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Explore the funding challenges faced by pension schemes, including defined benefit and defined contribution schemes, and the current trends in the industry. Discover the potential consequences and dangers of these schemes, as well as the role of the Pensions Board. Learn about the future of pension coverage and the importance of understanding and promoting these schemes.
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THE PENSIONS BOARD Funding Issues and Current Trends in Pension Schemes Jerry Moriarty – Head of Investigations and Compliance 17 September 2004
Occupational Pensions • Defined Benefit Schemes • Defined Contribution Schemes • Personal Retirement Savings Accounts – PRSAs
Defined Benefit Schemes • Based on a set benefit formula • Employee usually required to contribute a fixed cost - % of Salary • Employer pays the balance • Funding monitored by Pensions Board
Why are there funding issues? • Performance of Investment Markets • Low interest rates • We are living longer • Regulation, more protection • Salary increases • Benefit improvements
Consequences • More flexibility allowed by the Pensions Board • Employers paying more money • Some employees paying more money • Some benefit reductions • Greater awareness • Review of the funding standard
Defined Contribution • Employer and employees pay fixed amounts • Benefit depends on funds available at retirement • Employees generally have investment choice
The Dangers of Defined Contribution • Risk is passed to the employees • Are employees able to make the right investment choices • Administration is complicated • Are the contributions being paid adequate
PRSAs • Employer must offer access to “excluded employees” • Employer is not obliged to contribute • Standard PRSAs have maximum charges
Trends • New schemes are defined contribution • Defined benefit schemes surviving but under pressure • PRSAs not intended to replace either • There are other possibilities for scheme design
The Future • Target to increase coverage to 70% of the workforce • 52.4% of total workforce at Q1 in 2004 • 59.2% of workforce over age 30 • Review of coverage in 2006 • If insufficient progress all options considered including compulsion
Questions for you • Why do you have a pension scheme? • Is it understood by your employees? • Do you sell it enough? • Is enough being paid?
THE PENSIONS BOARD Jerry Moriarty – Head of Investigations and Compliance WWW.PENSIONSBOARD.IE