Pension Conference Attendees to Listen to Discussion on 2 Primary Pensions Reform Issues that Require “Urgent Attention”
- Issue of universal pensions has been “parked for too long”
- Call for a reconsideration of how DB pension liabilities are measured
The Irish pensions sector is at a crossroads, with schemes dealing with the impact of low interest rates and Government looking at the sustainability of the State pension and how to increase pension savings. Attendees at the IAPF’s Annual Benefit Conference, sponsored by Standard Life Investments, to be held tomorrow at the Shelbourne Hotel in Dublin will hear from a variety of pensions experts who will be looking at these issues and at how the sector as a whole can move forward in a meaningful way.
This half day morning conference, at which Leo Varakdar TD, Minister for Social Protection will give the opening address, will bring together over 300 trustees, HR and finance managers, trade unions, policymakers and service providers to consider and discuss issues facing pension schemes today.
Jerry Moriarty, CEO of the IAPF, “It feels, as it so often does in pensions, that we are at a crossroads. There are many different aspects of the system that require decisions on how to move forward and we will touch on these throughout our conference. Standing at a crossroads can be confusing, what to do, where to go. But eventually you have to choose a direction to move in or you will get nowhere”.
The IAPF say that while there are a variety of areas which need attention – there are 2 key aspects of Ireland’s pensions system which require urgent action – namely, the introduction of some form of universal pension scheme and addressing the ongoing DB pension funding issues.
1. Universal Pension Scheme
Jerry commented, “The Minister has indicated his support for universal pensions, and we agree with him that it is imperative that we address the issue now, while we have the opportunity. It has been parked for too long and we owe it to future generations to start something now so we can pre-empt the challenges of changing demographics”.
In looking at the future shape of the pensions system in Ireland, the IAPF cautioned against making changes that would make it more difficult for the many good employer schemes that currently exist to continue to operate.
Jerry continued, “While there are many benefits to having greater scale it is also important that engaged trustees and employers can continue to operate schemes that offer high contribution rates and very low charges”.
2. Reconsider Solvency measures
The IAPF say that a big issue exercising trustees at present is the continuing increase in the valuation of the liabilities of Defined Benefit pension schemes, as a result of being tied to historically low interest rates. The number of active DB schemes has fallen from just over 1,200 at the end of 2006 to less than 500 today. The number of active members in those schemes has dropped from 270,000 to 126,000 at the end of last year.
Jerry explained, “We believe it is time to take a wider look at Defined Benefit funding and solvency measurement particularly in the current unprecedented financial landscape.
The DB schemes that have survived have generally done so because of tough decisions and considerable effort and pain for members and employers. Many employees have seen their benefits reduced, either in payment or in what they can expect to receive when they come to retire. Many employers have had to agree to significant increases in their contributions to those schemes, and it’s questionable whether they will be willing or able to agree further increases. So, despite reducing the schemes’ liabilities and increasing assets (DB assets at the end of 2015 were €71.8bn compared to €39.4bn at the end of 2008), schemes are continuing to see the value of those liabilities rising because of the link to interest rates. Interest rates continue to remain low because of the Quantitative Easing policies of Central Banks and it is difficult to see when and how those policies will end.
Indeed we have seen reported this week the market cost of public sector pensions. The Government doesn’t have to go to the market to purchase annuities, but neither do private sector defined benefit schemes. Yet, we continue to assume they do for the minimum funding standard calculation.
The schemes that have survived have done so because of the willingness of workers to sacrifice benefits and the goodwill of employers to continue to sponsor the schemes. It would be a real tragedy if they were to be forced to wind up because of the way in which we value the liabilities, rather than focusing on their ability to pay out benefits over the next 30 or 40 years.
We believe it is now time to take a wider look at DB funding and the minimum funding standard basis”.
Jerry concluded, “While we can be overly negative about our pensions system, we should remember we are somewhere close to average on most global standards. We have €115.8bn in pension savings in Ireland. This is money that has been put aside by workers and employers to ensure people can have a secure retirement. We have lots of high quality schemes governed by diligent, capable trustees. We need to work together to ensure that current and future generations can have pensions that are secure, fair and simple.”
Note to the Editor
What: IAPF ANNUAL BENEFITS CONFERENCE 2016
When: Thursday Oct 6th 8am – 1pm
Where: Shelbourne Hotel Dublin 2
- Opening Address: Leo Varakdar TD, Minister for Social Protection
- Re-imagining the DB funding challenge: Donal Keating, Director, Pensions Group, PwC
- ARF Charges – Pensions Council Report: Jim Murray, Chairman, Pensions Council
- Mandatory Retirement Ages: Elizabeth Ryan, Partner, Employment Law & Benefits Team, Mason Hayes & Curran
- Defining Value for Money in DC: David Bint, Global Investment Specialist, Multi-Asset, Standard Life Investments
- A Universal Pension for Ireland: Declan Jackson, Government Affairs, Insurance Ireland
- Brain Health - The Best Investment you can Make for Retirement: Professor Sabina Brennan, Trinity College Institute of Neuroscience Chair's Closing Remarks: Jerry Moriarty, IAPF