The Pensions Authority has recently published a consultation document that proposes several reforms in relation to private pension schemes in Ireland. The stated aim of the Authority is to ensure that pension schemes are fit for purpose which, in the Authority’s view, means the schemes should be “well managed, cost efficient and understandable to their members”. As part of the consultation process the Authority will be hosting a question and answer session next Thursday, the 15th of September at which interested parties can ask questions and share their views regarding the proposed reforms. Note: bookings for the Forum must be submitted to the Authority before close of business on Friday 9th of September.
As at 1 June 2016, there were 167,987 funded pension schemes in Ireland. Not surprisingly, therefore, one of the stated drivers for the Authority’s proposals is to reduce the number of pension schemes which the Authority has to supervise. The other drivers include low public confidence in pensions and an expectation of more rigorous regulation and supervision. The Authority wishes to move to more active oversight of pension schemes as opposed to pursuing breaches after the fact. The two main external drivers of reform are noted as the IORP II Directive which will need to be implemented by 2018 and the OECD’s Report on the Irish pension system published in 2013.
A brief summary of the proposals being put forward by the Authority is set out below. Submissions have been invited by the Authority in relation to the proposals in the period up to 3rd October 2016. Further information together with information regarding the Consultation Forum is available from the Pension Authority’s website.
It is not clear that there will be any immediate significant legal implications for Irish occupational pension schemes of the UK exiting the EU. However, the effect on the investment market and the continued uncertainty around Brexit is likely to have more immediate and significant consequences for Irish defined benefit schemes and their sponsoring employers.
Many Irish defined benefit schemes are struggling with funding proposals that have gone off or may go off track as a result of poor market conditions. In addition, funding difficulties (and their associated impact on IAS liabilities of sponsoring employers) may trigger fresh scheme reviews and renewed focus on liability (and volatility) management.
Trustees and sponsors will need to consider with their investment and actuarial advisers what can be done to mitigate the risk of continued poor market performance in light of ongoing uncertainty during the proposed transition period. As required by the Pension Authority’s financial management guidelines, an important step will be identifying the main risks schemes are exposed to and what contingency plans can be put in place to reduce any negative impact. A general review of the scheme investment strategy and investment options may also be warranted.
Since June 2012, under the Occupational Pension Schemes (Disclosure of Information) Regulations 2006, trustees of schemes which are subject to the statutory funding standard are required to submit an Annual Actuarial Data Return each year. Details of the Return are set out in the Disclosure Regulations which must be completed by the scheme actuary and submitted to the Pensions Authority within 9 months of the end of the scheme year.
In the period up to 31 March 2016, the Pensions Authority received 699 Returns and has now published a summary of the information. A copy of the summary is available here. Points of particular interest include:
Statutory Instrument No.229 of 2016, signed by the Minister for Social Protection on 5 May, represents another step towards the amalgamation of the offices of the Financial Services Ombudsman and the Pensions Ombudsman. The Government made the decision to merge the two agencies in May 2013, after a recommendation from the OECD.
At the Irish Association of Pension Funds Annual Investment Conference held last week, Brendan Kennedy, the Pensions Regulator, reiterated the Pensions Authority’s continued focus on good governance and its plans for ramping up the Authority’s programme of engagement with trustees of defined benefit schemes. This engagement includes continuing to invite such trustees to meet with the Authority for detailed discussions on how the trustees undertake the management of their scheme and their governance responsibilities.
The Pensions Regulator has confirmed that the objective of these meetings is to find out what trustees know and understand. While the Authority recognises that trustees are faced with difficult responsibilities and must take advice in relation to matters in respect of which they have no or limited expertise (for example actuarial, legal and investment matters), as the responsibility for the scheme rests with the trustees, the Authority expects them to understand the advice they receive and the decisions they are required to take. It is for this reason that the Authority insists that the meeting with the trustees be without their financial or legal advisers.
The Authority has indicated that the financial management guidelines for defined benefit schemes (issued in May 2015) will be used as the basis for these discussions. These guidelines outline what the Pensions Authority views as good practice for trustees of defined benefit schemes in relation to their understanding and management of the funding and investment of their defined benefit scheme. While not legally binding, it is expected that the trustees (at a minimum) will have the information and understanding set out in these guidelines. The guidelines cover the scheme data the trustees should have, governance practices relevant to financial management, reviews/processes the trustees should undertake and the analysis the trustees should carry out to arrive at decisions.
Clearly, for defined benefit schemes, the focus is on financial matters and the Authority expects trustees to understand the strategies and plans being pursued by the scheme and be able to explain these and how they were arrived at. According to the Pensions Authority, trustees should know more than their members, have enough time and commitment to carry out the role as trustee properly and be able to ask the right questions (in particular, of their advisers). These meetings are seen as a permanent part of the Pensions Authority’s supervision of defined benefit schemes and perhaps, in the future, will be extended to large defined contribution schemes. It can be expected that the Authority will take a more robust regulatory approach to schemes where they have concerns about trustee ability following such meetings.
The Regulator also announced at the conference that the Pensions Authority was developing pension reform proposals for 2017 and a public consultation process for later this year.
As part of its remit, the Pensions Authority is responsible for the monitoring and supervision of, and the issuing of guidelines or guidance notes on, the operation of the Pensions Act. One of the key objectives of the Pensions Authority for 2016 and the coming years is to provide further guidance for trustees of occupational pension schemes.
At a Pensions Authority Seminar in January, the first tranche of the Authority’s Codes of Governance for Defined Contribution Schemes were launched with the second tranche released this week. There are currently six codes available here covering the following topics:
- Governance plan of action;
- Trustee meetings;
- Managing conflicts of interest;
- Collection and remittance of contributions;
- Investing scheme assets; and
- Paying benefits.
What is the Omega Pharma case?
The Omega Pharma case has confirmed that the scheme’s governing documentation and not the Pensions Act minimum funding standard determine the employer’s liability to contribute to defined benefit schemes on wind-up.
On 25 July 2014, Mr Justice Moriarty in the Commercial Court handed down judgment in the case of Holloway & Ors v Damianus BV & Ors  IEHC 383 and found in favour of the trustees of the Omega Pharma defined benefit scheme in their claim for deficit contributions against the scheme’s employers. The trustees succeeded in obtaining judgment in the amount of €2,439,193.56 (inclusive of interest) against the employers. On appeal, the newly established Court of Appeal affirmed the judgment in favour of the trustees (Holloway & ors -v- Damianus BV & ors  IECA 19).
If the Element Six case (Greene & Ors v Coady & Ors  IEHC 38) was the most important pensions law case for trustees in the recent past, the Omega Pharma case was not far behind. The Omega Pharma case is also particularly relevant to employers who operate or participate in defined benefit schemes. However, a number of key issues remain unanswered.
The Tánaiste, Joan Burton, has recently confirmed the Government’s approval to proceed with the establishment of a new expert working group with a view to putting in place a roadmap and time line for the introduction of a new, universal pension saving scheme (MySaver). The group, to be known as the Universal Retirement Savings Development Group, will be headed up by the Department of Social Protection and will be made up of representatives from the departments of the Taoiseach, Finance, Public Expenditure and Reform, the NTMA, Central Bank and Pensions Authority.
Successive governments since as early as the 1970’s have considered and attempted to address the issue of private pension coverage. The OECD, in its preliminary report on its review of the Irish pension system in 2013, noted that “private pension coverage, both in occupational and personal pensions, is uneven and needs to be increased urgently“. The OECD also suggested that increased coverage could be obtained through compulsion, soft-compulsion/automatic enrolment and/or improving financial incentives for employees participating in private pension arrangements.
It is thought that MySaver will involve some form of automatic enrolment of workers. The Tánaiste has previously indicated that this would be the preferred option. However, attempts to introduce any form of mandatory pension in the past have failed – mainly on the grounds of cost. A key factor to be considered by the new Group, is likely to be how auto enrolment fairs in the UK and in particular whether or not it proves successful in increasing pension coverage there.
While increased pension coverage in the private sector will be generally welcomed, it would seem that the actual introduction of the universal pension saving scheme is still some way off. Indications are that details of the scheme are unlikely to be finalised for another year or so while the Tánaiste has previously indicated that such a scheme will only be introduced when the economy has sufficiently recovered and workers’ wages improve.
On Friday last, Justice Moriarty delivered his judgment in the case of Holloway & Ors v Damianus BV & Ors (Record No. 2013/6239P).
This case arose out of a contribution demand issued by the trustees of a defined benefit pension scheme in 2012. The demand was issued following the service by the principal employer of three months’ notice terminating its liability to contribute as provided for under the rules of the scheme. When the principal and associated employers failed to pay the amount due on foot of the contribution demand (€2.23 million), the trustees issued proceedings seeking to enforce payment in the High Court.
In considering whether or not the trustees could, or indeed should, have made the contribution demand, Justice Moriarty noted the previous comments of Justice Charleton in Green and Ors v Coady and Ors and, in particular, his comment that:-
“once trustees had acted honestly and in good faith, taking into account all relevant considerations and excluding irrelevant ones, the appropriate standard for review of their decisions is whether no reasonable body of trustees could have come to the same decision”.
Based on this standard of review, Justice Moriarty held that the decision of the trustees to issue a contribution demand did not appear to be one which no reasonable body of trustees would have made. Justice Moriarty also noted that the trustees, in conjunction with the scheme’s actuary, had sought to identify a reasonable basis of valuation with a view to providing the benefits under the scheme and that the trustees appeared to have been acting in good faith and in the best interests of members in accordance with their fiduciary responsibilities.
In those circumstances, the Court held that the trustees were entitled to succeed in their claim. A copy of this judgement will be available in the coming days on the High Court’s website – www.courts.ie.
Pension Adjustment Orders (PAOs) can raise difficult issues for trustees of occupational pension schemes. Under the Family Law Acts trustees must be put on notice prior to a PAO being made and often the trustees are asked to review draft PAOs and confirm that they are capable of implementation. This has the potential to expose trustees to liability. Once the PAO is formally made by a Court it may prove very difficult to have it amended. In order to reduce the risks of receiving a PAO which the trustees cannot implement, it is prudent for trustees to have a procedure in place for reviewing PAOs when they receive them. Any issues which arise can then be dealt with as early as possible in the process. These seven steps should assist with an initial review of a draft PAO and reviewing any final PAOs trustees receive.