• About Us
• Campus Life
• Rankings and Accreditation
• Support Smurfit
• News
  • Faculty Views
  • News archive
  • MBA Diary
• Events Calendar
• Multimedia Centre
• Photo Gallery

Professor John Cotter comments on Pension Protection Funds

Date: 21 Jun 2009

Publication: Sunday Independent Business

Author: John Cotter

Three vital decision areas for government that affect all our lives: birth, death, and in between, pensions. 

If you are in the Irish labour market you will receive a state pension, but maybe nothing else.

In contrast, the same individual in the UK has an additional government supported scheme that acts as a financial lifeboat.
The Pension Protection Fund (PFF) aims to protect members of defined benefit pension schemes, introduced as a result of the UK Pensions Act 2004.

The main plank of this lifeboat is that underfunded schemes pay risk-based levies to improve their potential for paying private sector pensions. 
Would such a scheme be helpful in Ireland?

First, government should not rule out introducing such a scheme on the basis of a ‘we can’t afford it’ argument as underwriting does not have to be a requirement if it follows the UK.  However, imposing the PPF as it is designed in the UK is not a panacea for all our pension problems. 
There the legislation allowed unsound investment policies being pursued for pension assets.
Therefore, while the PPF invests the levies it receives prudently with 70 per cent in fixed-income securities, it does not control the investment allocation strategy of the pension fund it supports. 

This design fault implies many schemes invest up to 80 per cent in equities, compounding the underfunding problem (underfunding of PPF-monitored pensions increased from £48.8bn to £190.6bn last year).
Introducing such a PPF-type scheme would provide a safety net that does not exist here. 
I advocate an improved version of the PPF framework.  Lifeboats offer great benefits assuming they are well designed.

Professor John Cotter, UCD Michael Smurfit Graduate Business School and Research Fellow, UCLA Ziman Center for Real Estate.