The Social Welfare and Pensions Act 2012 introduced a requirement for defined benefit pension schemes to maintain a risk reserve of 15% over and above current liabilities. Under the Occupational Pension Schemes (Funding Standard Reserve) Regulations, 2013 (the “Funding Standard Regulations”) the risk reserve requirement is to be reduced to 10% of the scheme’s liabilities. Given the funding difficulties being experienced by many defined benefit schemes, this change is to be welcomed.
The Funding Standard Regulations also provide that additional asset types can now be used to fulfil this obligation to hold a reserve of assets. These new types of permitted lower risk assets include: bonds which have been guaranteed by an EU Member State as well as bonds created and issued by the Central Bank of a Member State, the International Monetary Fund, the European Stability Mechanism and other such bodies.