On 13 October last, the Minister for Social Protection, Éamon Ó Cuív TD, announced that the Government has agreed to expedite the implementation of a "new" defined benefit model as outlined in the National Pensions Framework.
The National Pensions Framework, published in March 2010, recognised the significant difficulties with the typical design of funded defined benefit schemes and proposed an alternative approach. This new structure, detailed in the Framework, involves fixing employer and employee contribution rates, with the result that benefits must be flexible in the event of investment losses or other adverse experience. As contributions would be fixed the restructured scheme would consist of core benefits which would be guaranteed and non-core benefits, which would be flexible depending on economic conditions. Our National Pensions Framework Client Update issued in March can be accessed by clicking here.
The Minister said the Department will aim to introduce the new defined benefit model no later than 1 July 2011 following legislative changes. It is understood that, as part of this review, the Department will look at issues regarding the governance of defined benefit schemes and the basis for the funding standard (including areas such as risk management, smoothing out effects of changes in the bond markets and strategies for transitioning schemes to this new model).
The Minister also stated that in considering further changes, "thorough consideration is being given to the Sovereign Annuity proposal into which significant work has been put by the Irish Association of Pension Funds and the Society of Actuaries in Ireland".
On the basis of the Government announcement, the Pensions Board announced the extension of the current deadline for the submission of Funding Proposals to allow schemes to take account of the new approach to defined benefit provision.