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
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.
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.
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
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:
- the trustees of the scheme;
- the employees; and
- the unions.…
Continue Reading DB restructuring – managing the unions
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.
Pension issues can be a major factor influencing merger and acquisition activity. Companies may pull out of deals due to uncertainty around pensions (especially uncertainty over the funding of defined benefit plans). Pension plan deficits are now part of corporate life and how the deficit and the other pension issues will be dealt with needs to be considered early on in the deal. Outlined below are five pension issues we have seen arise in recent transactions and some solutions found to deal with them.…
Continue Reading Five Key Irish Pension Issues in Corporate Transactions
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.…
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