International news - April 2017

A roundup of recent worldwide news and developments in the pensions arena, by Anne Bennett, Mercer

Ireland: Bill tabled to prevent defined benefit scheme abandonment

A Bill has been tabled by the main opposition party in Ireland, which if passed would give the Pensions Authority new powers to prevent solvent employers walking away from defined benefit scheme deficits. At the same time, the Bill’s sponsor has called on the Pensions Authority to start a study of alternative approaches to calculating scheme liabilities which would put less strain on scheme sponsors. In Ireland it is legal for sponsors to abandon underfunded schemes, as there is no requirement for such sponsors to make good on deficits. Furthermore, there is no insurance system to guarantee benefits for members of such schemes. Commentators have acknowledged the issues involved, but warn of possible unintended consequences, such as employers seeking to close viable schemes before any new legislation is enacted. The Bill has been passed in Ireland’s lower house, despite the ruling party Fine Gael voting against it, and it will now be considered by the joint committee on social protection.

Italy: membership of supplementary pension schemes growing

Italy’s previously very generous state pension system has been cut back in recent years. However, less than one third of workers are covered by supplementary pension arrangements. Italy’s pension regulator, Covip, has released figures showing that second pillar pension coverage is now growing, with membership of industry-wide plans, open pension schemes and new style individual schemes increasing by 7.7% in 2016. The increase is due in part to auto-enrolment being introduced under some new labour agreements. Employees have the option of diverting contributions from an employer-sponsored severance pay scheme (known as TFR – Trattamento di Fine Rapporto) to pension schemes, and last year returns for each type of pension arrangement significantly outperformed the 1.6% revaluation rate (net of tax) applied to TFR accruals.

Germany: Bill to harmonise East and West German state pensions

A Bill has been put forward to equalise state pensions in the old East Germany with those of the West. This follows agreement on the principle by the coalition in November last year. After reunification of the country in 1990, pensions have gradually increased under the East German state system, but are still on average only around 94% of those in West Germany. The increases would be phased in over seven years, starting in 2018, and funded by higher employer and employee contributions and general taxation.

Anne Bennett is a retirement senior associate at Mercer.