more expensive due to increasing life expectancy and lower than expected investment returns, which are reflected in increased annuity rates. The pensions regulator suspended the funding standard four years ago, following the downturn in the financial market, to give trustees and employers an opportunity to assess the impact on pension funds and allow time to develop responses to the challenge. The re-introduction of the funding standard was delayed on a number of occasions pending changes to legislation which were designed to help trustees respond to the funding challenges facing pension schemes. The Government also introduced the following measures to ease the funding pressures on defined benefit schemes while the funding standard was in abeyance: the removal of the priority given to post-retirement increases for pensioners to ensure a more equitable distribution of assets in the event of the wind-up of a defined benefit scheme; the establishment of the pensions insolvency payments scheme to reduce the cost of purchasing pensions for trustees where the employer has become insolvent; and the introduction of the sovereign annuity initiative.

The purchase of a sovereign annuity is an option that the trustees of a scheme can exercise in order to reduce scheme liabilities. The sovereign annuity market is still in its early stages and demand for sovereign annuities remains to be seen. However, last August the National Treasury Management Agency announced details of the sale of just over €1 billion of Irish amortising bonds with durations of between 15 and 35 years. It is anticipated that the NTMA will be in a position to issue additional bonds as pension fund trustees complete their funding plans in line with the funding standard. The funding standard provides a benchmark against which the health of a scheme can be tested. The existence of the standard is not the central issue in whether a scheme is properly funded because the responsibility rests with the employer and trustees for ensuring that a scheme is properly funded and managed. However, the funding standard provides the regulatory mechanism for ensuring that a scheme can live up to the promised level of pension benefits.

The requirement for a risk reserve is also being introduced from 2016 to provide a level of protection for scheme members against future volatility in financial markets. It is accepted that the requirement for a risk reserve presents an added challenge for schemes but guidance issued by the regulator identifies options that schemes can consider in meeting this requirement by 2023. This guidance is being kept under review. Overall, the changes made to defined benefit schemes are intended to bring increased stability to pension promises in the future and reduce schemes' exposure to risks.

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