Written answers

Tuesday, 9 December 2008

Department of Social and Family Affairs

Pension Provisions

10:00 pm

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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Question 322: To ask the Minister for Social and Family Affairs the proposals she has in the short term to protect defined benefit pension funds from collapse; and if she will make a statement on the matter. [44651/08]

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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Question 323: To ask the Minister for Social and Family Affairs the strategy she has in the long term to protect pensions and those who have invested in them; and if she will make a statement on the matter. [44652/08]

Photo of Mary HanafinMary Hanafin (Dún Laoghaire, Fianna Fail)
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I propose to take Questions Nos. 322 and 323 together.

The Pensions Act provides for a minimum Funding Standard which defined benefit pension schemes must meet on an ongoing basis. Generally speaking, the Standard requires that schemes maintain sufficient assets to enable them to discharge accrued liabilities in the event of a scheme winding up. Where schemes do not satisfy the Funding Standard the sponsors/trustees must submit a funding proposal to the Pensions Board to restore full funding within three years. The Pensions Board can allow a scheme up to ten years to meet the standard in certain circumstances.

In 2007, 81% of defined benefit schemes reporting to the Pensions Board passed the Funding Standard. Most of those schemes failing the test had a funding proposal in place. It is expected that the number of schemes failing the funding standard will increase significantly in the coming year. However, the extent of the problem will not be fully apparent until schemes carry out end of year actuarial assessments and report the results to the Pensions Board as required under the Pensions Act.

In recognition of the current market difficulties and the difficult decisions that pension schemes will face, the Government has put in place a number of short-term measures to ease the pressure on schemes. It has been agreed with the Pensions Board that an additional six months will be allowed for trustees to prepare funding proposals.

This will mean that schemes will have 18 months to review the situation with sponsoring employers and to formulate proposals for recovery. These actions are being taken to alleviate the current situation. Members of Defined Contribution schemes have also been exposed to investment losses. In such schemes the risk is borne in full by the member. Many of these schemes are relatively immature and for many people there will be adequate time to recoup some or all of the losses which have occurred.

There are particular concerns for those who may be at, or close to, retirement. Good practice would suggest a conservative approach to investments in the last number of years before retirement but anecdotal evidence suggests this may not have been applied in some cases. Members of defined contribution schemes are required to purchase an annuity at the point of retirement. In the current environment, these scheme members could realise a significant loss in the value of their pension fund. In the circumstances, the Minister Finance recently announced a concession in this area which will allow scheme members a period of up to two years to purchase an annuity. There is, of course, the risk that those availing of the deferment option could sustain further losses and this will be clearly outlined in guidance notes.

The Government is working with the Pensions Board, representative organisations and the social partners to find ways to ease the pressure on schemes by striking a balance between the long-term nature of pension savings and the need to ensure short-term security of accrued benefits. As outlined, it has already taken some short-term measures in this area. The long-term response to the situation is being considered in the context of the Green Paper on Pensions and any changes proposed will be announced in the context of the overall framework for pensions which the Government has indicated it will announce in the near future.

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