Since our last update, the Occupational Pension Schemes (Funding Standard Reserve) Regulations, 2013 and the Financial Emergency Measures in the Public Interest Act, 2013 have come into force and the Social and Welfare and Pensions (Miscellaneous Provisions) Act, 2013 has been enacted. In addition, on 29 May last, the Minister for Social Protection made a public statement in relation to the calculation of transfer values. Further details on each of these are set out below.

THE OCCUPATIONAL PENSION SCHEMES (FUNDING STANDARD RESERVE) REGULATIONS, 2013 (THE "REGULATIONS")

The Regulations were brought into force on 27 May 2013 and reduce the amount of the risk reserve that must be held by defined benefit pension schemes from 15% to 10%. This means that schemes in respect of which funding proposals were submitted by the deadline of 30 June 2013 or at a future date, will only have to hold matching risk reserve assets up to 10% of their liabilities in order to satisfy the statutory minimum funding standard rather than the 15% previously required.

In addition, the Regulations expand on the type of assets that can be counted for the purposes of the risk reserve. These include bonds guaranteed by a Member State and bonds created and issued by the central bank of a Member State, bonds created by European entities (for example the European Bank for Reconstruction and Development) and by the International Monetary Fund. This is a welcome development as it enables schemes to avail of better priced bonds for inclusion in risk reserve calculations.

THE FINANCIAL EMERGENCY MEASURES IN THE PUBLIC INTEREST ACT, 2013 ("FEMPI 2013")

FEMPI 2013 gives effect to the Government's proposals to reduce the remuneration of certain public servants on rates of pay in excess of €65,000, it provides for a reduction in the amount of pension or other benefits payable to or in respect of certain public servants and provides for a suspension of incremental progression for three years for all public servants. The passing of FEMPI 2013 coincides with the publication of the Haddington Road Agreement which aims to reduce public expenditure, 35% of which relates to pay and pensions.

SOCIAL WELFARE AND PENSIONS (MISCELLANEOUS PROVISIONS) ACT, 2013 (THE "ACT")

WHAT'S IN THERE

The Act includes the following changes from a pensions perspective:

  • Pensions Board - the Act restructures the Pensions Board as the Pensions Authority with policy functions transferring to a new entity (the Pensions Council) and the role of the Authority being confined to a regulatory function. As part of this restructuring, the current Chief Executive of the Pensions Board will be known as the Pensions Regulator.
  • Additional Pensions Board powers - the Act gives new powers to the Pensions Board to wind-up a pension scheme in certain circumstances (this is seen as a measure of last resort) and provides for the disclosure of information on a proposal by the Pensions Board to restructure scheme benefits. An appeal lies to the High Court on a point of law against a direction from the Pensions Board to restructure a defined benefit pension scheme.

WHAT'S NOT IN THERE

Contrary to expectations, the Act does not contain any solutions to the problems faced by private occupational pension schemes in respect of the increase in the State pension age with effect from 1 January 2014. This means that pension schemes with bridging pensions and/or State pension offsets will need to carefully examine their trust deeds and rules to consider alternative solutions to any issues that arise and will need to take legal advice on the issues involved.

The prospect of a second Social Welfare and Pensions Bill in late autumn has been suggested by some industry participants but such Government pronouncements as there have been suggest that such a Bill is more likely to deal with the fallout from the Waterford Crystal case (see below) than with the consequences of a change to the State pension age.

NO CHANGE IN TRANSFER VALUE CALCULATIONS

The Minister for Social Protection announced on 29 May last that she will delay the introduction of proposed changes to the calculation of transfer values. The introduction of such changes would have had the effect of increasing schemes' liabilities on the minimum funding standard basis. It is not known when the change to the transfer value basis will now be introduced.

DEVELOPMENTS SINCE WATERFORD CRYSTAL JUDGMENT

As a result of the decision of the Court of Justice of the European Union in relation to the claims of ten former employees of Waterford Crystal, the Minister for Social Protection has made a number of public statements in relation to defined benefit pension schemes where the sponsoring employer is insolvent. These include an indication that a comprehensive policy and legislative review needs to be carried out.

Given the changes introduced by the UK government following the Robins case (and given the recent OECD report on the Irish pension system), it is anticipated that some form of debt on the employer regime (known as "section 75 debt" in the UK) or a UK Pension Protection Fund ("PPF") equivalent could be proposed by the Minister.

The debt on the employer regime creates a statutory debt calculated on a buy-out basis which can be recovered from any solvent company in the corporate group. Any proposed Irish version would need to take account of the power to reduce benefits in section 50 of the Pensions Act (or section 50 would need to be significantly altered or revoked).

The UK PPF provides compensation to members of eligible defined benefit pension schemes, when there is a qualifying insolvency event in relation to the employer and where there are insufficient assets in the pension scheme to cover the PPF level of benefits. The PPF is financed by compulsory annual levies charged on eligible (i.e. defined benefit) schemes. It is far from clear that there are sufficient Irish defined benefit schemes in existence to support a PPF type arrangement and the Government will no doubt need to consider other alternatives as well.

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.