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.
Continue Reading Implications of Brexit for Irish Occupational Pension Schemes

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:
Continue Reading Pensions Authority releases statistics for defined benefit schemes

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.

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.

Continue Reading 7 STEPS TO CONSIDER ON RECEIPT OF A PENSION ADJUSTMENT ORDER

The position relating to pensions on bankruptcy has not always been entirely clear. Currently, in order for a pension scheme to qualify for Revenue approval, a pension under the scheme cannot be assigned or surrendered, save in certain limited circumstances. As a result, pension schemes often contain wording prohibiting assignment or surrender and, in certain cases, providing for the forfeiture of the benefit on a member’s bankruptcy. This in turn raised the question of whether or not a pension (not yet in payment) was capable of vesting in the Official Assignee in bankruptcy as part of the debtor’s property.

Part 4 of the Personal Insolvency Act 2012 which was commenced at the end of last year has introduced two new provisions into the Bankruptcy Act 1988 specifically relating to pensions on bankruptcy. Section 44A of the Bankruptcy Act now provides that assets under a relevant pension arrangement (other than payments already received or which the bankrupt was entitled to receive) shall not vest in the Official Assignee. A relevant pension arrangement is defined in the section and includes a retirement benefits scheme, retirement annuity contract, PRSA, overseas pension plan etc.

Continue Reading Pensions and Bankruptcy

Since 27 March 2013 members of pension schemes have been able to avail of a once-off early access option to additional voluntary contributions (AVCs) which they have made to their pension scheme. This option is provided for under section 782A of the Taxes Consolidation Act 1997 (the 1997 Act) and allows members to withdraw up to a maximum of 30% of their AVC fund prior to retirement.

When the legislation was first introduced last year it was unclear whether it overrode the express provisions of a pension scheme’s trust deed and rules and, in particular, whether an amendment to a scheme’s trust deed and rules would be required before an individual could avail of such an option. While the Department of Finance clarified that the intention of the legislation was to permit trustees to act on an instruction from members without an amendment to the rules, it acknowledged that trustees would need to take their own legal advice and indicated that if the issue caused real uncertainty it would consider including an amendment to section 782A of the 1997 Act in the next Finance Bill.

The Department has now, by virtue of the Finance (No. 2) Act 2013, amended section 782A of the 1997 Act. This amendment is intended to allow a member avail of the early access option notwithstanding anything contained in the rules of a scheme. This amendment reinforces the legislative intent to allow trustees to act on an instruction without an amendment to the trust deed and rules. However, it does not address all legal issues arising for trustees when making a payment on foot of an instruction under section 782A.

In particular, the amendment to the legislation does not provide trustees of pension schemes with a discharge in respect of any AVCs withdrawn nor does it prescribe the form of instruction required.  In such circumstances, it may remain prudent for trustees to consider an amendment to the governing provisions of their scheme to deal with such issues where members are exercising their option to avail of early access to AVCs on foot of section 782A.

Continue Reading Finance (No. 2) Act 2013 – Early Access to AVCs and other provisions

Overview

The recent UK Supreme Court judgment in Re Nortel GMBH (in administration) and others; Re Lehman Brothers International (Europe) (in administration) and others [2013] UKSC 52 (the Nortel Appeal) overturned the decisions of the High Court and the Court of Appeal, which previously gave “super-priority” to liabilities under financial support directions and contribution notices issued by the Pension Regulator (PR) against companies following their insolvency.

Background

Pursuant to the UK Pensions Act 2004 (the Act), the PR is given a number of “moral hazard” powers which allows it to impose liabilities upon connected and associated companies who are not necessarily pension scheme employers (“target companies”).

The most relevant of these powers are:

(a) Financial Support Directions (FSDs); and

(b) Contribution Notices (CNs).

Continue Reading Nortel – UK regulatory imposed pension liabilities now rank alongside unsecured claims in UK insolvency events

The current state of funding of DB schemes has pushed many of the sponsoring employers of these schemes to consider how to minimise their defined benefit liabilities and risks.  In order for the liability management process to be successful, a number of key stakeholders need to be managed.  These are: 

After much talk over the past 2 or 3 years, at last sovereign annuities have become a reality… nearly.  This week, I was one of the speakers at the launch of the first sovereign annuity approved by the Pensions Board.  Getting to this point is a major milestone in the long journey towards being able to use sovereign annuities. We are not quite there yet though.

One of the speakers at the launch was Anthony Linehan of the National Treasury Management Agency (NTMA). The view in the industry is that sovereign annuities are most likely to be backed by Irish sovereign bonds. Mr Linehan gave a very interesting presentation on the bonds which the State will issue to back sovereign annuities and the process for issuing and pricing those bonds.

It seems that the State will issue what are being called ‘amortising bonds’. These are bonds which will pay out equal annual payments which are made up of a coupon payment and part of the principal which would usually be repaid at the expiry of the bond.  They are ideally suited to sovereign annuities.

Continue Reading Sovereign Annuities – Nearly a Reality

The trustees of pension schemes may from time to time find that they have to exercise a discretion where they have a direct personal interest in the outcome of the exercise of the discretion e.g. because they are members who benefit from the exercise of the discretion – possibly at the expense of other classes of members. Can a trustee in such a situation take any part in the decision over how to exercise the discretion and still comply with his fiduciary duties to members?  

Continue Reading Conflicts of interest and trustees