Dáil Éireann Debate, Tuesday - 6 December 2016
245. Deputy Clare Daly asked the Minister for Social Protection to outline his plans to review the minimum funding standard provisions in the 1990 Pensions Act (as amended), particularly if it is having unintended and harmful consequences for defined benefit pension schemes and if it is distorting investment decisions without protecting pensioners. [38754/16]
View answerThe funding standard provides the regulatory mechanism for ensuring that a defined benefit (DB) pension scheme can live up to the promised level of pension benefits and a benchmark against which the health of a scheme can be tested. The funding standard is a wind-up standard, and is intended to approximate the monies needed to secure the benefits if the scheme was wound up and the accrued benefits bought out. Any reduction in the funding standard would not improve a scheme’s ability to pay the benefits as they fall due.
In the first instance it is the responsibility of the trustees of a pension scheme to ensure compliance with the funding standard and other obligations set out in the Pensions Act 1990, as amended. The existence of the funding standard is not the central issue in relation to whether a scheme is properly funded. The responsibility rests with the employer and the trustees for ensuring that the scheme is properly funded and managed.
Public companies are obliged to report on any defined benefit schemes in their annual financial statements. The basis of these calculations is defined in the relevant accounting standards and is independent of the Irish funding standard.
The Pensions Authority is the independent body responsible for regulating the funding standard. If a scheme does not meet the funding standard, a funding proposal must be submitted to the Authority in accordance with the time limits detailed in the Pensions Act. It should be noted that the Irish funding standard is less demanding in comparison to almost all other European countries. Accordingly, I have no plans to review it.
The Pensions Authority requires that, in setting investment policy, the trustees of a DB scheme must have regard to the need to satisfy at regular intervals the minimum funding standard set down in the Pensions Act. However a number of steps have been taken to reduce the risks to pension scheme members caused by market volatility.
The Social Welfare and Pensions Act 2012 required a DB scheme to hold additional funding in the form of a ‘risk reserve’ by 2023. This function of this ‘risk reserve’ is to provide some protection and long term stability for scheme members against future volatility in financial markets. Additionally, and in appropriate circumstances, the regulator may approve scheme funding proposals that provide for the recovery of their schemes funding over longer periods that was previously the case.
In order to provide increased investment options for pension schemes the Social Welfare and Pensions Act 2010 and 2011 introduced the option for trustees to purchase sovereign annuities. Pension schemes that purchase sovereign annuities or the underlying bonds benefit from a reduction in their liabilities under the funding standard. Buying sovereign annuities for the pensioners has the effect of reducing pensioner liabilities under the funding standard and provides additional funds for the other members of the scheme.
The situation of defined benefit funding is being actively monitored by the Department and the Pensions Authority.
I hope this clarifies the matter for the Deputy.
