Defined Benefit Schemes in Defecit
June 25
Defined Benefit Schemes in Defecit
At the launch of The
Pensions Board's Annual Report and Accounts 2009 by the Minister
for Social Protection, Éamon Ó Cuív T.D., the Board emphasised the
importance for defined benefit schemes in deficit to submit funding
proposals to the Board in compliance with the imminent deadline
commencing in November 2010.
The Annual Report highlights that,
despite good investment returns for almost all schemes in 2009, an
estimated 75% of defined benefit schemes were still in deficit at
the end of 2009, and in many cases, the deficit is substantial.
Speaking at the launch, the Chief
Executive of The Pensions Board, Mr. Brendan Kennedy said:
'Trustees who fail to submit a funding proposal by the revised
deadline may be liable to prosecution and the Board may issue a
direction to trustees to reduce scheme benefits in such
circumstances.' Kennedy went on to stress: 'It is important for
trustees of defined benefit schemes in deficit to take the
difficult decisions and make realistic choices to secure the long
term viability and affordability of their schemes.'
Although investment returns for
2009 provided some relief for pension scheme members, there are
concerns about how these returns were achieved. Pensions
Board data shows that the level of investment risk being taken is
still very high. Irish pension schemes suffered serious
losses between 2007 and early 2009 because of the substantial
investment risks being taken.
Kennedy went on to say 'The lessons of the past are clearly
still not being applied today; investment strategies must focus on
the risk as well as the return. And the situation with defined
contribution schemes is similar: there is very little risk
reduction in the funds in which many members are invested.
Recent stock market losses show the ongoing risks of this approach.
It is difficult to avoid the conclusion that the good investment
returns of 2009 are a result of the same strategies that caused
much of the recent losses, and that the chances of further losses
are therefore too high. While under the Act, the Pensions Board
does not have the power to specifically direct pension investment
the Board continues to warn against this approach.'
Throughout 2009 the Board; through a combination of seminars,
presentations, guidance and FAQ materials, media interviews and
direct contact with schemes, emphasised the importance of long term
sustainability in defined benefit scheme funding and reminded
trustees of the need to consider realistic costs, investment risks,
and the ability and willingness of the employer to support the
scheme.
Kennedy added: 'Scheme trustees are obliged under law to invest
scheme assets in a manner "appropriate having regard to the nature
and duration of the expected liabilities of the scheme." There is
also a well established obligation under trust law to invest
reasonably and prudently. The data available to the Board raises
considerable doubts as to whether the current investment strategy
for many schemes fulfils these requirements. The great
majority of trustees of defined benefit schemes rely on
professional advice; it has to be asked whether that advice takes
sufficient account of the nature of the liabilities of schemes and
the consequences of the risks taken