Tuesday, 24 February 2009
Department of Social and Family Affairs
Question 317: To ask the Minister for Social and Family Affairs if she is satisfied that all pension funds have operated in a fashion expected to protect the consumer; and if she will make a statement on the matter. [7534/09]
The primary responsibility for the administration of a pension scheme rests with the trustees of the scheme. The trustees must, at all times, act in the best interests of the members and are required under the Pensions Act, and subject to regulations, to provide for the proper investment of the resources and for compliance with the funding standard requirements in the case of defined benefits schemes.
The recent and rapid downturn in the world economy has changed the economic landscape and has had a significant worldwide impact on the performance of pension funds. The indications are that Irish pension funds have lost in excess of 30% of their value in the last 12 months. While it is expected that the number of defined benefit schemes failing the funding standard will increase sharply as a result of current market conditions, the extent of the problem will not be fully apparent until schemes carry out their next actuarial assessment and report the results to the Pensions Board as required under the Pensions Act.
This unprecedented situation has raised new challenges for employers and trustees of both defined benefits and defined contribution schemes. There are no easy answers to these problems but the Government has recently put in place the following short term measures to ease the funding standard requirements on pension schemes:
granting additional time for the preparation of funding proposals, as a temporary measure;
dealing as flexibly as possible with applications for approval of funding plans;
allowing longer periods for recovery plans in appropriate circumstances;
allowing the term of a replacement recovery plan to extend beyond the end date of the original plan;
taking into account voluntary employer guarantees in approving recovery plans;
rejecting recovery plans which fail to demonstrate an appropriate investment approach.
Defined Contribution (DC) 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 and who are required to purchase an annuity on retirement. While good practice would suggest a conservative approach to investments in the last number of years, in the current environment, these scheme members could realise a significant loss in the value of their pension fund. In the circumstances, the Minister for Finance recently announced measures to allow such 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 has been clearly outlined in guidance notes issued by the Pensions Board. As indicated, these are short-term measures. Further measures designed to protect the interest of the consumer will be reflected in the national framework on pensions which the Government plans to launch shortly.