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Move from defined benefit schemes gains pace Back  
Ireland’s employers are increasingly moving from defined benefit (DB) pension schemes, to defined contribution (DC) schemes, with the public sector expected to account for the majority of DB schemes going forward.

A DB is a pension scheme in which an employee’s pension is based on number of years of service and final salary with each employer, whereas a DC is a scheme whereby the benefits received in retirement are based on the amount contributed.

Joyce Brennan, a consultant actuary with Mercer, says that more and more DB schemes are being changed. She says that the two main reasons firms are moving away from DB schemes is the cost of meeting the requirements of these schemes, as well as the level of uncertainty surrounding such schemes.

Last year Mercer conducted a survey into DB pension schemes, which indicated that 60 per cent of sponsors of defined benefit schemes have either changed their DB schemes, or intend reviewing their plans in the near future. According to Brennan, apart from the winding down of such schemes, the main changes plan sponsors are making include closing DB schemes to new employees, who instead have access to the firm’s DC scheme, and increasing the level of employee contributions to the schemes.

Moreover, she says that while in the past, early retirement schemes offered by corporates would have included full pension provisions, this is increasingly less likely.

Over the past 10 years, Brennan says that no new DB schemes have been established, with pension trustees favoring DC schemes, as these are seen to be less expensive.

There are currently around 480,000 employees who are members of DB pension schemes in Ireland. Approximately half of these are public sector employees, whose benefits are guaranteed by the State, and the remainder are mostly private sector workers, who rely heavily on the support of sponsoring employers.
However, despite the move away from DB schemes, there remains a substantial commitment to defined benefits in Ireland, she says, with the report indicating that 40 per cent of sponsors did not intend to change their defined benefit scheme for the foreseeable future. Brennan says that it is mainly the public sector which continues to support DB schemes, with the private sector favoring the cheaper DC schemes more and more.
Employees may lose out however, in the changeover to DC pensions, as employers tend to make inadequate contributions to these funds. But this is changing, says Brennan, as employers better realise the cost of running such schemes.

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