A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
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Pensions in Crisis - An Update

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Pensions in Crisis - An Update

  1. 1. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. In Association with:- Online CPD for Accountants & Professional Advisors Pensions in Crisis: An Update Presenter: Des O’Neill CPA; A.C.I.S; ACCA CPDStore.com Unit 3, South Court, Block D, Iveagh Court, Wexford Road Business Park, 5 – 8 Harcourt Road, Carlow. Dublin 2. 059 9183888 01 4110000 www.OmniPro.ie www.CPDStore.com OmniPro Education & Training
  2. 2. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Pensions in Crisis: An Update James McConville McDowell Purcell 11th November 2011 OmniPro Education & Training 1
  3. 3. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Pensions in Crisis: An Update • Origins  of the Crisis and the GFC • The Impact on Irish Pensions • Remedial Measures • National Pensions Framework • Recent  Events • The Future Origins of the Pensions Crisis • Dot‐com bubble burst in 2000. Stocks continued to fall until  2003. • Also impacted by 9/11. • “Perfect pension storm” – falling equities and rising bond  prices. • Governments responded to Dot‐com bubble bursting by  reviewing funding standards and requiring further  contributions of employers. • Many in industry felt reforms made it more difficult to  manage pension risk. OmniPro Education & Training 2
  4. 4. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. The GFC • US Federal Reserve reduced interest rates to counter stock  market falls 2000 to 2003. • Easy credit conditions helped fuel subprime housing bubble  in US. • Collapse of subprime market saw huge losses for US  pension funds – $1.3 trillion in 2007/8. • Major US banks and other institutions failed or had to be  rescued. • Contagion spread to Europe where further banking  failures/rescues took place – Northern Rock, Anglo, INBS  etc.  Impact of GFC on Pensions • 60% of all pension schemes in OECD area are defined  benefit schemes. • Global pension assets fell by 20% in 2008. • 2008 loss of USD$5.4 trillion (OECD) is roughly equivalent to  China’s current GDP. • Markets recovered in 2009 but DB funding levels did not  follow suit. • Market recovery offset by falls in corporate bond yields – reverse of position in 2000‐2003. • Insufficient to help DB schemes out of insolvency. OmniPro Education & Training 3
  5. 5. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Impact on Pensions in Ireland • Membership of pension schemes falling back to 1990’s  levels. • 80%+ of defined benefit (DB) schemes in deficit. • Members in defined contribution (DC) schemes have seen  the value of their accounts hit be investment losses. • Remedial measures have had little impact. • Negative response to introduction of pension levy.  • Ireland now ranked 29th of 44 countries in Allianz 2011  Pension Sustainability Index. The Nightmare Scenario • DB schemes forced to wind up due to insolvency of  employer (Waterford Glass). • DB schemes forced to wind up due to decision of solvent  employer to close business in Ireland and move elsewhere  (SR Technics). • Both schemes were in deficit but the members and the  trustees were powerless to stop the winding‐up. • Members received only a fraction of the benefits they were  promised. OmniPro Education & Training 4
  6. 6. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. The Nightmare Scenario (Cotd.) • Many DB schemes in the process of or considering winding‐ up. • SR Technics scenario may apply, even if intention is simply  to wind up DB scheme and establish DC arrangement. • Not just a trust deed issue. IR issues may apply if benefit  promise is contained in the employment contract. • Are professional trustees as objective as they should be? • Are individual trustees vulnerable to corporate pressure. Regulatory Response • Pensions Board imposed a temporary moratorium on  funding proposals and promised greater flexibility with  regard to funding plans. • Similar measures applied by regulators in Finland, Japan,  and US. • Regulators in Canada, Denmark, Netherlands, Norway,  Switzerland and UK chose to adjust funding requirements. • Introduction of sovereign annuities – may increase trustee  purchasing power in DB schemes but pension will be  performance‐related. OmniPro Education & Training 5
  7. 7. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Government Response • Deferral of Annuity Purchase (DC Schemes Only) • Social Welfare and Pensions Act 2009 • Commission on Taxation (2009) • National Pensions Framework (2010) • Further changes in 2012‐2014? Deferral of Annuity Purchase • Minister for Finance issued circular in December 2008  permitting deferral of purchase of retirement annuities by  DC schemes. • Hope was that this would enable the trustees to purchase  in better market conditions in the future. • Scheme discontinued in March 2011. Those purchasing  annuities after 1 January 2011 had addition option to invest  in approved retirement fund. • Unclear how successful the scheme has been. OmniPro Education & Training 6
  8. 8. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Social Welfare and Pensions Act 2009 • Pensions Insolvency Payment Scheme (PIPS) • Post‐retirement increases demoted in statutory order of  priorities • Increased restructuring options for schemes (s. 50/50A PA) • New offence where contributions not remitted by employer • Protection for trustees in court action for breach of trust Commission on Taxation • A single tax relief rate – 33%. • Greater equity amongst members. OmniPro Education & Training 7
  9. 9. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. National Pensions Framework • Reform of the State Pension • Introduction of an auto‐enrolment system • More flexible options at and after retirement • A single tax rate • Tighter regulation • Tracing of members • A new public service pension scheme. • New model DB scheme • Cap in lifetime benefits Current Events • Cherry picking the Framework. • Pensions Levy. • The Funding Standard Moratorium. OmniPro Education & Training 8
  10. 10. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Cherry Picking the Framework • Fine Gael proposed reduction in tax relief to 21%. • Insurance Industry proposed pensions levy. • Adjustment of tax relief to 33% (in line with Commission  recommendation)  and/or revised lifetime benefits cap  (€60k pa pension?) expected Dec 2011. National Pensions Framework (RIP)? • In October 2011, the Government announced that  auto‐ enrolment would not be introduced before 2014. • Slow pace of public sector pensions reform. • No sign of DB model. • New expert group on pensions in 2012. OmniPro Education & Training 9
  11. 11. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Pension Levy • Finance (No.2) Bill 2011 • Passed by Oireachtas in June 2011.  • Annual valuation of scheme assets on 1 July, with a stamp  duty of 0.6% of scheme assets collected annually on 25th September, when valuation reported to Revenue. • Provisions to pass on cost to members and/or reduce their  benefits. • To run until 2014 but could continue. Pension Levy (Cotd.) • IAPF estimates a reduction in 9% in pensions in payment  over lifetime of levy. • Industry has warned that the impact on already insolvent  DB schemes could be catastrophic.  OmniPro Education & Training 10
  12. 12. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Funding Standard Moratorium • Government announced in October 2011 that the funding  standard moratorium would be lifted prior to end of 2011. • Pension schemes in deficit must submit a funding proposal  to the Pensions Board. • Since 2008, the Pensions Board has continuously extended  the deadline to submit funding proposals due to the GFC  and in respect of proposed new legislation by the  government in relation to pensions following the  Framework.   Funding Standard Moratorium (Cotd.) • Once moratorium lifted, DB schemes must decide whether  to submit proposal or else wind up. • Fear is that the pensions levy and the revised funding  standard will force many DB schemes to wind up. • Three possible standards being considered: Option 1: Current funding standard Option 2: Introduces risk reserves to meet 15% fall in  equities and 0.5% in bond yields. Option 3: Sufficient risk reserves to meet 20% fall in  equities, 1% in bond yields and 0.5% rise in inflation. OmniPro Education & Training 11
  13. 13. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Funding Standard Moratorium (Cotd.) • Option 2 would see 10% increase in liabilities under current  funding standard. • Option 3 would see 50% increase in liabilities under current  funding standard. • Option 3 would bring Ireland into line with EU industry  standard but would virtually wipe out all remaining Irish DB  schemes. • Even current funding standard, if restored with additional  funding period, unlikely to save DB schemes.  • Industry calling for less stringent reform or 5‐year  moratorium. The Future • Government sacrificing long‐term pension reform in favour  of short‐term Revenue gain. • National Pension Reserve Fund already depleted. • Less time to offset pension time bomb. • No public engagement with pensions. • Challenging backdrop for new expert group on pensions. • Australian‐style system now only viable solution. OmniPro Education & Training 12
  14. 14. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Pensions in Crisis: An Update James McConville  McDowell Purcell 11th November 2011 James McConville Email:  jmcconville@mcdowellpurcell.ie Partner Website: www.mcdowellpurcell.ie  McDowell Purcell  James McConville The Capel Building  Marys Abbey  @jamiemcconville Dublin 7  Also on: OmniPro Education & Training 13

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