Ireland risks “sleepwalking into a catastrophe” unless emergency legislation is introduced to ensure the survival of defined benefit (DB) pension schemes.
That is according to a new policy briefing from the Irish Congress of Trade Unions (Ictu), which warns that action needs to be taken to protect the programmes, also known as final salary schemes, which cover approximately 100,000 Irish workers.
The “Preventable Demise of Defined Benefit Pension Provision” report adds that the current crisis in private sector pensions – particularly defined benefit programmes – has implications for workers in all areas of the economy.
"Unless we tackle this problem as a matter of urgency we will inevitably witness a sharp rise in levels of old age poverty as hundreds of thousands of people see the retirement they worked and saved for evaporate before their eyes," Ictu general secretary Patricia King warns in the briefing.
Ictu says that if present policy is not altered a “totally avoidable meltdown of DB provision will occur” with the assets of such schemes being squandered.
Publication of the paper comes months after Independent News and Media was heavily criticised after it decided to end two already-cut defined benefit schemes.
Active members
Defined benefit schemes – where the employer promises to pay a set pension in retirement based on years of service and final salary – have largely disappeared. From a peak of 1,500 healthy schemes in existence a few years ago – with a combined membership of more than 300,000 – there are now just 715 defined benefit schemes that continue to meet the minimum funding standard, with just over 100,000 active members.
Research from LCP – a specialist pensions’ consultancy – indicates that the deficit in some of the country’s biggest funds rose from €2.6 billion to €6.8 billion in the first nine months of 2016.
In addition to enacting emergency legislation, the Ictu also wants to see a suspension of the minimum funding standard and the establishment of a commission to examine how assets in defined benefit schemes can best be protected.
“Our current minimum funding standard overstates scheme liabilities and acts as an incentive for rogue employers to welch on their DB pension promise,” the report says, adding that at least 60 per cent of surviving schemes are vulnerable.
Accountable manner
The Ictu says the position of member trustees in pension schemes must be reinforced and strengthened as a matter of urgency to ensure the schemes are run in a more democratic and accountable manner.
“A cursory analysis suggests that unless something is done we are facing a DB train-wreck. Instead of an emergency response plan the official reaction is to pretend nothing of consequence has happened or is happening,” the union says in its report.
“We must not sleepwalk into this avoidable catastrophe. There are alternative strategies which will result in better outcomes for all the members.”
