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

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

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.

Pension issues can be a major factor influencing merger and acquisition activity.  Companies may pull out of deals due to uncertainty around pensions (especially uncertainty over the funding of defined benefit plans).  Pension plan deficits are now part of corporate life and how the deficit and the other pension issues will be dealt with needs to be considered early on in the deal. Outlined below are five pension issues we have seen arise in recent transactions and some solutions found to deal with them.

Continue Reading Five Key Irish Pension Issues in Corporate Transactions