Written answers

Tuesday, 9 December 2014

Department of Social Protection

Pension Provisions

Photo of Catherine MurphyCatherine Murphy (Kildare North, Independent)
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145. To ask the Minister for Social Protection her views on the most recent LCP Ireland pensions accounting briefing (details supplied) which estimated the current deficit in the 29 largest defined benefit pension schemes to have more than doubled in one year to €8.5 billion; if her Department had performed a risk analysis of the State's potential exposure if the scenario continues to deteriorate; the measures she is proposing to address this matter; and if she will make a statement on the matter. [44336/14]

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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I am aware of the funding difficulties facing many defined benefit pension scheme in recent years.

The Pensions Act sets out the funding level which the trustees of a defined benefit pension scheme are required to maintain. This requirement is often referred to as the funding standard. This standard provides a benchmark against which the “health “of a scheme can be tested. Where a scheme fails to meet this requirement the trustees of the scheme are required to submit a funding proposal to the Pensions Authority setting out how it is proposed to restore scheme funding.

A range of legislative measures have been put in place in recent years to help employers and the trustees of schemes to secure the sustainability of those schemes. One of these measures is a requirement on pension schemes to maintain an additional level of funding in the form of a risk reserve to protect the interest of scheme members against future volatility in financial markets. This requirement will come into effect from 2016.

As pensions accounting figures are based on volatile corporate bond yields, the resulting figures are volatile from year to year. This is especially true of accounting deficit or surplus figures. It has been the case, since 2000-2003, and in particular since the 2008 financial crisis, that many DB schemes are struggling financially.

As a result of the measures put in place in recent years, almost all defined benefits pension schemes are either meeting the funding standard or are on a recovery plan with the objective of meeting the funding standard. These measures have been put in place not only with the objective of removing or minimising State exposure, but with ensuring that schemes meet their objective of paying benefits to members.

It is possible that the State would be exposed to the risk of financial loss under conditions of double insolvency, i.e., where a sponsoring employer and an associated underfunded defined benefit scheme goes into windup. The changes made to the Pensions Act in 2013 addressed this situation specifically and carefully in a manner designed to support such schemes, particularly the pensioner members, without placing an enormous burden on the taxpayer.

Due to the 2013 legislation which placed boundaries on the situation, the exposure to the State is now considered relatively modest and is expected to diminish as more and more schemes improve their funding position and meet the funding standard.

My officials have taken steps to ensure that pensions scheme financial data is submitted to the Pensions Authority more regularly than previously, enabling my Department to closely monitor the situation on an ongoing basis.


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