The current funding standard is now viewed by some as out of date. It was set up under the Pensions Act, 1990. As it stands, it requires a defined benefit scheme actuary to calculate whether the fund would have sufficient assets to meet its liabilities in the event of being wound up.
When first brought in, the funding standard was not too onerous as it only related to benefits accrued after 1 January 1991. However since the Pensions (Amendment) Act, 2002 it affects all scheme benefits. Poor investment returns in recent years, coupled with the high cost of annuities have lead to a vast increase in the number of schemes failing the funding standard.
The Board's aim is to find a balance between protecting members and encouraging the continued provision of defined benefit schemes. It suggests three alternatives for discussion:
1. Maintain the current standard;
2. Make the current standard less demanding by changing how liabilities are calculated;
3. Fund for certain benefits in the short term, and for the balance over a longer period.
Following the consultation process, the Board hopes that any agreed proposals will be included in the Social Welfare Bill, 2005.
As part of the review, the Board also considered a number of other matters on which it is seeking views.
These include:
The order in which assets are allocated where a scheme is wound up with a deficit;
Whether benefits on early retirement from underfunded schemes can be reduced to reflect any funding
deficiency;
The question of making scheme shortfalls an employer debt if the scheme winds up; and
Possible pension protection arrangements to top up benefits when a scheme winds up with a shortfall.