Almost 70 per cent of major pension schemes in Ireland remain defined benefit, which guarantee a pension linked to employees‚ final salaries, despite fears that there would be a significant move to cheaper defined contribution schemes, which offer no pension guarantees, a new report by the Irish Association of Pension Funds (IAPF) has found. According to John Feely, chairman of the IAPF, the rate of closure of defined benefit schemes is about 7 per cent over three years, which is not as dramatic as many envisaged.
However, Feely expects that the trend towards defined contribution schemes is likely to continue due to rising costs associated with improved life expectancy, reduced investment return in the future, the introduction of accounting standard FRS 17 and added regulation arising out of the Pensions (Amendment) Act 2002.
The latest figures from the Pensions Board however tell a different story as they show that defined contribution plans will shortly overtake defined benefit schemes as the main form of pension cover for workers in the private sector. ‘Unfortunately the IAPF’s findings are not representative of the industry in general because only the better schemes tend to belong to the IAPF,’ said Anne Maher, chief executive of the Pensions Board.
The IAPF study also highlighted fears that funding of pensions is inadequate and Feely said that employees need to be aware the current levels of funding to defined contribution schemes may not be sufficient to provide adequate retirement benefits. Moreover, while the report confirms the trend towards early retirement but Feely says, ‘based on current contributions, investment returns and life expectancy I don’t believe that this move to early retirement is sustainable for all in the future.’ ‘Indeed we would argue that we need to be more flexible in setting 65 at the age that the State pension applies. We would like to see a more gradual and flexible approach to retirement with people being allowed to continue working into their 70s if they wish.’ |
