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Contributions to defined contribution schemes during 2015 were €2.5bn, of which €1.6bn came from employers and €908m from employees. Benefits paid from these schemes were estimated at just over €1bn during the same period. Other changes affecting the liabilities of defined contribution schemes at end of 2015 were: interest earned from the investment of the scheme assets which was estimated to be €368m; net transfers of pension benefits into defined contribution schemes, mainly due to defined benefit scheme closures of €427m; and a service charge of €319m which is recorded as a reduction in Row 2.5 of Column A.

In the absence of data on defined contribution scheme service charges, Row 2.5 was estimated using a combination of the LCP Investment Management Fees Survey 2015¹ and the Report on Pension Charges in Ireland 2012.²

Column B: Funded occupational defined benefit schemes

The liability of occupational defined benefit schemes as reported to the Pensions Authority fell by €440m or 0.7%, from €59.1bn to €58.6bn, at the end of 2015 when compared with 2014. The level of defined benefit liabilities shown in Table 2.1 is estimated using actuarial calculations based on assumptions about future events. They are not impacted by the investment of the scheme assets. Figure 3.3 shows the breakdown of the flows for defined benefit schemes appearing in Column B.

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Actual employer and employee contributions to defined benefit schemes during 2015 totalled €1.9bn as recorded in Rows 2.1 and 2.3 of Table 2.1. To balance total contributions with the increase in benefits which accrued during the year, an additional item is recorded – employer imputed contributions (Row 2.2). The value of this cell may be positive where actual contributions are insufficient to meet the increase in the benefits accruing or, as in the case of Ireland, can appear as a negative value which implies that the sum of the actual contributions received exceeds the increase in current service entitlements during the year. It is important to note that Row 2.2 has been calculated as a balancing item and may therefore include other items such as experience effects that cannot be separately identified in other rows. In 2015 the value of imputed employer contributions was estimated at -€1.1bn therefore giving an overall contribution total (actual plus imputed) of €828m.

The social contribution supplement recorded in Row 2.4, also referred to as the ‘unwinding of the discount rate’, was estimated at €2.1bn in 2015. The discount rate is used to convert future payments to a ‘present value’ at a particular date. In the case of pensions, there is a stream of payments for many years into the future which are discounted to calculate the present value. Each year the remaining discount is reduced or ‘unwound’ and therefore must be added to the liability. The value of Row 2.4 is equal to the discount rate times the pension entitlements at the beginning of the accounting period. As details of scheme specific discount rates were not available, a nominal discount rate of approximately 3.6% was used to calculate Row 2.4 for Column B. Further details on the discount rate and other assumptions can be found in the Background Notes.

Payments made from defined benefit schemes, recorded in Row 4, totalled €2bn in 2015, these include pensions, lump sums and death benefits paid.

Transfers of entitlements from defined benefit schemes, mainly to new or existing occupational defined contribution schemes, was estimated as €523m in 2015 and is recorded in Row 6. Such transfers reduce the liability of defined benefit schemes at the end of the period.

A further reduction to the liability of €148m was recorded in Row 7 and relates to those defined benefit schemes which were subject to a Section 50³ amendment impacting on the liability in 2015. Under a Section 50 order, accrued benefits relating to members’ past service can be reduced.

An estimated service charge of €688m which is recorded as a reduction in Row 2.5, is calculated in a similar manner to that estimated for defined contribution schemes using available reports.

3.2 Sources used in compiling Columns A and B - funded occupational schemes

There are three main types of private pension arrangements in Ireland:

• Occupational pension schemes set up by employers which are funded (mainly via the establishment of pension funds); 
• Personal Retirement Savings Accounts (PRSAs) which are plans offered by financial service providers such as insurance companies and banks;
• Retirement Annuity Contracts (RACs).

Table 2.1 (Columns A and B) covers defined contribution and defined benefit occupational pension schemes and by definition excludes private savings plans such as PRSAs and RACs.

Column A: Funded occupational defined contribution schemes

The schemes appearing in Column A are pension schemes where the benefits are defined exclusively in terms of funds built up from the contributions made over the employee’s working life and the increases in value that result from the investment of these funds by the manager of the pension scheme. The entire risk of a defined contribution scheme to provide an adequate income in retirement is borne by the employee. The pension obligations of all defined contribution pension schemes are included in the core national accounts.

The main data source used in the completion of Column A is the Annual Scheme Information (ASI) which is submitted annually to the Pensions Authority by the Registered Administrator of the scheme. The survey provides data on the value of assets of defined contribution and defined benefit schemes as well as flows in and out of these schemes – employer and employee contributions, pension payments and scheme transfers.

The value of defined contribution pension liabilities at the beginning and end of the period are sourced directly from the ASI asset values. It is important to note that in defined contribution schemes, assets should always be equal to liabilities. The figures for these schemes are therefore always based on actual data and not on actuarial estimations.

Column B: Funded occupational defined benefit schemes

A defined benefit scheme is a pension scheme where the benefits payable to the employee on retirement are determined in advance by the use of a formula (e.g. related to salary and years of service), either alone or in combination with a guaranteed minimum amount payable. The risk of a defined benefit scheme to provide an adequate income in retirement is borne by the employer or a unit acting on his/her behalf.

The defined benefit schemes in Column B are funded, privately-managed pension schemes holding assets to meet their liabilities. At the end of an accounting period, the pension obligation to past and present employees is calculated by estimating the present value of the amounts due to be paid in retirement using actuarial calculations.

The two main data sources used in the estimation of Column B:

• Annual Scheme Information (ASI) submitted annually to the Pensions Authority by the scheme Registered Administrator; 
• Annual Actuarial Data Return (AADR) required for defined benefit schemes subject to the Minimum Funding Standard and submitted annually to the Pensions Authority by the scheme trustee.