Strict funding regulations governing pension schemes are proving counter-productive and should be reviewed immediately, it was claimed last night.
Mr Alan Broxson, a director of Irish Pensions Trust who serves as chairman of the trustees for a number of pension funds, said 12 of the 60 defined benefit pension funds he was working on were being forced to renegotiate the retirement benefits they offered members in order to satisfy statutory minimum funding rules.
Some are considering closing their schemes and replacing them with defined contribution style schemes, which typically provide a smaller pension to employees.
"The funding standard is not the cause of 'Hurricane Pensions', but it is a major hindrance to rebuilding," Mr Broxson said.
It is estimated that over half of defined benefit - or final salary - pension schemes are technically insolvent following three years of stock market losses and falling interest rates.
When actuaries confirm that a scheme has failed to meet the minimum funding standard, the employer must agree to put more money into the fund to recover the shortfall.
Since changes introduced earlier this year, companies have up to 10 years to recover this shortfall, instead of three and a half, if they can prove that the deficit is due to investment losses and they recover 85 per cent of it within three years.
A total of 12 companies have applied to the Pensions Board for an extension under the new rules.
Speaking at an Irish Association of Pension Funds (IAPF) conference, Mr Broxson said further changes were needed to stop employers abandoning schemes or reducing benefits.
"Many employers are happy to maintain benefits given time but they are being forced to reduce benefits to satisfy a 10-year timeframe," he said.
Some companies may only be able to afford to recover deficits over a 20-year period, during which time they would be able to meet their liabilities. But under the funding rules they would have to reduce the retirement benefits for all active members of the pension scheme, he said.
This was not in the best interest of the pension scheme members, Mr Broxson added.
The Pensions Board is reviewing the nature of the funding standard, which values a company's pension scheme as if it were to break up and be discontinued at that exact moment.
Mr Jerry Moriarty, head of investigations and compliance at the Pensions Board, said the review would take until 2005.
Mr Broxson said that this would be too late for many pension schemes. "The idea that we will have to wait until 2004, let alone 2005, is a nonsense. Emergency powers are needed now."
