Deloitte comments on OECD review of pension system in Ireland has been saved
Deloitte comments on OECD review of pension system in Ireland
23 April 2013 - DB recommendation would create new statutory debt obligation on employers in relation to pensions.
Commenting on the OECD report issued today, Patrick Cosgrave, Director of Pensions, Deloitte commented:
“The OECD report on the pensions system in Ireland published today covers all components of the pension system: state, private, personal and occupational plans and schemes for public-sector employees. It builds on the considerable body of work undertaken in Ireland on the analysis of the pension system and the different proposals for reform put forward in recent years.
The key areas that the report’s findings and recommendations cover include:
- Further reforms of the State pension system
- Accelerated reform of the public service pension scheme
- Policy options to expand private pensions coverage and retirement savings
- Improving the design of defined contribution (DC) pension arrangements
- Enhancing benefit security in defined benefit (DB) schemes
It is the last point above that is the biggest surprise, and of most concern to employers who sponsor DB pension arrangements. The report is critical of the adequacy of the current funding standard requirements and recommends that “healthy plan sponsors should not be allowed to “walk away” from DB plans unless assets cover 90% of pension liabilities”. This in effect creates a new statutory debt obligation on employers in relation to pensions.
Employers need to fully understand the true extent of their DB liabilities and how these proposed legislative/regulatory changes, alongside other developments (i.e. pending EU directives, ECJ court rulings) will increase the required funding commitment well beyond the level required under the current Minimum Funding Standard requirements of the Pensions Act. This is particularly time critical given that many are required to commit to long term pension funding proposals by the end of June.”
“Individuals who expect to or are already in receipt of larger pensions will also have to consider how they might best protect themselves in light of the recommended removal of the priority protection currently given to pensioners in the event of a pension scheme wind-up,” advised Cosgrave.
Other issues in the report that employers should now also be considering include:
Anticipating that the workers will be looking to stay longer in employment as the state pension age increases to 68 and potentially higher beyond 2028
- Considering the implications of being required to extend pension coverage to those parts of their workforce that currently are not members of any pension arrangement
“Secure retirement income is of fundamental importance to the long term welfare of all individuals and to the economic strength of the state – pension reforms are complex and take time to implement. While this report is undoubtedly an important milestone, clarity is now needed from the Minister and other regulatory authorities as to what changes will be implemented and when.”