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Data protection rules already apply to the trustees of pension schemes as a result of the Data Protection Acts 1988 and 2003. The existing data protection legal framework will be significantly strengthened from 25 May 2018 when the EU General Data Protection Regulation (GDPR) comes into force. If trustees have not already started to consider whether their scheme arrangements will be compliant with GDPR requirements, now is the time to do so.

Continue Reading GDPR – 6 months to go

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.

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?

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 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.

Between agenda items at a recent meeting of the Association of Pension Lawyers in Ireland conversation turned to the type of matters our various firms’ pensions practices are currently working on.

What was surprising was the amount and range of pensions-related litigation.  The issues being litigated included scheme wind-ups, employer capital reduction applications and creditors accessing funds within bankrupts’ pension arrangements.  The amount of current pensions-related litigation highlights the need to consider litigation risks and strategy at a very early stage in transactions that could prove contentious.

Continue Reading The Rise of Pensions Litigation

After much talk over the past 2 or 3 years, at last sovereign annuities have become a reality… nearly.  This week, I was one of the speakers at the launch of the first sovereign annuity approved by the Pensions Board.  Getting to this point is a major milestone in the long journey towards being able to use sovereign annuities. We are not quite there yet though.

One of the speakers at the launch was Anthony Linehan of the National Treasury Management Agency (NTMA). The view in the industry is that sovereign annuities are most likely to be backed by Irish sovereign bonds. Mr Linehan gave a very interesting presentation on the bonds which the State will issue to back sovereign annuities and the process for issuing and pricing those bonds.

It seems that the State will issue what are being called ‘amortising bonds’. These are bonds which will pay out equal annual payments which are made up of a coupon payment and part of the principal which would usually be repaid at the expiry of the bond.  They are ideally suited to sovereign annuities.

Continue Reading Sovereign Annuities – Nearly a Reality

Background

New statutory requirements relating to funding defined benefit schemes have recently come into law with the coming into force of the Social Welfare and Pensions Act 2012 on 1 May and the publication of various pieces of statutorily binding guidance issued by the Pensions Board on 7 June.

The Act makes various changes to the Pensions Act 1990, principally, its sections relating to the funding standard and revaluation of preserved benefits. The Pensions Board’s guidance sets out the details of most interest.  Through various changes to the Pensions Act, much of the Pensions Board’s guidance now has the force of law.

Continue Reading New DB scheme funding requirements

The Pensions Board’s deadline for the submission of responses to its consultation on the simplification of defined contribution pension provision passed at the end of February.  The consultation sought views on a number of different issues. These ranged from the number of different pension vehicles to pension adjustment orders to disclosure requirements.

A&L Goodbody have been involved in the drafting of the response of the Association of Pension Lawyers in Ireland.  In general, the regulation of defined contribution pension provision works but we consider that it can be rationalised, streamlined and improved somewhat.  It is likely that there will be action on foot of the submissions sent to the Pensions Board.  We believe that any reform of the regulation of defined contribution arrangements in Ireland will be considered alongside a review of the fees charged by pension product providers. We also believe it will be considered in light of the auto-enrolment regime that was proposed some time ago which Government has indicated will be brought into effect at some point in the future. 

We wait to see what reforms will come of the consultation exercise and welcome the fact that this is an area in which the Board is being proactive in seeking to improve the regulatory framework.  One key challenge we see with pension provision in general is getting workers and other individuals who are under retirement age to engage actively with retirement saving.  Without such engagement, the full benefit of any regulatory simplification will not be seen.

Read more on the Pensions Board’s consultation request on the simplification of defined contribution pension provision

The trustees of pension schemes may from time to time find that they have to exercise a discretion where they have a direct personal interest in the outcome of the exercise of the discretion e.g. because they are members who benefit from the exercise of the discretion – possibly at the expense of other classes of members. Can a trustee in such a situation take any part in the decision over how to exercise the discretion and still comply with his fiduciary duties to members?  

Continue Reading Conflicts of interest and trustees