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

Two liability management options we are seeing considered more and more frequently by Irish sponsoring employers of defined benefit schemes are pension increase exchange exercises (where members agree to forego an entitlement to increases on their pensions in the future in return for something now, for example, a higher starting flat pension) and transfer out exercises (where members agree to an enhanced transfer value in lieu of a future pension promise and transfer out of the scheme).

The rationale for these types of exercises is that liabilities are crystallised at the inducement date and risk of future adverse experience (for example, higher index-linked increases than estimated or adverse investment experience) are eliminated from the scheme.  An enhanced transfer value will usually be more than the statutory minimum funding standard but less than the equivalent of the cost of buying out the pension with a deferred annuity.  The funding position of the scheme and financial position and prospects of the sponsoring employer will drive this.  A key risk, of course, is that members do not fully understand what they are being asked to give up and seek to challenge the inducement exercise in the future.

Continue Reading Inducement exercises – Five common hazards

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

As the management and governance of pension schemes continues to increase in complexity and risk both sponsoring employers and trustees of pension schemes are increasingly looking towards appointing professional advisers to bring knowledge, experience, and expertise to the governance and management of their pension schemes in an effort to reduce risk and achieve cost efficiencies.

It is important for trustees and the sponsoring employer (who ultimately may be footing the bill) to understand the nature of the relationship between them and the advisers they decide to appoint and to be prepared to question them (and the agreements governing the relationship) critically.  

Pension Scheme Administrators

Many sponsoring employers and trustees appoint pension administrators and consultants to assist in relation to their pension schemes.  The written agreements documenting such appointments should be reviewed.

Leaving aside the actual services to be provided by the administrator or consultant and the fees for doing so (which the trustees and sponsoring employer will need to be satisfied with) the key issues you must consider are:

  1. Who should be party to the agreement?
  2. What should the obligations and duties on the parties be?
  3. Who should be liable for what and what is a reasonable limit?
  4. How will conflicts, complaints and data protection be dealt with?
  5. Who controls the amendment of the agreement?
  6. Can the service provider get someone else to provide the service?
  7. How will the relationship be terminated?

Professional Trustees

Many sponsoring employers appoint professional or independent trustees.  This is often under a service agreement or letter of engagement. Many of the issues outlined above in relation to administration agreements will also arise in this context. It is imperative that you understand the effect of the key provisions of such documents and the relevant provisions of the pension scheme. Particular consideration needs to be given to the charging clause and indemnity and exoneration provisions under the scheme’s governing trust documentation and how these interact with the service agreement appointing the professional trustee. If such written agreements are not already in place this should be rectified.

The pension levy was introduced under a seemingly innocuous piece of legislation, the Finance (No.2) Act 2011. The Act, insofar as it provides for the levy, is just 10 pages long.  Less is more?  Not in this case. While the dust hasn’t quite settled on the financial impact of the levy on struggling pension schemes, practitioners are still struggling to get to grips with exactly what some of the more technical requirements under the legislation mean, and how they can be complied with. The primary problem practitioners are having in deciphering what is required under the legislation is a lack of clarity, loose drafting and, in some cases, seemingly superfluous wording.  In the case of the Finance (No.2) Act 2011, the Government would have been well-advised to follow the approach of “more is more”. 

Continue Reading Grappling with the Pensions Levy