Jan O'Sullivan (Limerick East, Labour)
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Question 20: To ask the Minister for Social and Family Affairs if his attention has been drawn to the annual report of the Pensions Board for 2004 which found that four out of ten defined benefit pension schemes failed to meet their statutory funding requirements; the steps he will take to address this situation in view of the threat to workers pensions; and if he will make a statement on the matter. [30953/05]

Séamus Brennan (Dublin South, Fianna Fail)
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The Pensions Act requires the trustees of funded defined benefit, DB, schemes to certify on a regular basis that the scheme meets the statutory funding standard. From 23 September 2005, these certificates must be submitted every three years. The annual report of the Pensions Board shows that of the 596 schemes which submitted funding certificates in 2004, 240 — or 40% — of them failed to meet the funding standard. Where a scheme does not meet the funding standard, a funding proposal, designed to restore the scheme to full funding, must be submitted to the Pensions Board. The annual report also shows that, by the end of 2004, 189 of these schemes had submitted recovery plans to the Pensions Board designed to ensure a structured return to full funding over specific periods.

The funding standard, which applies to funded defined benefit, DB, occupational pension schemes, is a wind-up standard. It is designed to ensure that, if a funded DB scheme winds up, there are sufficient assets to meet the liabilities at that point in time. In the event of a scheme being unable to meet this standard it must prepare a recovery plan designed to ensure a return to full funding within three years.

This standard has been in place for almost 15 years and, up to about 2000, few schemes had any real difficulty in meeting the standard. However, since then a number of factors, in particular economic and financial developments, have had an adverse impact on scheme funding.

In 2003, my predecessor, Deputy Coughlan, introduced short-term measures designed to alleviate the funding crisis in pension schemes caused by the investment losses that many schemes suffered at that time. These measures provided that, where the funding difficulties were due to investment losses, the recovery plan could be effected over a longer period of up to ten years or, in exceptional circumstances, longer. These recovery plans must be agreed by the Pensions Board.

In order to develop a longer-term response to these and other issues, the Pensions Board carried out a review of the funding standard, which was submitted to me in December 2004. That review recommended retention of the short term provisions introduced in 2003, which it found were largely successful in assisting schemes to overcome their funding difficulties.

The review further found that the liability side of pension funds is also under pressure through, amongst other things, improved longevity and lower interest rates. To deal with this, the review recommended that an extension to the period allowed for recovery plans should also be granted in relation to difficulties on the liability side. Provision for these changes was made in the Social Welfare and Pensions Act 2004 and the details of the additional reliefs granted were contained in regulations which I signed into law with effect from 23 September this year.

In reviewing the funding standard, the Pensions Board was anxious to ensure that a reasonable balance was struck between the protection of the interests of scheme members and the interests of employers who sponsor and contribute to schemes. At the end of the day, our overall objective must be to encourage continued pension provision through defined benefit schemes. The measures which I introduced this year achieve that balance. I will, however, keep this situation under review in consultation with the Pensions Board.