IRELAND - The Minimum Funding standard (MFS) remains a threat to the continuation of defined benefit schemes and should be reviewed, the Irish Association of Pensions Funds (IAPF) has claimed.
DB occupational pension schemes are currently obliged to submit an annual actuarial account outlining their ability to purchase annuities for pensioners to meet outstanding pension promises following a wind up of the scheme.
The IAPF has said that, as a consequence of constraints within the annuity market, this artificial standard can increase the funding requirements for occupational schemes by upwards of 30%, resulting in excessive funding and inefficient use of capital to the detriment of economic growth and development and national competitiveness.
IAPF chairman Joe Byrne argued that even though Irish pension funds had achieved an investment performance of over 20% in 2005, following average returns of 10.4 % in 2004 and 12.3% in 2003, the pressure of economic factors on “scheme deficiencies” would be exacerbated by the MFS.
Despite achieving returns of over 14% per annum over the last 3 years, falling bond yields and increased life expectancy assumptions have meant that scheme deficiencies may not be reducing when measured against the Pensions Board funding standard, said Byrne.
The problem would become even more apparent whendeficiencies are assessed and the year end FRS 17 accountingimplications are considered, he added.
In the interests of the members who are earning DBpension credits in the private sector, scheme solvency should bemeasured against a more realistic standard before the benefits they provide become unaffordable due to government policy on the Funding Standard, said Byrne.
In November, Paul O’Brien, IAPF benefits committee chairman, discussed the alternative of a State Annuity Fund which could fund pensions in the event of a scheme collapsing.
O’Brien said it would, “enhance pension coverage and adequacy, reduce pensioner dependency upon the state (by ensuring a continuation of DB schemes) and underpin the DB pension system as the cost of meeting the Minimum Funding Standard would be reduced.
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