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.

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

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

On Friday last, Justice Moriarty delivered his judgment in the case of Holloway & Ors v Damianus BV & Ors (Record No. 2013/6239P).

This case arose out of a contribution demand issued by the trustees of a defined benefit pension scheme in 2012. The demand was issued following the service by the principal employer of three months’ notice terminating its liability to contribute as provided for under the rules of the scheme. When the principal and associated employers failed to pay the amount due on foot of the contribution demand (€2.23 million), the trustees issued proceedings seeking to enforce payment in the High Court.

In considering whether or not the trustees could, or indeed should, have made the contribution demand, Justice Moriarty noted the previous comments of Justice Charleton in Green and Ors v Coady and Ors and, in particular, his comment that:-

“once trustees had acted honestly and in good faith, taking into account all relevant considerations and excluding irrelevant ones, the appropriate standard for review of their decisions is whether no reasonable body of trustees could have come to the same decision”.

Based on this standard of review, Justice Moriarty held that the decision of the trustees to issue a contribution demand did not appear to be one which no reasonable body of trustees would have made. Justice Moriarty also noted that the trustees, in conjunction with the scheme’s actuary, had sought to identify a reasonable basis of valuation with a view to providing the benefits under the scheme and that the trustees appeared to have been acting in good faith and in the best interests of members in accordance with their fiduciary responsibilities.

In those circumstances, the Court held that the trustees were entitled to succeed in their claim. A copy of this judgement will be available in the coming days on the High Court’s website – www.courts.ie.

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

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.

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: