4 March 2015: Today, the Pensions Authority publishes for the first time a set of statistics for defined benefit (DB) schemes which have been compiled from analysis of Annual Actuarial Data Returns (AADRs).
Since 2012, trustees of DB schemes subject to the funding standard as set out in the Pensions Act have been required to submit an AADR to the Pensions Authority. The AADR includes details of the status of a scheme as to whether it is current, frozen or in wind-up and sets out the assets and liabilities for the scheme. In relation to the assets of a scheme the actuary must report the breakdown of the assets across equities, bonds, property and cash. The report also classes the liabilities across the membership of the scheme broken down by active, deferred or retired members.
The Authority is publishing this data to increase the general understanding of the importance of the DB pensions sector and it intends to issue these statistics on an annual basis.
Some of the findings from the data include:
• the total assets and liabilities of the 703 current and frozen schemes are respectively €51bn. and €51.9bn.
• the total assets and liabilities of the 50 largest schemes are respectively €34.8 bn. and €36.3 bn. This represents approximately 70% of the total liabilities of all active and frozen DB schemes.
• 41% of current and frozen schemes were reported to be non-compliant with the funding standard (287 of 703)
• of the 287 non-compliant schemes, the majority have embarked on funding proposals designed to ensure that the scheme complies with the funding standard by an agreed date. The ‘real’ total deficit, i.e. excluding surpluses, is almost €5 billion, which is about 18% of liabilities of those schemes
• at the end of February 2015, there were 30 schemes where no funding proposal was in place. For each of these schemes, the Authority has begun the process of deciding whether to use its powers under the Pensions Act to direct trustees to reduce benefits or to windup the scheme.
Commenting on the data, the Pensions Regulator, Brendan Kennedy said:
“The data published today demonstrates the continuing importance of DB pensions. Although most such schemes are closed to new members, and many are frozen, these schemes nonetheless represent by far the greater part of pension savings, and they will continue to be important for a long time to come. It is also notable how much of the total is represented by the largest schemes.
The importance of DB pensions reminds us of the importance of careful management of these schemes. The data underlines the concern of the Pensions Authority about the ongoing vulnerability of DB to investment market risk. We recognise that some schemes have begun to measure and manage their risks, including investment risk, and the aggregate figures for asset distribution show some movement from equities to bonds and cash since 2008.”
The Regulator went on to say: “The position shown whereby 59% of DB schemes meet the funding standard is a considerable improvement over recent years though it must be remembered that this improvement is the combined result of multiple factors including the closure of some schemes, and benefit reductions and contribution increases in most of the remaining schemes. However, the aggregate scheme data as well as the figures for individual schemes make it clear that the position of DB schemes is very fragile.
Even where schemes meet the funding standard, they rarely have much leeway. Furthermore, it must be remembered that the funding standard is a minimum, and achieving the funding standard is certainly no guarantee that a scheme will always be able to meet its liabilities.
Although some schemes have considerably reduced their investment risk, the overall situation is one where many trustees are relying on equities to outperform bonds in order to meet their liabilities. This strategy entails considerable risk, which will fall especially on the younger members of the schemes. High risk is not an appropriate approach to take where the benefits cannot otherwise be afforded. This is a matter the Authority intends to raise directly with pension scheme trustees as part of a programme of increased direct contact.”
Here is a link to the report.
For further information, contact:
Head of Operations and Communications
The Pensions Authority
Tel: (01) 613 1900
Note to Editors
The Pensions Authority is the statutory body established by the Pensions Act, 1990 to regulate occupational pension schemes, trust based RACs and Personal Retirement Savings Accounts (PRSAs).