UK/IRELAND - A gap in Irish pensions legislation regarding the treatment of members when a scheme winds-up is a "major problem", according to the Irish Association of Pension Funds (IAPF).

Jerry Moriarty, director of policy at the IAPF, told delegates at the Pension Plan Financial Risk 2008 conference in London there is a "marked change" in the treatment of pensioners and members of a scheme.

As he pointed out, on wind-up the first priority of a scheme is to buy annuities to secure the benefits of existing pensioners, and only then can it transfer the benefits of active and deferred members.

Moriarty said: "We do have a marked change and it's a major problem if a scheme goes under, as there could be the bizarre situation when a 51-year-old man who took early retirement gets their full pension, but a 64-year-old just days away from retiring gets a transfer of benefits."

He noted while actuarial assumptions on funding have been strengthened, Moriarty admitted there is a "gap in the legislation", and confirmed the IAPF is "looking at suggestions" to tackle this, including the possibility of moving the payment of "future accruals" to pensioners to the "bottom of the pile" to allow active and deferred members to receive more money.

In addition, Moriarty argued there is a "lack of flexibility" in the Irish pensions system, as he claimed many schemes used the surpluses in the scheme to improve benefits, but now many schemes are in deficit legislation is preventing them from "rolling back" on the promises.

As a result, he said he is "taken" with the Dutch system of conditional indexation which "everybody accepts", and suggested kind of system "would be good flexibility".

John Redwood, an MP for the UK Conservative Party, also called for more flexibility in the UK market as he warned the "current combination of funding and investment styles will deprive everyone of a final salary scheme in the UK", apart from the "privileged" members of public sector schemes.

He said: "My party [Conservatives] are looking at these issues, and looking at greater flexibility in the private sector as it is better to have a partial final salary scheme than none at all."

In addition, although he pointed out Conservative policies on pensions are a "work in progress", he admitted the party was looking at the "whole nexus of tax and regulation on pension funds to see if we can cut through it, as it is highly toxic and puts trustees in a very difficult position".

Meanwhile, in the same panel debate, Lawrence Churchill, chairman of the Pension Protection Fund (PPF), confirmed while it has been "quite fastidious" in staying out of the investment strategy for pension schemes, he admitted the PPF will "likely" consult on the issue later in the year.

Although he said investment strategy was a matter "wholly for trustees", Churchill said Parliament had already asked it to look into the matter, including investment strategy, for its levy assessment, but the PPF could see no "cost benefit case at that stage".

He said: "In theory, it's right that we should take it into account, but its very difficult in practice. However, we are likely to consult again later on this year to look at taking volatility fairly into account, as we could have a perverse cross-subsidy at the moment which we want to explore to find a better solution."

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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