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

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 [2014] 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 [2015] IECA 19).

If the Element Six case (Greene & Ors v Coady & Ors [2014] 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.
Continue Reading The Omega Pharma case – Trustee and Employer Guidance

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.

We are increasingly asked by overseas clients whether, if they acquire a business or a company in Ireland which operates a DB Scheme in Ireland, they could be liable to the DB Scheme even though the acquirer may not participate in that scheme.  UK clients are particularly concerned by this issue given their experiences with the UK pensions regulatory framework.

Continue Reading Are Parent Companies Liable for their Subsidiaries’ DB Schemes?

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

On 1 January 2014, the age at which the contributory State pension comes into payment will increase from age 65 to 66.  On 1 January 2021, it will rise to age 67 and on 1 January 2028 it will rise to age 68.

While there are good financial reasons for the State to increase the State pension age and, indeed, this is a trend across many European countries, the change may give rise to a number of unintended consequences for schemes which are integrated with (that is, take into account) the State pension.  For example:

  • A scheme’s definition of pensionable salary is basic salary with an offset of one to one and a half times the State pension payable at age 65. From the end of this year the offset will in practice be nil (because the State pension will no longer be payable at age 65) giving rise to an unfunded and unintended increase in the pension of a person retiring next year or after.
  • A bridging pension, payable until “State pension age” (always intended to be age 65), will have to be paid past age 65.
  • Member contributions expressed as a percentage of pensionable salary which includes an offset to take account of the State pension may unintentionally increase should that offset inadvertently become nil.

These unintended consequences may have serious financial implications for schemes.  We are calling on scheme sponsors and trustees to review their scheme documents now to see if there are any unintended consequences applicable to their schemes.  If there are, remedial measures may be capable of being taken – acting before the end of the year will be far preferable to waiting until next year.

Of course, the increase in the State pension age is of broader concern to employers who have contractual retirement ages.  We are also urging employers to consider scheme normal retirement ages and ages at which benefits may be taken as part of a broader review of contractual retirement ages.

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

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.

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: