Irish defined benefit (DB) pension scheme trustees and employers have been encouraged to revisit their journey planning, after analysis from LCP revealed that DB schemes have seen "material" funding improvements in recent years.

LCP noted that there has been a significant improvement in funding levels of
Irish DB schemes, notably accelerating after the significant rise in interest rates in 2022, a fall back in inflation expectations and the strong performance in recent years of growth assets such as equities.

Indeed, LCP's analysis showed that the DB schemes of many large Irish employers are now reporting a surplus in their company accounts with average funding levels reported of around 110 per cent.

LCP argued that the emergence of these surpluses gives rise to new opportunities and considerations for the pension scheme trustees and sponsors alike, recommending that trustees and employers revisit their journey planning now in light of recent market movements.

In particular, the firm encouraged trustees and employers to consider issues around surplus recognition and ownership of surplus.

It also urged stakeholders to consider the potential use of surplus, including de-risking scheme investments, discretionary increases or a potential refund to the employer, as well as options to accelerate the settlement of benefits, through bulk annuities or enhanced transfer value (ETV) exercises.

"The development of deferred annuity products will further expand the options for transferring risks and ultimately full settlements," the firm stated.

"ETV exercises offer an additional avenue for reducing scheme liabilities, while discretionary pension increases, adjustments to transfer value bases and adjustments to early retirement, late retirement and commutation factors are examples of ways that such surpluses can be used to specifically benefit certain membership cohorts."

However, LCP emphasised that each option requires thorough analysis and consultation with financial and legal advisors to ensure that decisions align with the scheme’s objectives and regulatory requirements.

"Ultimately, the effective management of DB scheme surpluses can lead to improved financial stability for both the pension scheme and the sponsoring company, while also providing valuable benefits to scheme members," it stated.

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