What Should Be Done About the Underfunding of Defined Benefit Pension Schemes? A Case Study of Ireland

Abstract

Defined Benefit (DB) pension schemes have prevalence in certain countries, most notably the UK. This is also the case for Ireland. Underfunding of DB pension schemes is prevalent throughout the Western world, and no more so than Ireland. This paper examines underfunding of DB schemes in Ireland and discusses alternative ways of overcoming this problem. It critically reviews alternative government sponsored insurance schemes including the US Pension Benefit Guaranty Corporation (PBGC) and the UK Pension Protection Fund (PPF), underpinned by the introduction of risk-based levies. Commentators have suggested introducing some variant of the latter scheme in Ireland. The paper also examines alternative schemes that have been proposed to understand the dynamics of the level of underfunding and how this can be addressed. Finally it examines the risks inherent in DB schemes and details how these will affect the introduction of any mechanism that tries to address the levels of underfunding in Ireland.