Ireland's IAPF calls for rethink on defined benefit funding calculation

The Irish Association of Pension Funds (IAPF) has called for a rethink on the calculation of defined benefit (DB) pension scheme liabilities, given the financial climate.

Speaking at the association’s annual benefit conference in Dublin, Jerry Moriarty, chief executive at the IAPF, said a big issue exercising trustees was the continuing increase in the valuation of the liabilities of DB schemes, as a result of historically low interest rates.

“The DB schemes that have survived have generally done so because of tough decisions and considerable effort and pain for members and employers,” he said.

“Many employees have seen their benefits reduced, and many employers have had to agree to significant increases in their contributions to those schemes.”

But, with interest rates continuing at low levels and no end in sight to the quantitative easing policies of central banks, he questioned the use of annuity rates in the minimum funding standard calculation.

“Private sector DB schemes don’t have to go to the market to purchase annuities, yet we continue to assume they do, for the minimum funding standard calculation,” Moriarty said.

“It would be a real tragedy if those schemes that have survived were to be forced to wind up because of the way in which we value the liabilities, rather than focusing on their ability to pay out benefits over the next 30 or 40 years.

“It is now time to take a wider look at DB funding and the minimum funding standard basis.”

Moriarty also called for action on the issue of universal pensions, the other key aspect of Ireland’s pension system he said needed urgent attention.

“It has been parked for too long, and we owe it to future generations to start something now so we can pre-empt the challenges of changing demographics,” he said. 

But he cautioned against making any changes that would make it more difficult for the “many good employer schemes” that exist to continue to operate.

“While there are many benefits to having greater scale,” he said, “it is also important engaged trustees and employers can continue to operate schemes that offer high contribution rates and very low charges.”