Dáil Éireann Debate, Wednesday - 28 April 2004
133 Mr. Gilmore asked the Minister for Social and Family Affairs if her attention has been drawn to the findings of a recent report from employee benefit consultants (details supplied), that 80% of Irish pension funds fail to meet the minimum funding requirements; the steps being taken to address this situation; and if she will make a statement on the matter. [12043/04]
View answerThe minimum funding standard, which applies to defined benefit, DB, occupational pension schemes under the Pensions Act 1990, is a wind up standard. It is designed to ensure that, if a funded DB scheme winds up, there are sufficient assets to meet the liabilities at that point in time.
The survey to which the Deputy refers, included a question as to the ability of such funded DB schemes to meet this standard. It was conducted among 250 clients of the consultants, of whom approximately 188 represent funded DB schemes. It is estimated that this survey covers up to 10% of all DB schemes. The key findings of the review relating to the solvency position under the Pensions Act of the schemes covered by those surveyed indicate that: 21.4% of the schemes are over 100% funded; 60.3% of schemes are 80% — 100% funded; 18.3% of schemes are less than 80% funded.
There are no major surprises in these figures. As the authors of the report point out, the findings follow the volatility in the equity markets for the three years 2000 to 2002 and the fact that liabilities are rising faster than expected. The situation has improved in the equity markets and, with asset performance improving at present, I am glad to note that 81.7% of the schemes in question are more than 80% funded.
I have long been aware of these issues and I facilitated the introduction of some flexibility to ease employers' burdens in pension funding in the short term. Indeed, as the report of the survey states, many of these schemes are now making funding proposals to the Pensions Board under these new arrangements. For the longer term, the experience of the last few years has raised questions about the structure of the current funding standard. While it has served pension members well since 1990, it has come under considerable strain over the last couple of years and there are differing views on its appropriateness in current circumstances.
One view is that, as the vast majority of pension schemes do not wind up, a wind up standard is not appropriate for pensions which, by their nature, require long-term investment strategies. Others take the view that the only way to achieve security of members' benefits is to have a wind up standard. To deal with these issues, the Pensions Board is reviewing the funding standard in the light of experience.
Ultimately, there is no magic formula to address these issues but I believe the combination of the short term alleviation measures which allow breathing space allied to the longer term review of the funding standard is the appropriate response for now and I look forward to the outcome of that review later this year.
