- The total value of funded occupational pension liabilities at the end of 2018 was estimated at €99.1bn (30% of GDP)
- Just under 60% of funded occupational scheme liabilities related to defined benefit schemes, estimated at €58.7bn
- During 2018, the value of occupational defined contribution scheme obligations grew by just over €2bn, an increase of just over 5%
- The liabilities of occupational defined benefit schemes as reported to the Pensions Authority fell by just over €1bn or 1.7% at the end of 2018 when compared with 2017
|Table 3.1 Accrued-to-date liability (ADL) of funded occupational schemes, 2018||€ million|
|Occupational defined contribution schemes||Occupational defined benefit schemes||Total|
|Eurostat column reference||A||B||C|
|ADL at end-2017||38,270||59,716||97,986|
|Increase due to social contributions||3,595||1,705||5,300|
|Reduction due to payment of benefits||-1,273||-2,071||-3,344|
|Transfers between schemes||542||-604||-62|
|Changes due to negotiated reforms||0||-50||-50|
|Changes due to revaluations||-770||0||-770|
|ADL at end-2018||40,363||58,697||99,060|
|Totals may not sum due to rounding.|
The total value of funded occupational pension liabilities at the end of 2018 was estimated at €99.1bn, equivalent to 30% of GDP. These are non-government scheme liabilities, almost 60% of which related to defined benefit schemes estimated at €58.7bn (see Figure 3.1). Defined contribution scheme liabilities were estimated at €40.4bn for the same period.
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During 2018, the value of occupational defined contribution scheme liabilities grew by €2.1bn from €38.3bn to €40.4bn, an increase of over 5%. This was mainly due to contributions during the period. Table 2.1 shows a decrease in the market price values of assets of €0.8bn, which is recorded in Row 8 of Column A. Other changes occurred during 2018 which impacted on the liability at end of 2018. Figure 3.2 shows the breakdown of these flows.
|Composition of Private Pension Schemes|
|Private occupational defined contribution schemes|
|Market price changes||-0.770|
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Contributions to defined contribution schemes during 2018 were €3.6bn, of which €2.3bn came from employers and €1.3bn from employees. Benefits paid from these schemes were estimated at €1.3bn during the same period. Other changes affecting the liabilities of defined contribution schemes at end of 2018 were: interest earned from the investment of the scheme assets which was estimated to be €350m; net transfers of pension benefits into defined contribution schemes, mainly due to defined benefit scheme closures of €542m; and a service charge of €398m 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
The liability of occupational defined benefit schemes as reported to the Pensions Authority fell by just over €1bn or 1.7%, from €59.7bn to €58.7bn, at the end of 2018 when compared with 2017. 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.
|Private occupational defined benefit schemes|
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Actual employer and employee contributions to defined benefit schemes during 2018 totalled €1.7bn 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 2018 the value of imputed employer contributions was estimated at -€1.1bn therefore giving an overall contribution total (actual plus imputed) of €0.6bn.
The social contribution supplement recorded in Row 2.4, also referred to as the ‘unwinding of the discount rate’, was estimated at €1.8bn in 2018. 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 3.1% 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 €2.1bn in 2018, 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 €604m in 2018 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 €50m 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 2018. Under a Section 50 order, accrued benefits relating to members’ past service can be reduced.
An estimated service charge of €713m 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.
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 (PRSA) which are plans offered by financial service providers such as insurance companies and banks;
• Retirement Annuity Contracts (RAC).
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 PRSA and RAC.
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 each 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.
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.
|Table 3.2 Summary of data sources used for the estimation of Columns A and B of the pensions table|
|Column||Data source used||Description|
|A – Defined contribution funded occupational schemes||Annual Scheme Information (ASI) returns to the Pensions Authority||• Individual scheme data submitted annually by the Registered Administrator to the Pensions Authority • Captures both defined contribution and defined benefit scheme information • Annual data collected from 2008 onwards • Variables collected include asset values, contributions, benefits paid, membership numbers, scheme type, transfers|
|B – Defined benefit funded occupational schemes||Annual Scheme Information (ASI) returns to the Pensions Authority Annual Actuarial Data Return (AADR) data from the Pensions Authority||ASI return as described for Column A above AADR: • Trustees of defined benefit schemes subject to the minimum funding standard are required to submit an AADR to the Pensions Authority. • This is an annual return from 2012 • Defined benefit scheme information only • Assets and liabilities reported • Transfer value of liabilities recorded • Actuarial assumptions set by the Pensions Authority|
The AADR is used to value the liabilities for the beginning and end of the period in question. The Pensions Act requires that the trustees of a defined benefit scheme assess whether the scheme can meet a certain prescribed standard, known as the Minimum Funding Standard. Since 2012, trustees of defined benefit schemes subject to the funding standard have been required to submit an AADR to the Pensions Authority.
The liability values reported are transfer or wind-up values calculated in accordance with guidance issued by the Society of Actuaries in Ireland and guidance issued by the Pensions Authority.4 These are actuarial based calculations using specific assumptions. In general these assumptions are in line with those prescribed by Eurostat in the Technical Guide and therefore no adjustments were made to the AADR values for the purposes of the pensions table.5 Further details on the assumptions used can be found in the Background Notes.
2Department of Social Protection and Employment Affairs (2012). Report on Pension Charges in Ireland 2012. (PDF)
3If the funding of a defined benefit scheme is not sufficient to satisfy the Funding Standard, the trustees may apply to the Pensions Authority for what is referred to as a 'Section 50 order'. Under such an order, accrued benefits relating to members’ past service can be reduced.
5In its Review of Defined Benefit Schemes 2018 Statistics the Pensions Authority refers to the effective dates spread over the 2018 and 2019 calendar years. The average return date was March 2018. In order to ensure consistency between the reference year used for the ASI and AADR data and to be more consistent with the broader National Accounts, the approach used in this publication equates all effective dates to year end March 2019 as referring to 2018.