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The Minister for Social Protection, Leo Varadkar, has this week published the General Scheme of the Social Welfare and Pensions Bill 2017. The General Scheme is an initial draft of a bill which is then subject to pre-legislative scrutiny before being finalised. While in the normal course it could take some months for a General Scheme to be reviewed and scrutinized, the Minister has indicated that he intends for the final bill to be enacted before the Dáil breaks for Summer Recess (normally towards the end of July).

Key points:

  • Sponsoring employers to be required to give 12 months’ notice before ceasing contributions to defined benefit pension schemes and to continue paying contributions to the scheme during that period;
  • Employers of schemes which do not satisfy the minimum funding standard / funding standard reserve, to be required to enter into funding negotiations with the trustees;
  • Proposed power for the Pensions Authority to impose contribution obligation on sponsoring employers; and
  • Extension of spouse’s pensions to civil partners and same-sex spouses in certain circumstances.

Continue Reading General Scheme of the Social Welfare and Pensions Bill 2017: statutory notice periods, debt on the employer and implications for scheme funding

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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

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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.

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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:

  1. Governance plan of action;
  2. Trustee meetings;
  3. Managing conflicts of interest;
  4. Collection and remittance of contributions;
  5. Investing scheme assets; and
  6. Paying benefits.

Continue Reading Pensions Authority Codes of Governance for Defined Contribution Pension Schemes

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Where a scheme is operated on an integrated basis, it reduces the pension entitlements of members to account for their State pension. A bridging pension is a supplemental pension which is sometimes paid to members who retire before the age at which the State pension is payable. Schemes may also reduce the contributions payable by reference to a State pension deduction.

On 1 January 2014, the age at which the State pension comes into payment will increase from age 65 to age 66 (to age 67 on 1 January 2021; and to age 68 on 1 January 2028). For some schemes, this could mean that, depending on the wording used in the scheme’s rules, the trustees of the scheme would not be able to continue making the deduction to account for the State pension after 1 January 2014. In addition, due to restrictions in the Pensions Act on the reduction of pensions in payment, for schemes operating a bridging pension, it could mean that the bridging pension would have to continue to be paid until the new State pension age. This could have serious negative implications for the funding of many schemes.

The Social Welfare and Pensions Act 2013 (the Act) was enacted on 9 November 2013.  Part 4 of the Act makes certain amendments to the Pensions Act 1990 (as amended, the Pensions Act). The most noteworthy amendment to the Pensions Act is the insertion of a new section 59H, which deals with integration and bridging pensions. It is intended to give trustees the discretion to amend the rules of a scheme to deal with these issues.

Trustees and sponsoring employers should examine their scheme documentation (both defined benefit and defined contribution) to determine whether an amendment is required.  Advice may also be required in relation to whether there are any restrictions which may impact on any necessary amendment being made.

There may also be timing considerations which could mean that any necessary amendment should be made prior to 31 December 2013.  In light of this, consideration should be given now to whether any action is required.

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The funding difficulties facing defined benefit schemes in this country at the moment as well as the strengthening of the Pensions Act funding requirements and re-introduction of funding standard deadlines has seen both scheme sponsors and trustees adopt an increasingly more creative approach to satisfying statutory obligations as well as providing a sustainable basis for funding.  This might include putting in place security in favour of the trustees of the scheme, swapping equity for a scheme deficit (see, for example, the deal struck by UK company, Uniq with the trustees of its pension scheme in 2011 and the recent arrangement proposed by Independent News and Media Group to the trustees of its scheme where the scheme appears to have been offered a 5% equity stake in the IN&M Group as part of a broader deal around restructuring), revising the funding obligation or providing an unsecured parent company guarantee. Continue Reading Creative DB scheme funding approaches – contingent assets and unsecured undertakings

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The Social Welfare and Pensions (Miscellaneous Provisions) Bill 2013 was published on 22 May 2013.

What does the Bill contain?

1. The Bill provides for the previously announced restructuring of the Pensions Board into a Pensions Authority with the position of CEO of the Pensions Board being recast as that of Pensions Regulator. There will also be a Pensions Council to advise the Minister for Social Protection on pensions matters.

2. The Bill is also notable for the increased focus on enforcement of the Pensions Act’s funding requirements. The days of drifting schemes would appear to be numbered.

3. The Bill inserts a new section 50B into the Pensions Act giving new enforcement powers to the Pensions Board to direct that schemes subject to the minimum funding standard be wound up in certain circumstances. This includes circumstances where a scheme fails to submit an actuarial funding certificate or funding proposal on time or where the trustees fail to implement a section 50 order. The new section 50B also allows the Pensions Board to apply to the High Court for an order compelling trustees to comply with a direction or order from the Board to reduce benefits or wind-up a scheme.

4. The Bill also inserts procedural details into section 50 of the Pensions Act laying out the process which will be followed where the Pensions Board decides unilaterally to require trustees to reduce benefits. It also provides for a right of appeal to the High Court on a point of law in the case of a unilateral direction to reduce scheme benefits (under section 50) or wind up the scheme (under the new section 50B) being made by the Pensions Board.

What is missing from the Bill?

It was widely expected that the Bill would introduce changes to the priority order of benefits on a wind-up. Many commentators also thought that the 30 June deadline set by the Pensions Board for submitting funding proposals would be changed to allow schemes to deal with the fall-out from any change in the priority order and as a result of so many schemes in the industry not being in a position to meet the deadline.

A press release explaining the Social Welfare and Pensions (Miscellaneous Provisions) Bill 2013 from the Department of Social Protection suggests that in fact the deadline will remain in place and the wider issues facing DB schemes, including the change in priority order and the consequences of the Waterford Crystal case will now form part of wider legislative reform in the pensions arena later in the year, by which time there is a real possibility that scheme liabilities will have been severely cut consequent on section 50 directions from the Pensions Board.

In light of the uncertainty surrounding pensions following the decision of the Court of Justice of the European Union in the Waterford Crystal case, the decision by the Government to postpone this legislative reform is not altogether surprising.

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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

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The Pensions Board’s deadline for the submission of responses to its consultation on the simplification of defined contribution pension provision passed at the end of February.  The consultation sought views on a number of different issues. These ranged from the number of different pension vehicles to pension adjustment orders to disclosure requirements.

A&L Goodbody have been involved in the drafting of the response of the Association of Pension Lawyers in Ireland.  In general, the regulation of defined contribution pension provision works but we consider that it can be rationalised, streamlined and improved somewhat.  It is likely that there will be action on foot of the submissions sent to the Pensions Board.  We believe that any reform of the regulation of defined contribution arrangements in Ireland will be considered alongside a review of the fees charged by pension product providers. We also believe it will be considered in light of the auto-enrolment regime that was proposed some time ago which Government has indicated will be brought into effect at some point in the future. 

We wait to see what reforms will come of the consultation exercise and welcome the fact that this is an area in which the Board is being proactive in seeking to improve the regulatory framework.  One key challenge we see with pension provision in general is getting workers and other individuals who are under retirement age to engage actively with retirement saving.  Without such engagement, the full benefit of any regulatory simplification will not be seen.

Read more on the Pensions Board’s consultation request on the simplification of defined contribution pension provision

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The Pensions Board has recently confirmed that they will monitor trustee training compliance on an ongoing basis. Trustees are required to record in the scheme’s annual report that they have received the appropriate training as required by the Pensions Act and within the specified time limits.

Trustees will be interested to note that the Pensions Board has recently published a new edition of The Pensions Board’s Trustee Handbook (Fourth Edition).

The Trustee Handbook provides detailed guidance on trustee duties and responsibilities and sets out good practice for trustees of occupational pension schemes.  The Trustee Handbook, in conjunction with the updated free online trustee training facility provided by the Pensions Board, will assist pension scheme trustees in satisfying their training obligations.