THE GOVERNMENT was urged yesterday by employers’ group Ibec to relax the minimum funding standards that apply to defined benefit pension schemes in light of “extremely volatile” market conditions.

Ibec claimed the survival of many defined benefit schemes was at risk because of the increased cost to companies of satisfying the “draconian” minimum funding rules specified by the Pensions Board.

The cost of meeting the funding standard, which is designed to protect the benefits of pension scheme members in the event the scheme is wound up, has increased by approximately 15 per cent since the start of 2010, according to Ibec director Brendan McGinty.

“Many private sector defined benefit pension schemes are facing a November deadline from the Pensions Board to submit proposals on how they plan to address scheme deficits,” he said.

“However, companies are concerned that they are being forced to make investment decisions that will meet the draconian minimum funding standard in the short-term, but will negatively impact on the long-term viability of these schemes.”

Under the minimum funding standard, defined benefit company pension schemes – which are usually the most advantageous type of company scheme for employees – must be funded so that all current and future liabilities can be met in event the scheme is wound up.

This involves funding the scheme with reference to the cost to the scheme of buying annuities for each member – a requirement that has been disliked by companies operating defined benefit schemes since it was introduced.

Lower yields from bonds mean that the cost of buying annuities has risen around 15 per cent since the start of the year.

“This has increased funding standard liabilities and the level of deficit that needs to be funded, as well as impacting the assumed level of future investment return,” Mr McGinty said.

The Ibec director said the minimum funding standard “does not reflect the current economic reality and is hastening the demise of otherwise viable defined benefit schemes”. He called on the Pensions Board to “adopt a more moderated approach to solvency”.

Both Ibec and the Irish Congress of Trade Unions have raised the issue with the Department of Finance and the Department of Social Protection. They are seeking Government support for a proposal by the Society of Actuaries and the Irish Association of Pension Funds to base the funding standard on a sovereign annuity, which would allow schemes to price certain liabilities against Irish rather than German bonds.