Thursday, 20 June 2013

Questions (126)

Paudie Coffey

Question:

126. Deputy Paudie Coffey asked the Minister for Social Protection in view of the unique circumstances of the ESB pension fund, if she will consider exempting this fund from the minimum funding standard applied by the pension regulator; and if she will make a statement on the matter. [29734/13]

View answer

Written answers (Question to Social)

Pensions legislation provides for the supervision and regulation of occupational pension schemes and, in that context, requires defined benefit schemes to meet the commitments they have made to their members. This method by which this is regulated is set out in the Funding Standard.

The majority of defined benefit pension schemes are in deficit and face serious challenges in restoring their funding levels to enable the scheme deliver on the pension promise. It is acknowledged that the fundamental problem facing pension schemes is that pensions are significantly more expensive, due to increasing life expectancy and lower than expected investment returns which are reflect in increased annuity rates.

The Funding Standard provides a benchmark against which the ‘health’ of a scheme can be tested. When a scheme fails the Funding Standard that means that unless some action is taken, the scheme will not be able to pay all the benefits promised. The existence of the Funding Standard itself is not the central issue in relation to whether a scheme is properly funded. Rather the responsibility rests with the employer and the trustees for ensuring that the scheme is properly funded and managed. However, the Funding Standard does provide the regulatory mechanism for ensuring that a scheme can live up to the “promised” level of pension benefits.

Trustees of a defined benefit pension scheme are required to submit an Actuarial Funding Certificate (AFC) to the Pensions Board at regular intervals to indicate whether or not the scheme has sufficient assets to meet its liabilities. If an AFC indicates that, in the actuary’s opinion, the scheme does not satisfy the Funding Standard on the relevant date, the trustees must submit a Funding Proposal to the Pensions Board outlining how it is proposed to restore scheme funding levels.

The funding proposal must set out a contribution plan which the actuary can certify as being such that s/he can reasonably expect its implementation to be sufficient to allow the scheme to satisfy the Standard within the period of the proposal.

Section 52 of the 1990 Pensions Act provides that, by way of Regulation, certain defined benefit pension schemes may be exempt from the requirement to comply with the Funding Standard on the basis that “some or all of the benefits under specified schemes or categories of schemes are, or may be, paid in whole or in part out of moneys provided from the Central Fund or moneys provided by the Oireachtas”.

EU Directive 2003/41/EC on the activities and supervision of institutions for occupational retirement provision (the IORPS Directive) is also relevant in this context. It provides that a Member State may choose to exempt a funded defined benefit pension scheme from the application of a national funding standard only if the scheme is “made under statute, pursuant to legislation, and is guaranteed by a public authority”. Essentially, in order to exclude a scheme from the requirements of the Funding Standard, the payment of scheme benefits must be guaranteed by the State.

The State does not guarantee or accept any liability for the funded schemes of the commercial State companies. In this regard, a case has been made by the ESB Pensions Governance Forum seeking exclusion from the requirements of the Funding Standard. This case is being examined at present.

Question No. 127 withdrawn.