MINISTER FOR Social and Family Affairs Mary Hanafin has moved to calm fears that a majority of Irish pension funds are on the verge of collapse, but employers' body Ibec warned last night that many will fail unless the Government changes the funding rules.
The Minister was responding to the leaking of a confidential memo she sent to Cabinet colleagues about the dangerous state of pension funds affecting hundreds of thousands of workers.
"The leaking of this memo is very upsetting and has caused terrible panic among people who may be due to retire soon but there is no need for that," Ms Hanafin told The Irish Times.
She said that pension funds had been given a breathing space of a few months to report on their funding standards to the Irish Pensions Board. "These are turbulent and difficult times for money markets where most pension funds are invested," said the Minister.
Taoiseach Brian Cowen said yesterday that the Government would be engaging the pension industry to "review funding arrangements".
A confidential memo prepared by Ms Hanafin, disclosed in the Sunday Tribuneyesterday, highlighted the problem. "There is a particular concern for pensioners and those approaching pension age in the event of the wind-up of significantly under-funded schemes. This could be particularly difficult for pensioners in a mature scheme where a large number of pensioners are being paid directly from scheme funds," said the memo.
It added that more than 90 per cent of defined benefit schemes were expected to be in deficit when they reported to the Pensions Board. Defined benefit schemes provide a pension based on a proportion of final salary while defined contribution schemes purchase an annuity at the point of retirement to fund a pension.
Ms Hanafin said the Department of Finance was examining whether the rules governing the purchase of a pension annuity could be relaxed so that people would not be obliged to proceed in current market conditions.
Fine Gael finance spokesman Richard Bruton said pension funds had been very badly affected by the collapse of asset values but he criticised Government inaction.
"The Government has been paying lip service to pension reform for many years and producing discussion papers but nothing has been done.
"The Taoiseach saying the Government will be engaging with the pension industry may fill a gap in today's news but it would be much more interesting to hear his long-term plans for pension reform," said Mr Bruton.
Director general of Ibec Turlough O'Sullivan warned that unless the funding rules governing defined benefit pension schemes were urgently reformed, a number would collapse.
"It is time that the Government and the Pensions Board, as the regulator, faced up to the serious difficulties that defined benefit pension schemes are facing.
"The current obligation on schemes to be 100 per cent funded on a discontinuance basis is not sustainable," said Mr O'Sullivan.
He added that according to pension industry estimates, three out of four defined benefit schemes could now fail to meet the funding standard, compared to just one in four at the end of 2006.
Currently there are 99,802 schemes with 800,398 members of which 66 per cent are defined benefit schemes and 34 per cent are defined contribution schemes.
