LCP estimate National Pensions Framework proposals in relation to public sector
pension increases could deliver savings to exchequer of EUR20bn (04/03/10)
Lane Clark and Peacock Ireland Ltd (LCP) welcomed the publication of the
National Pensions Framework yesterday by the Department of Social and Family
Affairs. However, LCP expressed concern in relation to the provisions made for
defined benefit pension schemes and introducing an auto-enrollment policy with a
low minimum threshold.
LCP note that the Government will consider using the Consumer Price Index (CPI)
as the basis for post retirement increases of public sector pensions. According
to Martin Haugh, Partner with LCP, "this represents a considerable shift from
the current practice of pay parity and could result in an estimated saving of
EUR20bn to the exchequer."
"We know that pension schemes are in trouble and deficits are rising at an
alarming rates", added Martin Haugh. "Our figures show that the pension deficits
of the top 25 companies quoted on the Irish Stock Exchange more than doubled in
the 12 months to October 2009 to EUR4.5bn.(1) Defined benefit schemes are in
major difficulty and the State has not gone far enough to help protect failing
schemes. The proposed restructured Defined Benefit pensions model will require
changes in legislation in order to implement it. Those changes in legislation
must take place immediately and existing defined benefit schemes should be given
an exemption from current regulations until the new legislative framework has
been put in place. Unless these provisions are made, defined benefit pension
schemes will continue to fail."
The proposed auto-enrollment policy should be welcomed but its success will
depend on the quality of the proposed education and communication programmes.
There is also a risk that employers who currently offer good quality pension
schemes will discontinue those schemes in favour of the scheme proposed in the
framework. This would reduce the level of pensions benefits for their employees.
"We welcome the publication of the Framework and recognise that ultimately, its
success will depend on how the proposals are implemented. We also recognise that
it will require the support of all employers, trade unions and the pensions
industry in order to bring about a cultural shift among employees to take
ownership of their retirement planning."
(1) Reference LCP Pensions Accounting Briefing 2009
