Funding Standards for Pensions
24 January 2018
For Written Answer on : 24/01/2018
Question Number(s): 164 Question Reference(s): 3654/18
Department: Employment Affairs and Social Protection
Question No: 164 Ref No: 3654/18
To ask the Minister for Employment Affairs and Social Protection if her attention has been drawn to concerns in respect of pensions provisions that the minimum funding standards are inappropriate; if there has been an examination of this issue; her plans to review the legislation; and if she will make a statement on the matter.
- Brendan Ryan.
* For WRITTEN answer on Wednesday, 24th January, 2018.
Minister for Employment Affairs and Social Protection (Regina Doherty T.D.):
Pensions legislation provides for the supervision and regulation of occupational pension schemes and, in that context, requires defined benefit schemes to meet the commitments they have made to their members. This method by which this is regulated is set out in the Funding Standard.
The Funding Standard provides a benchmark against which the ‘health’ of a scheme can be tested. A scheme failing the Funding Standard means that, unless some action is taken, the scheme will not be able to pay the benefits promised. The existence of the Funding Standard itself is not the central issue in relation to whether a scheme is properly funded. Rather the responsibility rests with the employer and the trustees for ensuring that the scheme is properly funded and managed. However, the Funding Standard does provide the regulatory mechanism for ensuring that a scheme can provide a level of the pension benefits promised.
The funding standard is a wind-up standard, and is intended to approximate the monies needed to secure the benefits if the scheme was wound up and the accrued benefits bought out.
The Pensions Authority is the independent body responsible for regulating the funding standard. If a scheme does not meet the funding standard, a funding proposal must be submitted to the Authority in accordance with the time limits detailed in the Pensions Act.
The Pensions Authority requires that, in setting investment policy, the trustees of a DB scheme must have regard to the need to satisfy at regular intervals the minimum funding standard set down in the Pensions Act. However a number of steps have been taken to reduce the risks to pension scheme members caused by market volatility.
In order to provide increased investment options for pension schemes the Social Welfare and Pensions Act 2010 and 2011 introduced the option for trustees to purchase sovereign annuities. Pension schemes that purchase sovereign annuities or the underlying bonds benefit from a reduction in their liabilities under the funding standard. Buying sovereign annuities for the pensioners has the effect of reducing pensioner liabilities under the funding standard and provides additional funds for the other members of the scheme.
The Social Welfare and Pensions Act 2012 requires a DB scheme to hold additional funding in the form of a ‘risk reserve’ by 2023. This function of this ‘risk reserve’ is to provide some protection and long term stability for scheme members against future volatility in financial markets. Additionally, and in appropriate circumstances, the regulator may now approve scheme funding proposals that provide for the recovery of their schemes funding over longer periods that was previously the case.
It should be noted that the Irish funding standard is less demanding in comparison to almost all other European countries. I believe that the minimum funding standard is appropriate and my Department, in conjunction with the Pensions Authority, monitors the operation of the minimum funding standard for DB pension schemes.
I hope this clarifies the matter for the Deputy.