Defined benefit (DB) pension schemes are a very important element of pension provision in Ireland and we want them to survive for the future. While pension schemes are voluntary and a matter for negotiation between employers and employees, a strong regulatory structure is also needed to protect members. It is in that context that I recently announced changes to the funding standard as part of a package of measures including sovereign annuities.
The existing Funding Standard (amended to give credit for the purchase of sovereign annuities or bonds) will be restored for a three year period. The Funding Standard will be reformed and member' security strengthened by requiring DB pension schemes to hold a risk reserve as a protection against future volatility in the financial markets. Ultimately, schemes will need to be able to meet the requirements of the new Funding Standard in 11 years (by approximately 2022). There will also be changes to the way in which pension scheme accrued benefits are re-valued and the priority given to pensions in a wind-up situation.
The Pensions Board expect to publish updated guidance by the end of the year. The updated guidelines will take account of the changes I announced and will inform trustees of schemes which are not in compliance with the Funding Standard of the dates by which recovery plans must be submitted to the Pensions Board. As the first such date will be no earlier than 1 July 2012, I am satisfied that trustees will have substantial time to prepare their proposals.
In the meantime, recovery plans submitted to The Pensions Board by 12 noon Friday 16 December 2011 will continue to be considered by the Board under the current funding standard and guidance.