Call for new pension contract for younger workers

PENSION rules need to change to end the situation where younger people who contribute to bust schemes will not get a pension and are merely securing the incomes of those who have already retired.

Incoming president of the Society of Actuaries in Ireland, Dermot Corry, said there were major problems for underfunded defined benefit schemes.

Eight out of 10 defined benefit schemes are in deficit. With a defined benefit pension, people are supposed to get a pension based on their final salary and their years of service, but most companies are now unable to keep this promise.

Mr Corry said consideration should be given to separating past and future pension liabilities in underfunded defined benefit schemes.

"The Taoiseach rightly commented in the Dail at the start of the summer that it is immoral to ask members to contribute to a pension scheme where they have little or no expectation of receiving benefits.

"In my view, this is the situation in many schemes at present."

He said employees were paying into underfunded schemes.

At the extreme, their contributions are effectively helping to secure pensions for those already in retirement.

"However, there is little prospect of the scheme ever returning to 100pc solvency and so these members are unlikely to see substantial benefits –particularly if they are at the younger end of the age spectrum since their elders will make off with the assets before they retire."

In his address to the members of Society of Actuaries, Mr Corry said there was a need for a completely new contract for future accruals for current members.

"In my view, this would involve a number of measures, including benefits for future accrual moving closer to a guarantee than a promise, much higher contributions and the minimum funding standard becoming more market consistent," he said.

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