Company Defined Benefit Schemes - Some musings

A

ajapale

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Does any one know what proportion of Irish employees belong to "Company Defined Benefit Schemes"?

In the UK more and more of these "old fashioned" schemes are being closed to newcomers or being wound up entirely. Is this a trend members of such schemes in Ireland need worry about?

What happens when a company operating a "Defined Benefit Scheme" goes broke or into liquidation? I seem to remember this happened at IFI recently.

Thanks,
ajapale
 
Re: Company Defined Benefit Schemes

The following link from the 'businesspost' addresses some of points raised in my first post.

[broken link removed]

Is it fair to say that there is not much knowedge out there in AAM-land about occaupational pension schemes and DB schemes in particular?

ajapale
 
Dompany DB Schemes

Q 1 "Does any one know what proportion of Irish employees belong to "Company Defined Benefit Schemes"?

Answer : I don't know. Its mainly the bigger companies that run these.

Q 2. In the UK more and more of these "old fashioned" schemes are being closed to newcomers or being wound up entirely. Is this a trend members of such schemes in Ireland need worry about?

Answer : Yes, but to what degree? Haven't come across too many that closed down their DB in favour of Defined Contribution. The beauty of DB is that the employer takes all the risk and you know what to expect at retriement. With DC the employee takes all the risk. Therefore, if one may potentially be forced from DB to DC there is a concern.

Q 3 What happens when a company operating a "Defined Benefit Scheme" goes broke or into liquidation? I seem to remember this happened at IFI recently.

Answer : Funds are held under trust, there are minumum funding criteria set out so that there shouldn't be a shortfall if a companies finances goes pear shaped. However in the event there is a shortfall there the actuaries come into play and split the fund between the membership in an equitable way. It it is a semi-state the state may step in and bail the scheme out.

Q 4. Is it fair to say that there is not much knowedge out there in AAM-land about occaupational pension schemes and DB schemes in particular?

Answer: I just think that people are slower to respond to hypothetical issues.
 
Re: Company DB Schemes

Thanks Alan,

Your answers are pointing me in the right direction.

This link from SIPTU throws some light on the IFI situation.

[broken link removed]

In view of recent FRS reporting requirements it would appear to me that companies will become increasingly unlikely to carry the risk inherent in DB schemes. I think where the UK goes today the Republic will follow tomorrow.

thanks again,
ajapale
 
Re: Company DB Schemes

Hi Ajapale

There is certainly a trend away from DB schemes to DC schemes. Whether this will go as far as the UK remains to be seen.

FRS17 is due to be subsumed within IAS19 over the next couple of years and this may take some of the pressure off DB schemes, provided some smoothing is retained within IAS19 (which is by no means guaranteed). A sustained market recovery (if it happens) may also help to save DB schemes from oblivion.

Having said this, there is no doubt that many companies, particularly smaller companies where annuities have to be purchased at retirement, are questioning the advisability of continuing to sustain the risks associated with DB arrangements.

The Pensions Board may also help to hasten the demise of DB schemes through an ever-increasing compliance burden. However, they have recognised the dangers caused by over-regulation and are currently reviewing some aspects of the legislation with a view to reducing the burden, particularly in relation to the minimum funding standard.

You bemoaned the lack of response to your original query and suggested that this might be due to a lack of expertise in relation to DB schemes on the part of AAM participants. It may also be due to the somewhat nebulous nature of some parts of your original query, requiring a level of speculation from an audience that (at times) prefers to deal in facts.

Regards
Homer
 
Re: Company DB Schemes

Thanks Homer for the interesting comments.

I found the answer to my first question here:

www.iapf.ie/FactsandFigur...inIreland/

As I suspected a great majority of pension members in Ireland are in DB schemes 449,111 (DB) Vs 180,690 (DC) in December 2000.

Sorry about the "nebulous" supplementary question but as you can probably gather I know very little about pensions and DB pensions in particular. I just have a vauge "feeling" that it might all go "pear shaped".

I'm hoping in time that a DB thread might evolve into a AAM "key post" providing just under half a million of us DB members with a valuable resource.

ajapale
 
DB scheme numbers

The annual report of the Pensions Board (available on pensionsboard.ie) gives the numbers in DB and DC schemes at the end of each year. The numbers in DB schemes are split into those subject to the legal funding requirements (i.e. those in private sector funded schemes) and others (state pay as you go schemes). The numbers in funded DB schemes is roughly the same as those in DC schemes, but the DC number is overtaking it quickly.

d
 
Slight clarification....

You may be able to transfer your pension regardless of the sector. this may or may not be in your best interest. Talk to the receiving schemes adviser.
 
Talk to the receiving schemes adviser

Alan,

Thanks for the clarification.

The standard advice for people joining or transferring to companies offering seems to be "Talk to the receiving schemes adviser" and "get the scheme booklet".

This is undoubtedly good advice, however, you will appreciate that a new employee has a lot on his/her plate without having ask akward pension questions of people they hardly know.

Also, I am aware of some companies who do not have (or do not publicise the existance of) a pension's adviser.

This is where I'm hoping that AAM might consider setting up a "Defined Benefit Pension Key Post" which would gather all the information regarding DB schemes in one place.

I would also suggest that the "DB Vs DC debate" should be move to the "great debates" section leaving the Pensions area free for "nuts and bolts" issues.

ajapale
 
Some good ideas there......

..... however, and Brendan will not doubt love me for this, maybe its time to expand the guide. If thats not a runner the key posts idea is a good one.

On the transfer issue the booklet probably won't be of much use. The scheme may give "added years" which is an actuarial calculation and then you have to decide if this is the best approach so you will need to get your hands on an adviser.
 
Re: Some good ideas there......

however, and Brendan will not doubt love me for this, maybe its time to expand the guide. If thats not a runner the key posts idea is a good one.
He'd love you greatly if you volunteered to draft the content!
 
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