IRELAND - Most small Irish pension funds will fund the controversial new pensions levy by reducing member benefits, an Aon Hewitt survey finds.
The Aon Hewitt Ireland Launches 2011 Defined Benefit Pension Survey, which studied 74 Irish employer sponsored DB schemes, found only one third of respondents would contribute to the levy by either an upfront payment or as part of a funding proposal. The rest said they would likely decrease member benefits.
The levy was introduced by the government this year in order to raise €470m ($651m) a year to fund a jobs initiative. It affects private occupational schemes and private pension savings, including Personal Retirement Savings Accounts, at the rate of 0.6% a year until 2014. Public sector schemes and annuities are exempt. (Global Pensions: 21 September 2011).
According to Aon, the levy negotiations have added pressure on employer-trustee relationships. Aon Hewitt Ireland joint managing director Rachael Ingle told Global Pensions trustees are putting pressure on employers to contribute towards the levy in order to avoid member benefit reductions.
Ingle said: "The Pensions Levy has collected €457m in revenue for the exchequer to fund the jobs initiative and the subsequent discussions and negotiations on this issue between employers and trustees have strained relationships at a time when cooperation between both parties is the only way to ensure a sustainable pension future for employees."
The survey also revealed 90% funds are changing their investment strategies. Ingle said schemes are moving their investments away from equities and into fixed income and diversifying their portfolios because of volatile equity markets.
"This is a long term strategy but the results are yet to be seen as the funded status for many pension funds has not changed," she added.
Other findings showed 70% of respondents have closed their DB plan to new entrants, double the amount three years ago.
Aon Hewitt's survey also supported recent findings from the Irish Pensions Board statistics which found 75% of DB schemes were underfunded. According to Aon, bringing back the funding standard will help pension funds manage their funded status more efficiently.
The Pensions Board funding standard, which required funds to submit funding proposals if they were not 100% funded, was removed last year as schemes were struggling to meet proposal deadlines, said Ingle.
"Continually improving longevity, persistently low annuity rates, an uncertain legislative environment and the ongoing fallout from one of the most severe stock market crashes of all time are just some of the significant challenges facing the pensions industry at present. We welcome indications from the Minister that the funding standard will shortly be reinstated as pension funds will then at least understand the rules in play and be able to take appropriate steps to manage the future way forward for all stakeholders," she added.
Most respondents in this week's Pensions Buzz do not think businesses should be able suspend AE contributions if in financial distress.
Former BHS owner Dominic Chappell has lost the appeal against his section 72 conviction and sentence for failing to hand over information to The Pensions Regulator (TPR).
This week's top stories include Marsh and McLennan Companies agreeing to buy JLT, and the home secretary calling for AE to be scrapped in a no-deal Brexit scenario.
Lesley Titcomb says the watchdog wants closer interactions with pension funds to spot problems sooner and act before having to use its more stringent powers