The Social Welfare and Pensions Bill, published on 5 April 2012, finally sheds light on the long-delayed revision to the funding standard announced by the Minister for Social Protection, Joan Burton, late last year. 

The Bill requires pension schemes in Ireland to hold additional assets in excess of those required by the current funding standard as a risk reserve to provide an additional level of protection against future volatility in financial markets.  The requirement to provide for a risk reserve will take effect from 1 January 2016 and pension schemes will have approximately 11 years from the reintroduction of the funding standard (until 2022) to satisfy the risk reserve regulations.

The Bill provides that the risk reserve will be the aggregate of (i) 15% of the amount of the funding standard liabilities, less the value of EU bonds and cash held; and (ii) the amount by which the funding standard liabilities would increase on the effective date of actuarial funding certificate if there was a 0.5% fall in interest rates. 

Controversially the Bill also provides that the Minister would have the power to revise the percentage pension schemes would be required to hold in reserve to as much as 50% of the pension scheme liabilities. This effectively means that the Minister could unilaterally increase the minimum funding standard for defined benefit schemes.  

The Pensions Board is currently preparing revised guidelines to take account of the changes to the funding standard, and will also provide all the technical information needed by trustees and their advisers to calculate their risk reserve. Until much of the finer detail is available, it will be difficult for sponsoring employers and trustees to fully assess the impact of the risk reserves.

Contributed by Mary Greaney & Lorna Osborne.

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