Peter Mathews (Dublin South, Fine Gael)
Link to this: Individually | In context | Oireachtas source

To ask the Minister for Social Protection [42513/12]

Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source

The majority of pension schemes are in deficit and face serious challenges in restoring their funding levels to enable the scheme deliver on the pension promise. It is acknowledged that the fundamental problem, facing pension scheme is that pensions are significantly more expensive, due to the increasing life expectancy and lower than expected investment returns which are reflect in increased annuity rates.

The Funding Standard provides a benchmark against which the “health” of a scheme can be tested. When a scheme fails the Funding Standard that means that unless some action is taken, the scheme will not be able to pay all the benefits promised. The existence of the Funding Standard itself is not the central issue in relation to whether a scheme is properly funded. Rather the responsibility rests with the employer and the trustees for ensuring that the scheme is properly funded and managed. However, the Funding Standard does provide the regulatory mechanism for ensuring that a scheme can live up to the “promised” level of pension benefits.

The Pensions Regulator suspended the Funding Standard four years ago, following the downturn in financial market, to give trustees/employers an opportunity to assess the impact on pension funds and to enable them time to develop responses to the challenge. Both national and EU law requires the maintenance of a Funding Standard. The reintroduction 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. It was considered desirable that, when the Funding Standard was re-introduced, schemes should be given an indication as to how the defined benefit model might develop in the future. Following consultation with stakeholders in 2010 and 2011, revisions to the defined benefit model formed part of the re-introduction of the Funding Standard.

The requirement for a risk reserve is 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, however, guidance issued by the regulator identifies options which trustees and scheme members can consider in meeting this requirement by 2023.

It should be noted that the changes to the Funding Standard are being implemented over the next 11 years, not immediately. This is the longest recovery period generally allowed in any European country.

The guidance issued by the Regulator is being kept under review and the Regulator made an announcement last week extending the timeframe for the submission of funding proposals to address scheme deficit, until 30 June 2013.

There are currently no plans to reverse the recently reintroduced funding standard.