Ireland: Pensions & Retirement Plans In Ireland, 2013

Ireland Statutory and regulatory framework

1 What are the main statutes and regulations relating to pensions and retirement plans?

The Pensions Act 1990 (as amended) (the Pensions Act) is the primary pensions legislation in Ireland. The Pensions Act regulates the operation of occupational pension schemes, Personal retirement savings accounts (PRSAs) and trust Retirement annuity contracts (RACs). There are a large number of regulations in place which supplement primary legislation and regulate all aspects of the operation and administration of pension schemes. The legal framework in place in Ireland implements EU Directive 2003/41/EC (commonly called the IORP Directive) and also EU directives relating to pensions and equality issues.

The Taxes Consolidation Act 1997 includes a number of provisions relating to pensions, which set out the basis on which approval of pension arrangements is established. The Revenue Commissioners (Revenue) are responsible for granting a scheme this approval, which results in the scheme having a beneficial tax status. The Taxes Consolidation Act 1997 is supplemented each year by other legislation including the Finance Act (which incorporates the government's annual budget provisions) and is therefore amended on an annual basis.

The Family Law Act 1995, Family Law (Divorce) Act 1996 and Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010 are also of relevance in a pensions context where a Pension Adjustment Order has been granted in a judicial separation, divorce or the dissolution of a civil partnership.

2 What are the primary regulatory authorities and how do they enforce the governing laws?

The Pensions Board

The Pensions Board governs the regulation of occupational pension schemes, PRSAs and certain aspects of trust RACs. The Pensions Board is responsible for monitoring and supervising the operation of pensions legislation and developments in the pensions sphere in general, which encompasses the activity of scheme administrators and trustees. In addition, the Board has various powers under the Pensions Act including the power to investigate the conduct of pension schemes or PRSAs, and has the power to prosecute alleged breaches of the Pensions Act. It can also issue fine notices where necessary.

The Pensions Ombudsman

The role of the Pensions Ombudsman is to investigate complaints of financial loss due to maladministration and disputes of fact or law in relation to occupational pension schemes, PRSAs and trust RACs. The Pensions Ombudsman is an independent body and acts as an impartial adjudicator. Decisions of the Pensions Ombudsman are binding, with a right of appeal to the High Court.

Revenue Commissioners

Revenue regulates the tax treatment of pension arrangements in Ireland. To avail of an advantageous tax status, a pension scheme must obtain Revenue approval. Revenue has the sole power to grant, refuse or withdraw approval.

3 What is the framework for taxation of pensions?

To encourage private provision for retirement, a favourable tax environment for pensions exist in Ireland. Revenue regulates the tax treatment of pension arrangements and there are a number of tax incentives available to arrangements which have been approved by Revenue.

The tax treatment of approved occupational pension schemes in Ireland follows the EET system, that is, contributions into the scheme are exempt, investment income and gains are exempt (ie, funds accumulate tax free within the scheme) and benefits paid from the scheme are taxed. By way of exception to the EET model, the Irish government introduced a pensions levy in 2011. The levy is a stamp duty of 0.6 per cent per annum applying to the market value of assets under management in pension schemes established in the state. It is due to come to an end in 2014.

Employer and employee contributions to an occupational pension scheme are treated differently for tax purposes. Apart from Revenue rules that require that a scheme cannot be overfunded, there is otherwise no maximum limit on the amount that an employer can contribute to a pension scheme. In general, employer contributions to an approved occupational pension scheme are treated as a business expense deductible for corporation tax purposes in the employer's accounting period in which the contributions are paid. For employees, tax relief on their contributions is restricted in any year of assessment to an age-related percentage of their remuneration (capped at €115,000) from the employment being pensioned. A contribution made by an employer to provide benefits for an employee is not treated as a benefit in kind for the employee concerned.

At retirement, pension scheme members are entitled to take a tax-free lump sum of up to one-and-a-half times salary (up to a limit of €200,000). Pensions in payment, like salary, are taxed through the PAYE system.

Individuals have a maximum lifetime limit on the amount of their retirement benefits from all sources (other than state pensions). The limit is known as the Standard Fund Threshold and currently stands at €2.3 million (25 per cent of which is the maximum amount an individual can take in tax-relieved cash lump sums). Where an individual exceeds the Standard Fund Threshold, the excess value is taxed upfront at the top rate of income tax and may, in addition, be subject to income tax in payment.

State pension provisions

4 What is the state pension system?

There are essentially two parallel state pension systems in Ireland: a social insurance system and a social assistance system. The State Pension (Contributory) is paid to individuals who have paid the required Pay Related Social Insurance (PRSI) contributions during their working lives. PRSI is a social insurance scheme providing benefits on sickness, unemployment, death and retirement in return for PRSI contributions. The State Pension (Contributory) is currently paid from age 66, however the age from which it is payable is due to increase to 67 from 2021 and to 68 in 2028. It is not means-tested. The State Pension (Non-Contributory) is a means-tested social assistance payment and may be paid to individuals who are living in the state and who do not qualify for the State Pension (Contributory).

The State Pension (Transition) is currently paid from age 65 to individuals who have retired from work and who have paid the required PRSI contributions. At age 66, individuals who qualify for the State Pension (Transition) are transferred to the State Pension (Contributory). The State Pension (Transition) is being phased out and will no longer be paid from 1 January 2014.

There are also widow's and widower's contributory pensions, contributory orphan's allowances and invalidity pensions.

5 How is the state pension calculated and what factors may cause the pension to be enhanced or reduced?

State pensions in Ireland are 'flat-rate' pensions, varying little in amount according to levels of salary at retirement.

The rate of State Pension (Contributory) payable to people who qualify for pensions from 1 September 2012 is based on the yearly average PRSI contributions paid, with the maximum personal rate standing at €230.30 per week. Various increases on the maximum personal rate may be payable depending on the individual circumstances. For example, increases may be payable where the individual is living alone or has adult or child dependants. An automatic increase of €10 per week is paid when the individual reaches 80 years of age.

The maximum personal rate of the State Pension (Non- Contributory) in 2013 is €219 per week with increases payable in respect of those with adult or child dependants and individuals over 80 years. As the State Pension (Non-Contributory) is means-tested, the rate payable may be reduced where the individual is deemed to have some means to support themselves.

6 Is the state pension designed to provide a certain level of replacement income to workers who have worked continuously until retirement age?

The State Pension (Contributory) is designed in this way; however, the State Pension (Non-Contributory) is paid to those who do not qualify for the State Pension (Contributory) based on their PRSI contribution record. The State Pension (Non-Contributory) is a social assistance payment paid to those whose income is below a certain level and is intended to ensure that individuals are provided with a basic level of income in retirement.

7 Is the state pension system under pressure to reduce benefits or otherwise change its current structure in any way on account of current fiscal realities?

In common with many European countries, the Irish state pension system is coming under increasing pressure in relation to issues such as population changes and the sustainability of government finances. The state pension system operates on a pay-as-you-go basis. The National Pensions Reserve Fund (NPRF) was established in 2000 with the aim of pre-funding in part the future cost of social welfare and public service pensions. The government was tasked with paying a sum of approximately 1 per cent of gross national product into the NPRF from 2001 to 2055. A large proportion of this fund was used to recapitalise the banks during the banking crisis and much of the amount remaining is earmarked for economic stimulus.

From 1 January 2014, the state pension age is increasing to 66. From 1 January 2021, the state pension age will increase to 67 and from 1 January 2028 it will increase to 68. This is being done in an effort to deal with the additional costs associated with the increasing longevity of an ageing population.

Plan features and operation

8 What are the main types of private pensions and retirement plans that are provided to a broad base of employees?

The majority of pension arrangements, provided to a broad base of employees in Ireland, exist in the form of occupational pension schemes. These schemes are sponsored by employers and can be in the form of a defined benefit or defined contribution pension arrangement. The vast majority of new private sector pension schemes are established as defined contribution schemes, while older schemes and the majority of public sector schemes tend to be defined benefit schemes.

The Pensions Act provides that a defined contribution scheme is a scheme which, under its rules, provides long-service benefit, the amount of which is directly determined by the amount of contributions paid by or in respect of the member. In a defined contribution scheme, the pension received is dependent on the value of the fund accumulated at retirement.

A defined benefit scheme is any scheme that is not a defined contribution scheme. Generally, in Ireland, defined benefit schemes provide pension benefits by reference to a formula relating to years of service and salary at or near retirement.

9 What restrictions or prohibitions limit an employer's ability to exclude certain employees from participation in broad-based retirement plans?

The Pensions Act provides that every occupational pension scheme is obliged to comply with the principle of equal pension treatment. The principle of equal pension treatment requires that schemes cannot discriminate between persons on any of the nine specified discriminatory grounds as follows:

• gender;
• marital status;
• family status;
• sexual orientation;
• religious belief;
• age;
• disability;
• race; or
• membership of the traveller community.

Employers cannot restrict access to a scheme where to do so would breach the principle of equal pension treatment. It does not, however, constitute discrimination on the age ground for an employer to fix an age for admission to a scheme provided that this does not result in discrimination on the gender ground.

The Pensions Act also prohibits indirect discrimination unless it can be objectively justified by a legitimate aim. It must also be shown that the discriminatory rule is an appropriate and necessary way of achieving the aim.

Aside from the principle of equal pension treatment, the Protection of Employees (Part-Time Work) Act 2001 requires that part-time employees should be treated no less favourably than their comparable full-time counterparts. Where an employer operates an occupational pension scheme for full-time workers, access to the scheme must be extended to comparable part-time workers unless the exclusion can be justified on objective grounds. An exception to this applies where the part-time employee works less than 20 per cent of the hours of the comparable employee. Similarly, the Protection of Employees (Fixed-Term Work) Act 2003 provides that there can be no discrimination as between fixed-term workers and their comparable permanent employees in terms of their conditions of employment. Again, any decision to exclude such workers from a pension scheme may be justifiable based on objective grounds.

10 Can plans require employees to work for a specified period to participate in the plan or become vested in benefits they have accrued?

Occupational pensions in Ireland are voluntary, not compulsory. However, if the employer does not provide an occupational pension scheme, does not make it available to all employees, or limits access to it for more than six months from the start of employment, then the employer must provide access to a PRSA. PRSAs are contracts between the individual and a PRSA provider (eg, insurance company, bank, etc) and contributions by the employer are not obligatory.

In respect of vested benefits, legislation provides that pension scheme members are entitled to preserved benefits on retirement, subject to the requirement that the member has two years' qualifying service. A scheme can provide for a shorter vesting period. Where a member leaves service, payment of accrued benefits is deferred until the member reaches retirement age. A member has the choice to transfer preserved benefits into another exempt approved pension scheme or retirement vehicle (eg, a PRSA).

11 What are the considerations regarding employees working permanently and temporarily overseas? Are they eligible to join or remain in a plan regulated in your jurisdiction?

Current Revenue practice is that a scheme exclusively for or including employees working overseas may be approved and enjoy the available reliefs if the employer is resident in Ireland.

Subject to two exceptions, it is not possible for an approved scheme to cater for employees working overseas for an employer resident outside the state. The exceptions to this principle are:

• where employees are on secondment from an Irish employer for a limited period and can be deemed to remain on the Irish employer's payroll; or
• where employees are sent overseas (in circumstances that cannot be regarded as secondment) to serve with non-resident companies in a group of which the parent company is resident in the state but the parent company retains control over the movements of the employees within the group (ie, remains in a position to recall them or direct them elsewhere).

Where either of the above exceptions apply, the relevant employees may remain, or become, members of the Irish employer's approved scheme but all cases under the second exception must first be referred to Revenue for consideration.

12 Do employer and employees share in the financing of the benefits and are the benefits funded in a trust or other secure vehicle?

Where employers establish Revenue-approved occupational pension schemes, Revenue rules require that an employer must make a 'meaningful' contribution to the cost of providing benefits under the scheme. Guidelines issued by Revenue state that 10 per cent of the total cost of a member's benefits in addition to meeting the cost of death in service benefits, will be regarded as 'meaningful'.

Occupational pension schemes must be established under an irrevocable trust to enjoy beneficial tax treatment. Under an irrevocable trust, the employer cannot revoke the trust established and cannot apply the funds to another purpose for its own use or benefit. Pension assets are held separately from those of the employer and do not form part of the employer's assets.

13 What rules apply to the level at which benefits are funded and what is the process for an employer to determine how much to fund a defined benefit pension plan annually?

Defined benefit schemes are required to meet the statutory minimum funding standard (the Funding Standard) as set out in Part IV of the Pensions Act. The Funding Standard sets out the minimum assets that a defined benefit scheme must hold and what steps must be taken if the assets of the scheme fall below this minimum.

In order that trustees can estimate the future liabilities of a defined benefit scheme and determine the funding rate required to meet those liabilities, they are required to appoint an actuary. Legislation requires that the actuary assesses the solvency of the scheme at three-year intervals. The actuary estimates the future liabilities of the scheme and reports on whether there are sufficient assets to meet the accrued liabilities and recommends a contribution rate for the scheme.

Scheme trustees are also obliged to have the actuary estimate each year whether or not the scheme remains 'on track' to meet the Funding Standard. Where the scheme does not meet these obligations, actuarial certification must be provided to the Pensions Board along with (except in certain limited circumstances) a funding proposal. A funding proposal is a recovery plan designed to bring the scheme back into line with the Funding Standard over its term and will usually require additional contributions to be made by the employer to the scheme over the duration of the funding proposal.

14 What are customary levels of benefits provided to employees participating in private plans?

With a defined contribution scheme, the benefits provided at retirement depend on the contributions paid into the scheme by the employer and the member, investment returns on those contributions to retirement and, to a lesser extent, the prevailing annuity rates at retirement. Essentially, the pension payable will depend on the funds available in the member's individual retirement account.

Most defined benefit schemes provide retirement benefits calculated by reference to salary at or near retirement and to service completed to retirement. An accrual rate is also required to calculate a member's pension. The accrual rate determines what fraction of salary is promised for each year of service. The most common accrual rate in private sector schemes is 1/60th of final pensionable salary for each year of pensionable service. There is a large level of flexibility in the benefit package a defined benefit scheme may provide. The maximum permissible pension for Revenue-approved schemes is two-thirds of final remuneration and private schemes are often structured with this in mind.

15 Are there statutory provisions for the increase of pensions in payment and the revaluation of deferred pensions? Currently in Ireland there are no statutory provisions for the increase of pensions in payment.

With respect to the revaluation of deferred pensions, the Pensions Act provides that a member who leaves service on or after 2 June 2002 with at least two years 'qualifying service' falling after 1 January 1991 is entitled to a preserved benefit (separate rules apply for members who left prior to 2 June 2002). 'Qualifying service' is service in the member's current scheme, any other scheme of the employer or any scheme of a previous employer from which benefits have been transferred to the member's current scheme.

A member who is entitled to a preserved benefit may elect to leave his or her benefit in the scheme as a deferred benefit until retirement. Alternatively, a member with a preserved benefit may transfer the value of that benefit to a pension scheme associated with their new employer or to a policy or contract with an insurance company.

Where a member elects to keep their preserved benefit in the scheme they are leaving, the value of the preserved benefit must be revalued annually by the scheme trustees at the rate of either 4 per cent or the percentage increase in the Consumer Price Index for that year as calculated by the minister for social protection, whichever is lower. Revaluation stops the year before benefits become payable to the member.

16 What pre-retirement death benefits are customarily provided to employees' beneficiaries and are there any mandatory rules with respect to death benefits?

Pension schemes in Ireland can provide either or both lump sum and dependant's pensions on death in service.

The lump sum benefit can be a multiple of salary before death, or a part of the fund, or both. Contributory schemes typically offer a multiple of salary (which is often insured with a life office) in addition to a refund of the member's contributions to the fund (without interest). The maximum lump sum benefit permitted from a Revenue-approved scheme is four times final remuneration plus a refund of the member's contributions with interest. If a scheme offers a greater benefit, any excess above the Revenue limit must be used to provide pensions for the member's dependants.

Schemes will often also provide for spouses' or dependants' pensions and, less commonly, children's pensions. Again, such benefits are often insured with a life office. In total, dependant's pensions equal to the maximum approvable pension that could have been paid to the member had he or she retired on grounds of ill health on the day before he or she died can be provided.

17 When can employees retire and receive their full plan benefits? How does early retirement affect benefit calculations?

Normal retirement age under many pension arrangements in Ireland is 65. Retirement benefits may be payable on normal, early (including ill-health) or late retirement. Benefits must be dealt with in accordance with the terms of the relevant trust deed and rules and in compliance with the requirements of Revenue. In this regard, provision for early retirement must be set out in the trust deed and rules of the scheme and Revenue rules provide that early retirement benefits may be provided on or after the employee's 50th birthday. Most schemes allow early retirement from age 50 with the employer's or trustees' consent.

Revenue sets limits for the maximum approvable pension and maximum approvable lump sum a member can take on early retirement. Benefits are lower on early retirement as less contributions have been paid and investment returns are over a shorter period. With respect to defined benefit schemes, these schemes usually impose a reduction factor on early retirement pensions. This is to allow for the additional cost of paying benefits early and for a longer period.

18 Are plans permitted to allow distributions or loans of all or some of the plan benefits to members that are still employed?

Generally, schemes are not permitted to allow distributions or loans of scheme benefits to participants while they are still in employment. However, the Finance Act 2013 provides for a once-off taxable drawdown for individuals who have accumulated pension funds through Additional Voluntary Contributions (AVCs), subject to a number of conditions. AVCs are strictly defined and only relate to AVCs made to occupational pension schemes and additional voluntary PRSA contributions made to an AVC PRSA.

The Act provides a mechanism for an individual to make a onceoff withdrawal of up to 30 per cent of the value of his AVCs. This option is available for three years, effective from 27 March 2013. Any withdrawal will be subject to income tax at the individual's marginal rate.

19 Is the sufficiency of retirement benefits affected greatly if employees change employer while they are accruing benefits?

Although the Pensions Act introduced a framework of protection for employees who move from job to job, the sufficiency of retirement benefits can be affected where employees move from job to job over the period that they are accruing benefits.

Part III of the Pensions Act protects the benefits of scheme members whose relevant employment is terminated prior to normal retirement age. This includes a situation in which a member leaves the service of an employer before reaching normal retirement age. In such circumstances, the member may become entitled to a preserved benefit on leaving service, depending on his or her period of completed service at the date of leaving.

Where a member has less than two years' qualifying service in the pension scheme he has no legal entitlement to a minimum retirement benefit (ie, a preserved benefit). The member is only entitled to a refund of his own contributions, if any, paid to the scheme.

Where a member leaves service after 1 June 2002 with more than two years' qualifying service he has a statutory right to the greater of the deferred benefits provided under the scheme and the statutory preserved benefit provided under the Pensions Act. For the purpose of determining whether a member has the required two years' qualifying service, any period of service in a previous pension scheme from which a transfer value has been received into the current scheme must be included. The Pensions Act provides that the preserved benefit must be revalued during the period between leaving service and normal retirement age (to protect in part against inflation).

20 In what circumstances may members transfer their benefits to another pension scheme?

Where a member leaves an occupational pension scheme with a preserved benefit, they are entitled to move the value of their benefit to their new employer's pension scheme or, in certain circumstances, to an overseas pension scheme.

In a defined contribution scheme, the amount paid will be the value of the member's individual retirement account, less any expenses provided for by the scheme rules. In a defined benefit scheme a value is placed on the benefit payable using a standard calculation basis. This value may be reduced where, at the time of the transfer, the occupational pension scheme from which it is being paid fails to meet the minimum funding standard as set out in the Pensions Act.

Where a transfer payment is being made, Revenue requires that it should relate to the whole of the employee's benefits; split transfers are not permitted.

21 Who is responsible for the investment of plan funds and the sufficiency of investment returns?

Generally, these are trustee responsibilities. The trust documentation governing a scheme will usually contain a wide investment power with respect to the investment of scheme assets. The principles of trust law require a trustee to invest with the care of an ordinary prudent person. This requirement is mirrored in section 59 of the Pensions Act, which provides that the trustees of a pension scheme are responsible for the 'proper investment' of the scheme's funds. In addition, trustees must also invest the contributions remitted by the employer within the specified time limit under this section. Legislation also provides that scheme trustees (or at least one of them) must possess certain qualifications and experience in relation to investments, or else appoint an investment manager to satisfy the necessary requirements. It is therefore common for trustees to appoint an external investment manager to manage the investment of scheme assets.

22 Can plan benefits be enhanced for certain groups of employees in connection with a voluntary or involuntary reduction in workforce programme?

The provisions of an occupational pension scheme may provide for enhanced benefits to be paid on a voluntary or involuntary reduction in workforce programme; however, this would be relatively unusual in the private sector. Examples of this type of enhancement could include the normal actuarial reduction factor applied for early payment being waived or reduced or the scheme providing a 'bridging pension' payable from redundancy until the member's normal retirement date.

In the past, employers operating defined benefit schemes may have used the augmentation provisions in their scheme to allow for enhanced benefits to be paid on redundancy, thus assisting with the cost of a redundancy programme. As most defined benefit schemes operated in Ireland are currently in deficit, the trustees of such schemes would now be likely to require the employer to pre-fund any such augmentation so as to avoid the funding position of the scheme being worsened.

23 Are non-broad based plans permitted and what types of benefits do they typically provide?

Non-broad based or executive schemes are permitted. Larger organisations generally operate an executive scheme (if any) either as a section of the main occupational pension scheme for staff (providing a higher level of benefit) or a stand-alone occupational pension scheme. Enhanced benefits such as higher contribution rates (defined contribution) or better accrual rates (defined benefit) may be provided.

For smaller organisations such schemes are often established as small (generally fewer than 12 members) self-administered schemes. One of the main attractions of such schemes is the level of control the beneficiary can exercise over the investment policy of the scheme.

The maximum allowable benefits from a Revenue perspective are no different to those generally applicable to non-executives except where the executive is also a 20 per cent director. A 20 per cent director is one who is or becomes the beneficial owner of shares that carry more than 20 per cent of the voting rights in the company providing the benefits or in a company which controls that company (rules exist around the calculation of the amount of votes held).

A number of restrictions apply to small self-administered schemes which do not apply to occupational pension schemes generally. These restrictions aim to ensure that the scheme is not misused for tax purposes and relate to matters including:

• the appointment of an independent trustee (known as a Pensioneer Trustee);
• the investment powers of the scheme; and
• the provision of information to Revenue.

24 How do the legal requirements for non-broad based plans differ from the requirements that apply to broad-based plans?

As already outlined, certain restrictions apply to small selfadministered schemes. Otherwise there are no particular legal requirements that apply to non-broad based schemes.

25 How do retirement benefits provided to employees in a trade union differ from those provided to non-unionised employees?

Retirement benefits are provided to employees in a trade union in the same manner as they are provided to non-trade union employees.

Collective agreements with employers sometimes reference pensions. Where this occurs, employers will need to ascertain whether the collective agreement bestows a contractual right on employees covered by the agreement to certain pension benefits.

26 How do the legal requirements for trade-union-sponsored arrangements differ from the requirements that apply to other broadbased arrangements?

Trade unions in Ireland do not sponsor pension arrangements other than any arrangements for their own employees. There are no particular legal requirements that apply to trade union-sponsored arrangements.

Enforcement

27 What is the process for plan regulators to examine a plan for periodic legal compliance?

One of the functions of the Pensions Board is to monitor and supervise the operation of the Pensions Act, which includes investigating compliance by pension scheme trustees with the provisions of the Pensions Act.

The Pensions Board is empowered to carry out an audit of an occupational pension scheme. This involves the Board issuing a written request to the scheme trustees to furnish copies of the documentation that must be provided or made available to scheme members. The Board then audits the documentation received against the detailed requirements of the legislation to gauge the level of compliance. Usually, the Board notifies the trustees of any areas of non-compliance so that they can be rectified; however, where the non-compliance is of a serious nature or there is evidence of a history of non-compliance the Board may initiate prosecution proceedings against the trustees.

28 What sanctions will employers face if plans are not legally compliant?

There are a number of bodies that may impose sanctions on employers if schemes are not legally compliant. It should be noted, however, that pensions regulation is primarily focused on trustees and few obligations are imposed directly on employers.

The Pensions Board has power under the Pensions Act to prosecute breaches of that Act. The Board can also issue fine notices requiring the offender to remedy an offence within 21 days as an alternative to an immediate prosecution under the Act. The fine for each offence is €2,000. On-the-spot fines apply to a range of lesser offences, which from an employer's perspective include a failure to respond to requests for information from the Pensions Board and a failure by employers to advise employees of pension or PRSA deductions.

Revenue has the power to withdraw approval of a scheme if it is found to be operating outside its requirements. An unacceptable amendment to a scheme will cause approval to lapse automatically. Approval may also be withdrawn for payment of excessive or unauthorised benefits, for failure to furnish information or to meet the scheme's tax liabilities, unacceptable investments or serious breaches of the scheme rules. This will have a significant impact on the scheme as it can no longer obtain certain tax exemptions available to an exempt approved scheme.

29 How can employers correct errors in plan documentation or administration in advance of a review by governing agencies?

In Ireland, sponsoring employers have limited responsibilities with respect to scheme documentation or administration. Where there are errors in scheme documentation or administration, these will usually fall to be resolved by the scheme trustees. A deed of amendment (usually executed by the employer and the trustees) is required to correct errors in the trust documentation governing a scheme.

30 What disclosures must be provided to the authorities in connection with plan administration?

The Pensions Act provides for the disclosure of specified information by trustees of occupational pension schemes. The Occupational Pension Scheme (Disclosure of Information) Regulations 2006–2013 are supplemental to the Act and set out the detailed requirements in respect of the information to be provided.

In respect of each scheme year, the trustees of schemes must arrange for actuarial valuations, valuation reports, annual audited accounts, annual reports and, where appropriate, an annual actuarial data return to be prepared and made available, subject to certain exceptions and alternatives. In addition, the Board may request the trustees or the employer to furnish such information as it may require by notice in a written request. Trustees are also obliged to ensure that the information maintained by the Pensions Board in relation to their scheme is up to date.

The Revenue Commissioners also require the disclosure of certain information in respect of occupational pension schemes. Copies of all material amendments to pension schemes must be submitted to Revenue for approval. The Taxes Consolidation Act 1997 obliges the scheme administrator to furnish to the Inspector of Taxes any information and particulars as the Inspector considers relevant. All schemes are required by Revenue to maintain up-to-date records so that information regarding contributions and benefits is available for audit purposes.

31 What disclosures must be provided to plan participants?

Detailed legislation governs the disclosure of information in respect of occupational pension schemes and the law is set out in Part V of the Pensions Act and in the Occupational Pension Schemes (Disclosure of Information) Regulations 2006–2013.

Trustees are required to ensure that the necessary arrangements are in place for the disclosure to members of details about the constitution and rules of the scheme. Trustees must also disclose certain basic information about the scheme to members, including details of their benefit entitlements under the scheme. On the occurrence of certain events, such as the winding up of the scheme, the application of pension adjustment orders or where a member leaves service, additional information may be required to be provided to members.

32 What means are available to plan participants to enforce their rights under pension and retirement plans?

The trustees of every occupational pension scheme are required to establish an internal dispute resolution (IDR) procedure. The matters that must be covered under an IDR are similar to those in respect of which the Pensions Ombudsman has jurisdiction. The determination under an IDR must be made by the scheme trustees. In the majority of cases, the individual must exhaust the scheme's IDR before making a complaint to the Office of the Pensions Ombudsman.

Where a member is dissatisfied with the outcome of their scheme's IDR, it is open to him to take a complaint to the Pensions Ombudsman. Where the Pensions Ombudsman investigates a matter referred to him, he issues a written determination to the parties involved. In his determination he can give direction to the parties concerned or order financial or non-financial redress. Any financial redress ordered cannot exceed the actual loss of benefit.

The Pensions Board has powers under section 18 of the Pensions Act to carry out investigations into the state and conduct of schemes. Such investigations may be initiated when complaints are received from members. An investigation could result in a Pensions Board prosecution.

Individuals may also initiate proceedings in the courts where they have suffered a loss as a result of, for example, a breach of trust by the scheme trustees.

Plan changes and termination

33 What restrictions and requirements exist with respect to an employer's changing the terms of a plan?

Where an employer wishes to amend the terms of an occupational pension scheme it will need to examine both the terms of the trust documentation and the members' contracts of employment.

The trust documentation will almost invariably contain a power of amendment, usually exercisable by the employer with the consent of the scheme trustees. The amendment power itself may be limited. It is generally accepted that the amendment power cannot itself be amended in the absence of clear language permitting such amendment. As trustees are obliged to act at all times in the best (financial) interests of scheme members, employers should be conscious that scheme trustees may resist certain amendments to the terms of a scheme.

With respect to members' contracts of employment, employers should be conscious that even where amending the terms of the scheme is possible, and the scheme trustees are agreeable to such amendment a member may have a contractual right (whether express or implied) to a certain level or type of benefits. Where this is the case, the employer will need to consider whether amending the terms of a plan will result in a breach of the member's contractual rights.

34 What restrictions and requirements exist with respect to an employer terminating a plan?

There are no statutory restrictions on an employer terminating a pension scheme operated for employees.

It is usual for the sponsoring employer to reserve itself the right to terminate the pension scheme either in certain defined circumstances or generally. The pension scheme documentation may also provide for the scheme to be terminated on the bankruptcy or insolvency of the employer or where the employer fails to make the contributions due to the scheme over a specified period. Where the sponsoring employer wishes to terminate the scheme, the trust documentation may provide for the employer to give advance notice to the trustees of its intention to cease to pay contributions to the scheme. The employer will remain liable to pay contributions to the scheme during the notice period.

Although the sponsoring employer of a pension scheme is not considered to be a fiduciary and therefore is entitled to act in its own interests, it is subject to an implied duty of good faith to its employees. This requires that the employer does not act so as to damage the relationship of trust and confidence existing between it and its employees.

35 What protections are in place for plan benefits in the event of employer insolvency?

In the event of employer insolvency, there are a number of safeguards in place to protect members' benefits.

The Pensions Insolvency Payment Scheme (PIPS) is an exchequerfunded scheme offering special payments in cases where a defined benefit pension scheme is winding up in deficit and the sponsoring employer is also insolvent.

Under PIPS, trustees of a pension scheme pay the government the available scheme assets. On receipt of the capital sum, the government will take responsibility for the future payment of pensions to the beneficiaries covered by the scheme at the rate agreed. PIPS expressly excludes the payment of post-retirement pension increases.

The Protection of Employees (Employers' Insolvency) Act 1984 also provides for payments to be made out of the Social Insurance Fund in respect of unpaid contributions where a sponsoring employer is insolvent and had failed to make contributions to a pension scheme on its own behalf or fails to remit contributions deducted from employees' pay due to liquidation or receivership.

36 How are retirement benefits affected if the employer is acquired?

This will largely depend on the rules of the relevant pension scheme and whether the transaction is effected by way of a sale and purchase of shares or a sale and purchase of a business.

Where there is a share purchase any scheme operated by the target company will usually continue as normal with no effect on the retirement benefits of affected employees. Where the target company participates in a group scheme operated by another group entity, the acquisition of the target, depending on the rules of the relevant scheme, may result in issues arising around funding and preservation of benefits that require additional consideration and management.

In terms of an asset purchase arrangement, the provisions of the European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003 (the TUPE Regs) may result in employees' retirement benefits being affected where the business of their employer is acquired. The effect of the TUPE Regs, in brief, is to transfer the rights and obligations arising from the contracts of employment existing between the vendor and its employees at the time of the transaction from the vendor to the purchaser. The TUPE Regs contain a 'pensions exclusion' which provides that the transfer of rights and obligations effected by the TUPE Regs shall not apply to employees' rights to old-age, invalidity and survivors' benefits under supplementary company or inter-company pension schemes. With limited exceptions, this 'pensions exclusion' means that the purchaser in an asset purchase situation is not obliged to recreate the affected employees' pension arrangements following the transfer.

37 Upon plan termination, how can any surplus amounts be utilised?

As the liabilities of a defined contribution scheme will usually equate to the total fund of the scheme, the issue of distribution of a surplus on a scheme termination generally only arises in the context of a defined benefit scheme. The term 'surplus' is not defined in the Pensions Act. Where a scheme is wound up, any assets of the scheme remaining after the liabilities of the scheme have been discharged is generally referred to as a 'surplus'.

Whether or not an employer can recover any surplus that exists after benefits have been secured will depend on the rules of the scheme. The trust deed will almost always contain provisions directing the trustees as to how the fund of the scheme must be applied on wind up. These provisions will often allow trustees (with or without the consent of the principal employer) the discretion to augment basic benefits out of any surplus that arises after benefits have been secured. Revenue requires that scheme rules provide that any ultimate surplus that remains after benefits (including additional benefits within Revenue limits) have been paid must be returned to the employer in whose hands it is liable for tax.

Fiduciary responsibilities

38 Which persons and entities are 'fiduciaries'?

The trustees of a pension scheme are fiduciaries to scheme members and are principally responsible for the management and administration of the pension scheme. The sponsoring employer is not considered to be a fiduciary to scheme members.

39 What duties apply to fiduciaries?

Trustees have a basic obligation to carry out the trust in accordance with all applicable laws, the terms of the trust deed and rules and in the best interests of the beneficiaries. As the fundamental purpose of the trust is to provide retirement benefits, the best interests of the beneficiaries means their best financial interests.

40 What are the consequences of fiduciaries' failing to discharge their duties?

Failure to discharge their fiduciary duties may result in trustees being charged will a breach of trust, for which they may be personally liable.

All trustees are individually and collectively liable for any breach of trust. If a breach of trust results in a loss to the trust fund then the trustees will be obliged to restore the trust to the position it was in before the breach occurred.

Trustees may avoid liability for breach of trust in certain circumstances. For example, trustees may rely on the protection afforded by any relevant statutory provisions or by an exclusion clause or indemnity clause contained in the trust deed. These provisions are common in trust deeds.

Legal developments and trends

41 Have there been legal challenges when certain types of plans are converted to different types of plan?

We are not aware of any legal challenge due to the conversion of scheme types to date.

42 Have there been legal challenges to other aspects of plan design and administration?

We are not aware of any legal challenges to other aspects of scheme design and administration. Members commonly raise issues in this regard through the scheme IDR procedure or through the Office of the Pensions Ombudsman.

43 How will funding shortfalls, changing worker demographics and future legislation likely affect private pensions in the future?

Many defined benefit pension schemes in Ireland are currently underfunded. This has led to widespread benefit restructuring. Many defined benefit schemes have been closed (either to future accrual or completely) and the trend is towards defined contribution pension scheme provision.

With respect to future legislation, it has been announced that a universal, defined contribution-based pension scheme is to be introduced in Ireland over the coming years. Although we have very few details as yet as to what the scheme might look like, previous government announcements have indicated that employees (aged 22 or over) will automatically be enrolled unless they are a member of an employer's scheme providing equivalent benefits. Employees will be obliged to proactively opt out if they do not wish to participate. Employees will be required to make a fixed-rate contribution in conjunction with state and employer contributions. It is anticipated that the National Treasury Management Agency will supervise the scheme and the state will not have access to the fund.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.