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Pensions in the context of outsourcing can give rise to complex and potentially costly issues.  Currently no special pension rules apply to public sector outsourcing, but it may be that future legislative changes, any legislation setting up the public body in question (or its pension scheme) or pursuant to which a given outsourcing is to be concluded contains special terms and conditions in respect of transferring employees’ entitlements and the obligations of the service provider under the outsourcing contract.

Outlined below are 8 key pensions issues which should be considered in the context of any public sector outsourcing.


Continue Reading 8 Key Pensions Issues to be aware of in Public Sector Outsourcing

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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

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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

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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