“Lessons of the past should be applied to the present - investment strategies must focus on the risk as well as the return”
Tuesday, 22 June 2010: At today’s launch of The Pensions Board‘s Annual Report and Accounts 2009 by the Minister for Social Protection, Éamon Ó Cuív T.D., the Board emphasised the importance for defined benefit schemes in deficit to submit funding proposals to the Board in compliance with the imminent deadline commencing in November 2010.
The Annual Report highlights that, despite good investment returns for almost all schemes in 2009, an estimated 75% of defined benefit schemes were still in deficit at the end of 2009, and in many cases, the deficit is substantial.
Speaking at the launch, the Chief Executive of The Pensions Board, Mr. Brendan Kennedy said: ‘Trustees who fail to submit a funding proposal by the revised deadline may be liable to prosecution and the Board may issue a direction to trustees to reduce scheme benefits in such circumstances.’ Kennedy went on to stress: ‘It is important for trustees of defined benefit schemes in deficit to take the difficult decisions and make realistic choices to secure the long term viability and affordability of their schemes.’
Although investment returns for 2009 provided some relief for pension scheme members, there are concerns about how these returns were achieved. Pensions Board data shows that the level of investment risk being taken is still very high. Irish pension schemes suffered serious losses between 2007 and early 2009 because of the substantial investment risks being taken.
Kennedy went on to say ‘The lessons of the past are clearly still not being applied today; investment strategies must focus on the risk as well as the return. And the situation with defined contribution schemes is similar: there is very little risk reduction in the funds in which many members are invested. Recent stock market losses show the ongoing risks of this approach. It is difficult to avoid the conclusion that the good investment returns of 2009 are a result of the same strategies that caused much of the recent losses, and that the chances of further losses are therefore too high. While under the Act, the Pensions Board does not have the power to specifically direct pension investment the Board continues to warn against this approach.’
Throughout 2009 the Board; through a combination of seminars, presentations, guidance and FAQ materials, media interviews and direct contact with schemes, emphasised the importance of long term sustainability in defined benefit scheme funding and reminded trustees of the need to consider realistic costs, investment risks, and the ability and willingness of the employer to support the scheme.
Kennedy added: ‘Scheme trustees are obliged under law to invest scheme assets in a manner “appropriate having regard to the nature and duration of the expected liabilities of the scheme.” There is also a well established obligation under trust law to invest reasonably and prudently. The data available to the Board raises considerable doubts as to whether the current investment strategy for many schemes fulfils these requirements. The great majority of trustees of defined benefit schemes rely on professional advice; it has to be asked whether that advice takes sufficient account of the nature of the liabilities of schemes and the consequences of the risks taken.’
Assessing the work of the Pensions Board over the last five years, in advance of the current board’s term coming to an end in December 2010, Mr. Tiarnan O Mahoney, Chairperson of The Pensions Board, said: ‘Over the term, the Board has overseen the introduction of a risk-based supervisory approach to pensions’ regulation and key innovations, facilitated by legislative change, including:
- the introduction of an on-the-spot fine regime from September 2007
- the introduction of regulation of scheme administration and of pension administrators with effect from November 2008
- the introduction of compulsory Trustee Training in 2010.
The Board will increase the focus of their supervision of registered administrators over the coming months and years.’
The Chairman went on to say: ‘I have previously highlighted the Board’s grave concerns about instances of deduction, but non-remittance, of employee pension contributions under the Construction Workers Pension Scheme. The Board regards this misappropriation of employees’ monies most seriously and we continue to pursue these cases as a matter of priority with a focus on restoring the monies to the scheme. Where compliance fails to happen the Board moves to take criminal prosecutions. These matters have also been reported to the Gardaí and, as appropriate, to the Office of the Director of Corporate Enforcement.’
Mr. O Mahoney said: ‘I very much welcome the publication of the National Pensions Framework by Government in March 2010. The Framework represents a significant milestone in pensions’ policy. As a policy framework, substantial work will be necessary to take it forward and the Board looks forward to assisting the work of the Framework Implementation Group.’
The Chairperson also added that: ‘Recent events have highlighted the imperative that regulators operating in the financial sector – such as the Board – are adequately resourced so that they are in a position to effectively monitor and supervise regulated entities and products. In particular, it is vital that regulators have sufficient staff numbers with the appropriate range of expertise to undertake their important functions. It is essential therefore that the Board be appropriately staffed and crucially this is something that I believe can be achieved at no direct cost to the taxpayer. Providing the necessary resources to the Board is an issue that I view as a matter of urgency.’
Annual Report 2009 at a glance:
- 853,397 members in 84,246 occupational pension schemes broken down as follows:
- 254,325 members in 1,212 defined benefit schemes - subject to the funding standard
- 332,163 members in 95 defined benefit - excluded from the funding standard
- 266,909 members in 82,939 defined contribution schemes
- this is an increase of 4,189 members in occupational pension schemes compared to 2008
- 170,862 PRSA contracts with total assets of €2.05 billion an increase of 15,230 contracts and €850 million in assets since 2008
- 1,746 employers have designated a PRSA Provider in 2009 bring the total of employer designations to 89,959
- 194 Registered Administrators (RAs) on the Board’s register of RAs – no RAs were refused renewal or had their activities restricted in 2009
- 169 suspected cases of deduction and non-remittance of pension contributions by employers in the construction sector were reported to the Board
- the Board carried out 9 on site investigations
- 94 cases were closed
- 17 employers entered into payment schedules
- €4,291,349 was the value of restored contributions from cases closed
During 2009, the Board:
- issued on-the-spot fines notices (€2,000 per fine) to 51 trustees of 18 schemes - the grounds for these fines notices included:
- 16 schemes for failure to submit or late submission of actuarial funding certificates
- 1 scheme for non-payment of Pensions Board fees
- 1 scheme for failure to furnish options on leaving service
- undertook 3 prosecutions
- one prosecution for failure to submit an actuarial funding certificate
- two prosecutions for failure to remit pension contributions deducted from employees’ wages
- held meetings with the trustees of 54 schemes and with a range of pension administrators
- dealt with 8,111 information enquiries
- had 601,419 visits to its website an increase of over 20% on 2008
- developed an online e-learning system for pensions scheme trustees
- published the Trustee Handbook 3rd Edition
- published a new booklet ‘Retirement options for public servants’
- published a new ‘Investment Risk, Fees & Charges Checklist’
The Annual Report and Accounts 2009 are available on www.pensionsboard.ie.
For further information, please contact:
David Malone Tel: (01) 613 1900 /087 6857743
Head of Information
The Pensions Board
Jackie Gallagher Tel: (01) 475 1444 / 087 237 1838
Q4 Public Relations
Section 50/50A decisions
The Board’s power to issue a direction under section 50 and/or grant consent under section 50A is discretionary. The Board is not obliged to issue a direction or grant consent to a section 50/50A amendment in any case. If the Board decides to issue a direction under section 50 and/or grant consent under section 50A, it may do so on such terms as it considers appropriate. Any such terms will be specified in the Board’s decision which they will give to the trustees. Where the Board issues a direction under section 50 and/or grants consent for the purposes of section 50A the trustees should inform the Board when the section 50/50A amendment has been effected in accordance with the requirements detailed in section 50(3)(b) of the Act.
The Funding Standard
The funding standard was introduced in 1991 in order to set out the minimum assets that a defined benefit pension scheme must hold and what steps must be taken if the assets of the scheme fall below this minimum. Under the Pensions Act, defined benefit schemes are required to submit an Actuarial Funding Certificate (AFC) to the Board every 3 years. An AFC indicates whether or not a scheme could meet all its liabilities were it to wind up on the effective date of the AFC. If the AFC indicates that the scheme is underfunded this triggers a requirement that a Funding Proposal be submitted to the Board which must outline how the scheme intends to bring itself back to full funding of its liabilities by the time of the preparation of the next AFC (i.e. within 3 years). In certain circumstances the Board may allow for the trustees of the scheme a longer period than 3 years in which they propose to rectify the underfunding of the scheme.
The National Pensions Framework
This framework sets out the Government's intentions for radical and wide-scale reform of the Irish pension system. It sets out a fair and equitable approach that encompasses all elements necessary for future pension provision. The State will continue to provide the bedrock for the pension system with the State Pension, while employers and individuals will be encouraged to share the responsibility with Government to save and provide for the future. The National Pensions Framework is the result of a comprehensive public consultation process that began with the publication of a Green Paper on Pensions in October 2007. Development of the Framework was also informed by the proposals in the McCarthy Report and the Report of the Commission on Taxation. An implementation group has been set up to establish the technical, administrative and legislative infrastructure required to put these reforms into operation. It is expected that this technical work will require three to five years to complete. There will be ongoing consultation with all interested parties on the details during this time.
For further details visit: http://www.pensionsgreenpaper.ie