IRELAND - The shift to defined contribution (DC) pension schemes could be turned on its head, according to experts in Ireland who predicted a move by companies back to a defined benefit-type set up.
Although DC plans have been hailed as the silver bullet for pension provision, some have claimed that companies are discovering they are too expensive to run. Part of the reason cited was the short periods of time employees spend nowadays with any one company. Companies with a high staff turnover could actually be better served by a DB scheme, said Jennifer Richards, head of Standard Life Investments, Ireland, while speaking at a recent Global Pensions round table in Dublin.
“At the recent IAPF benefits conference they showed that it was more expensive for a company to have a DC scheme for people until they got to around 15 years with the organisation,” she said. “With people leaving organisations, it’s better for the company to offer a DB scheme.”
Frank O’Dwyer, chief executive of the Irish Association of Investment Managers, added: “That’s likely to drive HR departments to offer DB schemes as a retention issue, and I think at the middle and high end, you could see a return to DB schemes.”
According to Stephen Lalor, employee benefits consultant at Coyle Hamilton Willis in Dublin, a DB pension plan would give a company the competitive edge in such an environment. “If you can bite the bullet on having a defined benefit scheme, that could give you a huge competitive advantage for the very best employees,” he said.
However he conceded it could resurface in a slightly different form: “It might not be DB as we used to know it.”
Mick James, director – investment services at Irish Life Investment Managers, noted that the same investment issues that impact on DB also impact on DC. “We cannot choose to ignore that fact,” he stated.
The prediction of a shift does not just apply in Ireland. In August, Global Pensions reported musings in the same vein by Peter Kraneveld, special advisor in international affairs at Dutch pension fund PGGM, who said new DC deals struck by employers actually worsened the state of their pensions.
Guus Boender, CEO of Ortec in the Netherlands added: “Right now companies are struggling to move from DB to DC, but in about five years, it is very likely we will see them battling to shift in the opposite direction.”
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