Shake-up in pensions to accelerate as new PwC survey reveals over a third of Irish employers plan significant changes to defined pension benefits

Launching the PwC Pension Survey are (l-r): Alan Bigley (Partner, PwC Pension Solutions Group), Denise Twomey (PwC Pension Solutions Group) and Munro O'Dwyer (Director, PwC Pension Solutions Group).

PricewaterhouseCoopers (PwC) today launches a new survey confirming employers plan to significantly amend future pension benefits to be provided to their staff.

The survey, which includes both defined benefit and defined contribution schemes, indicates that employers are substantially re-evaluating their funding obligations as they plan to correct their pension scheme deficits while dealing with the current difficult economic backdrop.

The survey suggests that pension incomes from private sector pension schemes can be expected to be lower in the future. Over 40% of defined benefit respondents indicated that they are considering reducing member benefits, i.e. imposing salary freezes; removing pension increases and/or ceasing future service benefits. Nearly 10% of employers who have defined contribution schemes said they had already or had plans to decrease the contributions they were paying. There is evidence also that contributors to these schemes are changing their pension savings behaviour, whether by reducing their personal contributions or by reducing their exposure to higher risk assets.

Launching the survey, Alan Bigley, Partner, PwC Pension Solutions Group said:

“There is a real sense of change coming through. Significant shortfalls have emerged in defined pension benefit schemes. Employers are looking to explore the limits of what is permitted, to defer or minimise increases in cash contributions and to identify non-cash alternatives that may be more acceptable to their business as the current challenging economic conditions continue. More generally, we are seeing employers increasing their focus and proactivity around the management of the risks and issues arising within defined benefit schemes.”

Munro O’Dwyer, Director, PwC Pensions Solutions Group added:

“It is not only defined benefit schemes which are impacted. There is no visible sign of employer contributions to defined contribution schemes being adequate to meet the retirement needs of most of the employees who participate in these schemes, and the trends are towards lower and suspended contributions looking forward.”

Key findings in the survey are:

Defined Benefit (DB) schemes:

A fifth (20%) of survey participants said that they are winding up or are considering to wind up their defined benefit schemes;
Regarding funding plans, the survey reveals that potentially 30% of employers do not have the ability to fund their pension deficits over the next 10 years.
Over 40% of respondents indicated that they are considering to reduce members benefits indicating the extent of the challenges which employers face. For example: two thirds of employers have closed their scheme to new entrants; nearly half (49%) of employers are considering imposing a salary freeze/cap; 39% are considering removing pension increases and 37% are considering closing their defined benefit scheme to future service;
Average contributions by employees to these schemes are around 5-6%. However, a third of employers indicate that they have decided to increase member contributions even more and a further third are considering this option;
Over 70% of employers are actively considering reducing the investment risks, including reducing their reliance on equity markets, within their defined benefit scheme;
Employers are seeking a range of funding options with over 20% considering non-cash options. This will enable a compromise between the security sought by trustees and the level of cash contributions that is feasible for the business;

Defined Contribution schemes:

Over half of employers are contributing 4-7% to their defined contribution schemes;
Nearly one tenth (9%) of employers indicated that they have decreased their pension contribution;
Nearly a third (32%) of employees are either reducing or ceasing their contributions;
Nearly a third (30%) of members are reducing their exposure to equities with a similar proportion indicating they are switching to more secure assets such as cash and government bonds;
The majority (70%) or respondents indicated they are reviewing their investment strategy;
Over half of respondents said they have increased communications with their members.

Munro O’Dwyer concluded:

“Pension arrangements in Ireland are going through a very significant change. The need for cost containment is driving employers to push significant changes through the pension schemes which they provide to their staff.”

ENDS

About the survey:
The survey was carried out in July 2009 amongst Ireland’s top 1,000 companies and had 404 participants.

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