EMPLOYERS AND union groups have united to lobby Ministers over strict guidelines announced this week for companies looking to restructure significantly underfunded pension schemes by reducing benefits.
Employers’ lobby group Ibec confirmed last night that it had approached Ministers, urging them to prevail upon the regulator, the Pensions Board, to adopt a more pragmatic approach. It has called for a meeting with Minister for Social and Family Affairs Mary Hanafin.
“If the Pensions Board acts on the guidelines it has issued, it will certainly herald the demise of quite a number of defined benefit pension schemes,” said Brendan McGinty, director of industrial relations and human resource services at Ibec.
Several union sources said the issue had caused consternation, especially at a time when working conditions were under threat.
The guidance issued this week relates to section 50 applications – applications by stressed pension funds to rectify their position in part by reducing the benefits on offer to members below what they had been promised when they joined the scheme.
The original guidelines, issued last May, state that the Pensions Board would consent to a section 50 application only “where it is satisfied that the proposed future operation of the scheme is robust enough to make any further application unlikely”.
This week’s update states such schemes will have to show that, under their new funding proposal, they will be able to withstand a further 15 per cent fall in stock market values as well as a half percentage point cut in interest rates. In addition, they will only be able to assume investment growth in line with the yield on long-term government bonds, a conservative measure.
“It is a ridiculous situation of companies having to lock ourselves in at the bottom of the market,” said Mr McGinty. “In our mind, these guidelines have to be changed.”
As many as 50 per cent of all defined benefit schemes are expected to have to file funding proposals by the end of next year, outlining how they will overcome the hole in their pension funds.
In many cases, their problems are due to the state of the funds at the end of 2008, where the collapse of global stock markets was a significant factor.
Pensions Board chief executive Brendan Kennedy has defended the latest guidance, saying the regulator’s job was to protect the interest of scheme members.
