Defined Benefit Pensions Decline: From 2,500 to 450 in Ireland Since Early 1990s

Workers today face significantly worse pension provisions compared to previous generations, primarily due to the decline of defined benefit (DB) schemes. DB pensions, which guaranteed a specific income for life upon retirement funded by the employer, have largely been replaced by defined contribution (DC) schemes. DC schemes shift investment risk to the employee, whose retirement payments depend on investment performance, typically resulting in lower payouts.

In the early 1990s, Ireland had over 2,500 DB schemes; this number has plummeted to approximately 450. A DB pension example for an employee with 40 years of service and a final salary of €60,000 would yield €40,000 annually for life. In contrast, a DC pension for the same individual, assuming a €600,000 pot and a 4.5% withdrawal rate, would pay around €27,000 annually, with the employee bearing investment risk.

DB pensions initially gained popularity as a benefit to attract workers, particularly in the civil service and state-linked bodies, later expanding to major private firms. Favorable tax treatment and the prevalence of «jobs for life» also spurred their adoption. However, a major shift occurred in the late 1990s and early 2000s, leading employers to close or cut DB schemes.

Key reasons for this decline include increased costs, new accountancy rules requiring larger provisions for DB pensions, falling interest rates that made funding more expensive and volatile, and rising life expectancies. The 2008 financial crisis further accelerated cost-cutting measures. While public sector DB schemes still exist, often with thousands of members, new entrants since 2013 receive lower payouts based on career average earnings rather than final salary. This trend is global; in the UK, private sector DB pension coverage dropped from 37% in 1997 to 7% in 2021.