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New pension rules to cost employers E3bn

Tuesday, September 11 10:26:08

New funding risk reserve rules could mean that employers will have to source, over time, a further E3 billion-plus for Defined Benefit schemes, according to estimates announced by employee benefits consultancy Willis at a seminar in Dublin today.

Willis Ireland is part of Willis Group Holdings, the global insurance broker.

Speaking at the conference, "Defined Benefit Pension Schemes: Implementing the New Funding Standard", Maurice Whyms, Director, Willis Ireland, expressed concern about the additional requirements imposed by risk reserves on Irish defined benefit schemes, "75pc of which are already under water in terms of funding".

"In view of the complexities involved in dealing with deficits, the proposed time frame for the completion of funding proposals appears particularly onerous," he said.

He added that the funding challenge was exacerbated by the euro crisis, weak global economy and resulting low interest rates. Whilst asset allocation could include new forms of investment including Irish sovereign bonds and sovereign annuities, this comes at a risk which could include the benefits of pensioners being reduced or even suspended if the bonds ever defaulted.

Barry Holmes, HR Director RCSI spoke to the conference about the challenges in communicating the complexity of these requirements to members. Having recently introduced agreed changes involving multiple stakeholders for RCSI's defined benefit plan he said the key message centred on the need to place the scheme on a robust, secure and sustainable footing. A key element to the successful outcome achieved was the open and transparent communications approach with members.

Anthony Linehan, Deputy Director, Funding and Debt Management, NTMA, told the Willis conference that Ireland had made significant progress in its return to financial markets. "The last few months have seen Ireland being recognised by overseas investors for the hard work it is implementing and this is reflected both in the decline in Irish bond yields and in the sale of E4.2 billion long term bonds in July at a rate of just less than 6pc."

He added that action on the EU summit declaration of 29 June to break the "vicious circle between banks and sovereigns" and to examine the Irish situation on the basis of similar cases being treated equally, would add significant further impetus to the decline in Irish bond yields.

Referring to sovereign bonds in relation to pension investment Mr. Linehan said that the bulk of the E1 billion in amortising bonds sold by the NTMA in August had mostly been taken up by the local pensions industry which is not surprising as they are designed to facilitate the domestic pension funds.

"For investors, especially annuity purchasers, the yield of 5.9pc is attractive compared to that available from German bonds. However, as Ireland's global standing improves, yields on Irish bonds are likely to lower." Mr. Linehan added that availability and timing of future issuance of amortising bonds will be driven by demand.

Mr Whyms concluded that due to the complexity of the requirements it is important to have a team that includes actuarial, pension and HR experts to assist and support stakeholders with the implementation of the new funding proposal requirements.