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Jun, 2011

New funding standards proposals for defined benefit pension schemes may force trustees to “dramatically cut benefits” or even wind them up altogether, The Sunday Business Post reports.

A new study by IFG Corporate Pensions says pension liabilities could soar by 50% under the government’s review of the minimum funding standard any fund must have.

“The majority of employers funding the pension schemes in question have enough financial headaches at present without more being added in the form of extra liabilities,” Sandra McConnell, IFG’s chief investment officer, told the newspaper.

“For example, according to the Pensions Board, 75% of defined-benefit funds do not currently meet the minimum funding standard. Nevertheless, in the last month the government has added to their burden by introducing the pensions levy and announcing potential increases to minimum standard liabilities,” she said.

And McConnell said there was the real prospect for the first time that people who had already retired could face reductions leading to a “public outcry”.

“Many companies are already paying contributions at the maximum level possible. Therefore, any significant increases in liabilities and costs may well result in employers deciding that their existing defined benefit plans are no longer sustainable,” she said.

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