In our latest podcast, Deirdre Cummins, Of Counsel in our Pensions Group, is joined by colleagues Daniel Watters and Sarah McCague to delve into key updates in Irish pensions law.
From "DORA Day" to the upcoming implementation of auto-enrolment and key case law on retirement age, this conversation unpacks the challenges trustees and employers face, offering practical advice to stay compliant in this evolving regulatory landscape.
AC Audio · Pensions Podcast – Navigating Developments in Irish Pensions Law
Navigating Developments in Irish Pensions Law Podcast Transcript
Deirdre Cummins
Hello, my name is Deirdre Cummins, and I'm an Of Counsel in the
Pensions Group in Arthur Cox. I'm joined today by my colleagues
Daniel and Sarah.
Daniel Watters
I'm Daniel Watters, a partner in the Pensions Group.
Sarah McCague
And I'm Sarah McCague, a partner in the Pensions Group.
Deirdre Cummins
And we're here today to talk about some recent and upcoming
developments in Irish Pensions Law. Sarah, I'm going to start
with you, if I can. "DORA Day", or the deadline for
compliance with DORA was the 17th of January so DORA Compliance is
on every trustee agenda at the moment. Could you give us a brief
overview of DORA and why it's particularly relevant to pension
schemes?
Sarah McCague
Yeah, no problem. So DORA, as you know is the Digital Operational
Resilience Act. It is a European regulation that applies to IORPs,
which are effectively occupational pension schemes. As you said,
17th of January was the Introduction Day, "DORA Day" and
it applies to all occupational pension schemes that have 100 or
more members. Now, there are some simplified provisions for schemes
that have between 16 and 99 members and in fact, if you've less
than 15 members, it doesn't apply at all, which is good news
for smaller schemes.
Deirdre Cummins
Absolutely.
Sarah McCague
There's a lot of moving parts still happening in relation to
DORA but the messaging that we're getting from the Central Bank
of Ireland, from the Pensions Authority, is get your plan of action
in place, get your roadmap out there, and start taking as many
actions as you can so what we're advising clients on at the
moment is probably five or six key actions that they need to take.
The first is looking at their service providers, their outsource
providers, who amongst them are providing ICT services to the
trustees. The next thing then is if you've discovered that
someone is providing you with ICT services, issue them with a
questionnaire, and that asks them well, what are you doing?How are
you doing it? What protections have you got in place? Do you have
business continuity plans? All those kinds of things. Then the next
step with those third-party providers is to put in place terms and
conditions that comply with DORA. Then on the trustee side of
things, it's putting in place another policy off the back of
all the IORP policies, but putting in place another policy this
time in relation to DORA, business continuity plan, what happens if
there is an incident and you need to also, as part of that, appoint
an individual from a trustee perspective to be your DORA contact
person and then the final step, and this has been pushed down the
line a little bit, is that there is going to have to be a register
of ICT providers submitted to the Pensions Authority. Now, we
thought that was going to be on the 17th of January, but actually
the date has been pushed out to the beginning of April, so watch
this space but it's interesting, we're seeing a lot more
information come out from the Pensions Authority on this.
They've got their own microsite available on their website and
most recently, they've put up a portal now that trustees can
report major cyber incidents to the Pensions Authority so
there's definitely movement in this area from a Pensions
Authority perspective.
Deirdre Cummins
Okay, that is good to know but just listening to you there, I mean,
there's an awful lot in this, really, isn't there? And Dan,
I suppose, turning to you, could you set out or elaborate on what
Sarah has said and tell us about the key legal challenges because
it's pension schemes and their service providers in
complying?
Daniel Watters
Yeah, and that's one of the key questions that we've been
working with trustee boards on is which of their service providers
are ICT, third-party service providers for the purposes of DORA so
if we take a step back and look at DORA, it is aimed at the banking
sector but as Sarah has said, IORPs and pension schemes are caught
but for most trustee boards, they really outsource an awful lot of
what they do to third-party providers so it's really sitting
down and looking at your service providers and seeing which of them
fall within that definition. There is a definition of ICT,
third-party service provider under DORA, but it is very broadly
drafted. There's two key developments I'd mention in terms
of grappling with that definition. The first is that the
Association of Pension Lawyers in Ireland have met to discuss which
providers through a pension scheme fall within that definition and
to the extent that a consensus was reached, I think most were
comfortable that the administrators are generally caught. As for
other service providers, pros and cons were developed and a
submission was made to the Pensions Authority, so we're hopeful
to get more guidance on that. We also see guidance continue to come
from the European Supervisory Authorities so really, the key
message to trustees is to do exactly as Sarah said and really start
to sit down, look at your service providers, map them out, engage
with your legal advisors, and try to come to terms of which of
those providers may be in scope, and continue to watch out for that
guidance as it emerges.
Deirdre Cummins
Okay so a lot may be done, but a lot more to do, and it's going
to continue into the future for quite a while, I think, to come.
Okay, I think I might leave that there then. I'm going to turn
to auto-enrolment, Sarah, very quickly. I don't think we should
spend a huge amount of time on it. It's on the books. It's
due to come in in September this year. Hopefully, most employers
now are in implementation stage but are you seeing difficult
questions or tricky legal problems come up from employers when
they're trying to think about or implement
auto-enrolment?
Sarah McCague
Yeah. I suppose the main thing we're assisting employers with
at the moment is trying to make that decision on whether or not
they want to engage with 'My Future Fund', as it's been
called, or the auto-enrolment system. So a lot of employers in
Ireland have occupational pension schemes, they have PRSAs. The
question is, do you want to stick with that private pension
provision, or do you want to go into the auto-enrolment system? I
have to say, when we started talking about auto-enrolment, I
thought they were two very separate arrangements but the more I
talk to employers and clients, I do think a lot of people are going
to end up in the space of being involved a little bit in both. What
clients are doing really is they're looking at the cohorts of
employees they have. So they're looking at existing employees
and they're looking at new hires. The main reason for that is
the contractual basis. If you have contracts in place with existing
employees, you can't compel them into pension schemes unless
that's a provision in that contract of employment already so
that may be slightly more difficult to address. With new hires,
you've got free range, you're writing a new contract. If
you want them in your occupational pension scheme, you write that
into your contract so then looking at the existing employees, there
could be various reasons why your employees aren't all in your
existing occupational pension scheme. People may have decided to
opt out for personal financial reasons, they may have reached the
standard fund threshold already and decided they don't want in.
They may be seasonal workers, they may be interns, they may be
students in there. All those tricky cohorts are starting now to
come out in the wash as people are engaging more with
auto-enrolment so really What we're seeing people do at this
stage is take a step back, say, what pension provision have we got
already? Do we want to get involved with auto-enrolment? Do we want
to try and avoid it by using our private pension schemes to give
people that opportunity to save into their retirement and then
start to take advice in relation to those options. The one thing I
would say to people is 30th of September is the date that we're
anticipating this coming in, that's on the statute book but
there is a 13 week lookback period in the legislation in relation
to whether or not somebody is a member of a pension scheme. So
we're saying to clients, start looking now, and realistically
by June or July, you need to have your plan of action in place and
start implementing it.
Deirdre Cummins
Because if not, potentially the lookback period will catch you out
on the other side.
Sarah McCague
Exactly.
Deirdre Cummins
Okay. We might not say much more maybe about that because we have a
microsite on our Arthur Cox website with all the information. I
think we've done quite a lot of work on that so far. So
there's a lot of information on the Arthur Cox website in
relation to that. We might just watch this as it develops because
there are going to be movements and changes over the course of the
next few months.
Sarah McCague
Absolutely and we'll continue to update that microsite if
things happen.
Deirdre Cummins
Yeah, I think we'll leave that there. I'm going to turn
back to you now, Dan, and talk to you about state pension age,
because there has been a lot of discussion and debate around it in
recent years, and I think it's settled. I think it's safe
to say that it's settled now at 66 but we do know from what
we're seeing on the desks that a lot of employers still have an
NRD or a normal retirement date of 65, and retirement policies that
still focus on 65. What are you seeing in circumstances where
employees now want to work to state pension age, or maybe a bit
beyond that, and how are employers dealing with that?
Daniel Watters
Yeah, so this has been a very topical area in recent years, and in
particular, we saw a huge amount of focus on it at the last general
election where it was being brought up on doors. Slightly less so
at the most recent general election, but from a practise
perspective, it's very much still at the forefront of the minds
of employers and trustee boards that we're advising and I
suppose I'd create a distinction between the public sector and
the private sector on this topic. The public sector are a little
bit ahead of the curve in that most public sector workers already
can continue to work to age 66. In fact, most public sector workers
can go to age 70, and more importantly, can continue to accrue
pension benefits up until that age. So they're a little bit
ahead of the curve. We also saw last year a case go to the Supreme
Court in the case of Mallon and the Minister for Justice, where an
employee sought to challenge on an age discrimination basis a
mandatory retirement age of 70. Now, ultimately, the Supreme Court
dismissed that claim and held that you do have to look at each
mandatory retirement age on a case-by-case basis, but provided that
mandatory retirement age is appropriate and necessary, it won't
offend the age discrimination principle. The private sector is in a
slightly different place to the public sector but again, we did see
some legislative movement on this last year. The government
published a heads of terms for a Mandatory Retirement Ages Bill,
which would effectively give private sector workers the the right
to continue to work to state pension age, but it wouldn't
compel them to do so. Now, that piece of legislation is back on the
legislative agenda with the new government after being formed, but
we're already seeing some employers come to us and query this
and try to get ahead of that legislation. They're looking at
their retirement policies and their contracts of employment and
looking at whether they want to make changes to those.
Deirdre Cummins
Okay, so I think what you're saying to me there is it is okay
to have a retirement age, but you need to justify it and make sure
it's appropriate. So it would have been interesting if Mr.
Mallon had challenged maybe a retirement age of 65.
Daniel Watters
Yeah, I think that would have been a very interesting case and I
suspect in time we will see that case come because not every
employer is going to move on that mandatory retirement stage of 65
and some employers will deem 65 to be appropriate and necessary so
it remains to be seen.
Deirdre Cummins
Okay, so watch this space.
Daniel Watters
Exactly.
Deirdre Cummins
Okay, okay. So I guess what else is happening? What, Sarah, would
you tell us to keep an eye on for 2025?
Sarah McCague
Well, I think one area that's of particular interest at the
moment is to defined benefit schemes and the bounce they're
having in funding at the moment. So we're seeing the vast
majority of schemes being in surplus at the moment and that
ironically enough, is creating its own quality problems in terms of
what to do with that surplus. So there's two things we're
seeing at the moment. The first is an increase in liability
management exercises. So that could be buy-ins, buy-outs, TV, less
so pension increase exchange exercises. But nonetheless, trustees
looking at the surplus they have there, taking the driver, the
steer from the Pensions Authority, who indicated that in most
cases, trustees should be looking towards the end game in relation
to defined benefit schemes and wondering how they might use that
surplus within the scheme. The second limb of that then is maybe a
nod to what's happening across the water in the UK, where
they're looking at introducing new legislation to extract
surplus from defined benefit schemes. They see it as being trapped
within schemes and that it could potentially be used to fuel the
economy, to fuel businesses, and potentially increase member
benefits as well. We are seeing a lot of questions come in around
wind up, use of surplus by trustees, but also return of surplus to
employers. That in and of itself is creating its own discussions, I
suppose. Then almost on the absolute flip side of that, we've
had a recent case from the WRC, the Workplace Relations Commission,
in relation to Pro-Tim Abrasives, who went into liquidation in
2009, so a long time ago. When they went into liquidation, there
was actually a deficit in their pension scheme, so 2.84 million of
a deficit. The WRC has recently issued a ruling to indicate that
the trustees can seek that 2.84 million from the Pensions
Insolvency Payments Scheme. So a hole in a pension scheme that now
is going to be met under 1984 legislation, Protection of Employees
Insolvency Act and this is effectively the state fund that has been
set up in order to meet payments that were outstanding in relation
to pension schemes prior to their being wound up. But I don't
think any of us thought that it would go so far as to cover lump
sum deficit payments of this nature. The Department of enterprise
Trade and Employment has gone away to think about the legal
consequences of that WRC ruling. I think it's one of those
watch this space type things again. We've had hints before of
debt on the employer or things like that being introduced in
Ireland. We had a slew of private member bills back in around, I
think, 2010, 2011. It just shows that even when things are doing
well and we've surplus in DB schemes, that piece never really
goes away.
Deirdre Cummins
Okay, well, that's a lot, isn't it? And what would you say,
Dan, if I asked you?
Daniel Watters
Well, I suppose there's two key developments that have been
really changing over the last couple of years and are going to
continue to change in the years to come. The first one is around
PRSAs, so personal retirement savings accounts. Historically, PRSAs
weren't a very attractive product for high earners or employers
who wanted to make very substantial contributions on behalf of
their employees. The reason for that being is that both employee
and employer contributions were aggregated together when
considering tax relief limits on contributions. However, we saw
that change in around 2022, and effectively, the limit on employer
contribution, the tax relief on employer contributions to PRSAs was
effectively removed. The only real limit was the standard fund
threshold so €2 million. So effectively, overnight, an
employer could put in 2 million to a PRSA for their employee. So
they became a very attractive product for higher earners and for
employers who wanted to make substantial contributions for their
employees. We've seen the goalpost change yet again with effect
from the first of January of this year, and now a cap has been
placed on the tax relief that can apply to an employer contribution
to a PRSA, and that is now set at the annual earnings of the
employee.
Daniel Watters
So it's really one to watch out there for anybody who took out
a PRSA to avail of that more free reign on the employer
contribution during the period 2022 up to the end of last
year.
Deirdre Cummins
Yes, that's a very significant change back, isn't it?
Daniel Watters
Absolutely. Yeah. And then the other one I'd mention is the
changes to the standard fund threshold. So again, this is an area
that we're going to see quite a bit of change on over the
coming years. And this is all on foot of a report prepared by an
independent expert, Dr. Donal de Buitleir and on foot of that,
legislative change has been put on the statute books, which means
that the standard fund threshold, currently set at €2 million,
will change over the coming years. Now, it is set at €2
million for the last 10 years. But with effect from next year,
we're going to see it increase incrementally by €200,000
each year up to 2029, at which point it will be at €2.8
million. And thereafter, it's going to continue continued to
increase in line with changes in CPI. From a practise perspective,
we're already seeing some disputes from members in respect of
this, particularly those employees who would have left service
early with an SFT liability and claiming that had they known this
change was coming down the tracks, they could have remained on in
service and availed of the higher limit. It's one for employer
and trustees to be mindful of.
Deirdre Cummins
So they feel they missed the boat kind of thing? Okay, thank you.
Clearly, it's a very busy time. We could probably talk and talk
and talk, but we might leave it there for today. If you have any
questions in relation to anything we've discussed, please do
get in touch.
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.
