A but sure thats just because they assume 8% growth in their investments p.annum...

Why? because thats the historical 200 year average
Why? Because interest rates averaged a similar amount and credit grew a similar amount

But interest rates are no-where near that now and credit is contracting, not growing, so how do they expect to make 8% going forwards?!?

"Hmmm, agh sure it will all be fine in the end, just believe us, we are the experts"

What is the average assumed growth rate in these defined pension funds?

They should be outlawed.

For a good example of how defined benefit schemes can leave a huge hole in your accounts, the history of Chrysler, Ford and GM's schemes are quiet an education. They consistently adjusted growth rates and discount rates to amend the actuarial values of assets and liabilities in the fund to suit them.

Yeah and one of the reasons for sub-prime RMBS was that they offerred returns that matched the requirements of pension funds to grow at 8%. There's no shite product that doesn't have a willing buyer and there's a degree to which willing buyers create the market.

The auditing of these schemes is ridiculous. GM had to reduce their growth rates as the big bad auditor said so, so they amended their discount rate and actually benefitted...auditor said fine. Genius at work.

Funny thing about pensions is if you dont put it in you cant get it out, as far as the private sector variations of these go they are doomed and I'd love to know what these schemes will do to pay the people who have an 'entitlement' (theres that word again) to one of these when they retire in the future.
As for the public sector variation of the defined benefit pension this should have been called 'the communist pension scheme' as few benefit from it but everybody pays for it and eventually these will have to go the way of the dinosaur as well. I think the thread title may have to be changed from 'in deficit' to 'screwed'.

Out of curiosity, do any of you know what basis is used to calculate solvency liabilities because from your posts it would appear not?
Still, why let facts interrupt a good story?

Banjaxed tacked on to the end will have to do

http://www.lacba.org/Files/LAL/Vol32No7/2639.pdf

http://www.bloomberg.com/apps/news?pid= ... 5vEJn3LpVw

http://www.thisux.com/2011/03/07/the-bi ... -collapse/

Subprime RMBS sliced and diced in CDOs were structured to appeal to pension and insurance companies. The AAA tranches were last to be repaid, so durational risk was removed. Meanwhile, the AAA rating ensured that pension funds and insurance companies could invest in them.

These are 'facts' that are not disputed anywhere else, so perhaps you'd like to give some clue as to what makes you expert enough to raise questions about them?

On the rate of return, I think 6% is the normal rate that is used in projections - http://www.brokerzone.ie/pdfs/pension_c ... anaged.pdf

I believe this to be excessive based on current and projected inflation rates within the eurozone.

Anyway, this http://www.accountingnet.ie/financial_r ... rinter.php seems to support McQueen's position.

Who cares how the liability is calculated? Its just an accounting policy. Common sense tells you that if your investments return less than you originally assumed they would, eventually you will have a serious problem.

Outlawing defined benefit schemes does not benefit the employee.

The typical costs p.a of a DB scheme assuming no deficit is in excess of 25% (40-60% for public sector employees).
Typical employee contribution 5-8%

The employee does not bear any of the risks associated with the scheme. If anything goes wrong the employer must make up the difference (assuming he has not gone bankrupt). For example, people living longer, assets not preforming, pension levies (paid by the company), etc.

The funding deficit in Irish schemes today is a primarily as a result of people living longer and the poor investment returns. Regardless of the reason for the deficit the company remains liable.

Any Irish employer who is still providing this type of scheme needs his head examined. The company receives little thanks from employee but carries a huge risk.

Closing the scheme to existing and new members eliminates all the risks and will in all probability vastly reduce his costs.

However one big advantage of outlawing these schemes would be the huge reduction in the costs of Public Sector pensions

Of course the biggest defined benefit scheme of them all - public service pensions - is still going strong, thanks to us all subsidising this huge cost of a bloated unreformed unaffordable public service.

In the longer term a 6% equity investment return is not unreasonable!

2% expected inflation + 4% equity premium.

However the illustration you are quoting refers to a managed fund which typically only invested 40-60% equities.

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