Photo of Aoife Malone

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.

Given the publicity around the Independent News & Media case and the various private members’ bills that had been introduced earlier in the year, it was largely expected that the Government’s bill would contain some form of obligation on an employer to provide notice where it sought to wind-up its defined benefit pension scheme. This has been included in the draft. Head 12, which proposes to amend Part IV of the Pensions Act 1990, provides that before ceasing contributions to a scheme or taking any action to wind-up a scheme, the employer must give both the Pensions Authority and the trustees 12 months’ notice. This is in addition to any notice period prescribed under the rules of the scheme and applies irrespective of the funding position of the scheme.

If the scheme does not satisfy the minimum funding standard at any stage during the 12 month notice period, the General Scheme provides that a funding proposal must be agreed before expiry of the notice. Presumably the intention is that the scheme would be fully funded on the minimum funding standard basis by the time it winds-up. However, it is not entirely clear from the draft wording whether this will in fact be the case. It may be possible to commence winding up and for a transfer to be made to another scheme or for contributions to be paid in the period following commencement of wind-up.

Head 12 also provides for additional consultation and disclosure obligations to be set out in regulations and for contributions at the rate payable immediately prior to the notice to be continued throughout the notice period. In addition, the section is without prejudice to any obligations or powers that may arise under the scheme’s governing documentation. As such, there is nothing to prevent trustees (where they have power to do so under their scheme) from making a demand on the employer for amounts significantly in excess of the minimum funding standard deficit.

In addition to the above, the General Scheme proposes to make a number of other key changes to the Pensions Act 1990 as follows:

  1. Head 11 proposes to amend section 49 of the Pensions Act 1990 to introduce a 6 month timeframe within which trustees must submit a funding proposal. This will run from the date of the relevant actuarial funding certificate.
  2. Head 13 introduces a new section 50D which will allow the Pensions Authority to set a schedule of contributions to be paid to a scheme in certain circumstances. The circumstances include where a funding proposal hasn’t been submitted or where an employer fails to make contributions under the terms of an existing funding proposal. This new power would sit alongside the Pensions Authority’s existing powers in these circumstances to direct that benefits be reduced or that a scheme be wound up.Notably, the section contains an express provision which provides that the amounts set by the Authority will be deemed to be a debt due from the employer to the trustees and capable of being recovered in any court of competent jurisdiction. If this power is introduced, it will be interesting to see how trustees approach the question of whether section 50 benefit cuts remains an appropriate option in an underfunded scheme.
  3. Head 14 amends Part VII of the Pensions Act 1990 which deals with equal pensions treatment to provide limited recourse for members and their spouses/civil partners who may be adversely affected by rules of a scheme which require the member to have married or entered a civil partnership on or before a certain age. This amendment is being made to address a specific issue raised in the case of Dr David Parris v Trinity College Dublin which was heard by the Court of Justice of the European Union late last year.In that case, Dr Parris had challenged (unsuccessfully) a rule of the Trinity College scheme which required a member to be married or in a civil partnership before age 60 or earlier retirement. However, at the date of Dr Parris’ retirement in 2010, it was not legally possible for him to have married or have entered a civil partnership with his same sex partner (civil partnership was not introduced in Ireland until 2011). If enacted, trustees will need to assess and consider whether their rules and/or procedures need to be adjusted to address this requirement. For some trustees, the issue may not arise if there is no requirement to be married or in a civil partnership by a certain date. For those schemes that are affected, consideration will also need to be given to the funding implications, if any, arising from the requirement to provide pensions which may not have been factored into the funding obligations to date.

A copy of the General Scheme is available on the Department of Social Welfare website which can be accessed here.