This Spring update from our Pensions Group covers topical issues in pensions law, including the latest news on automatic enrolment, a reminder of upcoming IORP II compliance deadlines, the implications of recent changes to the State Pension regime and recent legislative and Pensions Authority updates.

Automatic Enrolment

As this Update was going to press, the draft legislation to introduce an automatic enrolment pension system in Ireland (the Automatic Enrolment Retirement Savings System Bill (the "AE Bill")) received Cabinet approval.

The introduction of automatic enrolment has been on the cards in Ireland since 2006, when the then Minister for Social and Family Affairs first published proposals on the matter. However, the Cabinet approval of the AE Bill suggests that the implementation of automatic enrolment will pick up significant pace over the coming months, with the AE Bill expected to shortly begin its passage through the Oireachtas and the Minister for Social Protection understood to be targeting a 1 January 2025 launch date for the automatic enrolment system.

To keep up to date, you can subscribe to our mailing list here. Once you have signed up you will receive updates from the Arthur Cox Pensions Team on any developments on the roll out of the automatic enrolment system over the course of this year.

IORP II compliance deadlines

Completion of Own-Risk Assessments and critical reviews

Trustees are reminded that Own-Risk Assessments ("ORAs") are due to be completed by 22 April 2024. This is in conjunction with the critical reviews of both investment services and administration services which trustees are expected to conduct by April 2024, as required by the Pensions Authority (the "Authority") Code of Practice. Therefore, if plans are not already in hand, they should be progressed promptly.

A summary of the Authority's guidance for trustees on conducting ORAs was set out in our Winter Update here and further information is available on the Authority's website.

If you would like our advice or assistance in completing an ORA or critical review, please get in contact with us.

State Pension

Following the enactment of the Social Welfare (Miscellaneous Provisions) Act 2023, with effect from 1 January 2024, an employee can choose to start claiming their State Pension (Contributory) anytime between the ages of 66 and 70. If an employee chooses to defer their State Pension beyond age 66, they can continue to work and make PRSI contributions to increase their personal rate of payment.

The impact of the change to the State Pension regime on occupational pension schemes turns on the precise language used in the provisions relating to calculation and payment of benefits which are linked to the State Pension. For example, a State Pension offset calculated by reference to the date on which payment of the State Pension commences may now potentially differ from member to member, whereas if a State Pension offset is calculated by reference to the date on which a member becomes first eligible for payment of a State Pension there may be no change. Similarly, a supplementary pension (also known as a bridging pension) may be payable until the age at which the State Pension commences to be payable, which may now be as late as age 70 under the new legislation. In addition, the treatment and calculation of any State Pension offset in the event of late retirement may require clarifying amendments to avoid uncertainty in the application of late retirement factors and the correct determination of the amounts of State Pension to be included in a State Pension offset in these circumstances.

Employers and trustees should review their scheme rules to assess whether scheme amendments are required to address the changes to the State Pension on foot of the deferral options brought about by the Social Welfare (Miscellaneous Provisions) Act 2023.

Legislative updates

Finance (No. 2) Act 2023

Following the Budget, the Finance (No.2) Act 2023 was enacted on 18 December 2023. A summary of the provisions of the Act relevant to pensions was set out in our Winter Update.

Employment (Restriction of Certain Mandatory Retirement Ages) Bill 2024

On 6 March 2024, the Government published the General Scheme of the Employment (Restriction of Certain Mandatory Retirement Ages) Bill 2024. The Bill has been prepared in response to recommendations from the Pensions Commission and is intended to introduce measures which allow, but do not compel, an employee to stay in employment until they can access the State Pension. A summary of the General Scheme of the Bill from our Employment team is available here.

Financial Services and Pensions Ombudsman (Amendment) Bill 2023

On 19 December 2023, the Government published the Financial Services and Pensions Ombudsman (Amendment) Bill 2023 (the "FSPO Bill"). The main purpose of the FSPO Bill is to amend the legislation underpinning the Financial Services and Pensions Ombudsman (the "FSPO") in light of the decision of the Supreme Court in the Zalewski case.

In order to align the practices of the FSPO with the decision in Zalewski, the FSPO Bill introduces the following main changes to FSPO proceedings:

  • enabling the FSPO to hold oral hearings in public where the "interests of justice" require and following consultation with the parties to the complaint;
  • allowing individuals appearing before the FSPO to be cross-examined (on oath or affirmation); and
  • introducing a new offence where an individual gives evidence on oath or affirmation that they know to be false.

The FSPO Bill also confirms that the services and protections currently afforded to consumers by the FSPO extend to financial service and pension providers who no longer operate in the Irish market.

Occupational Pension Schemes (Fees) (Amendment) Regulations 2023

On 20 December 2023, the Occupational Pension Schemes (Fees) (Amendment) Regulations 2023 (the "Fee Regulations") were introduced by the Minister for Social Protection.

The Fee Regulations alter the method of calculating the fees payable to the Authority for pension schemes with 20 or more participating employers on 31 December in the preceding calendar year, so are likely to be of most relevance to master trusts. Previously the fees payable by such schemes were calculated on the basis of the number of active members in the scheme on the commencement date of the scheme year preceding the year of account. Following the introduction of the Fee Regulations, the fees payable must be calculated on the basis of the number of active members in the scheme on 31 December of the scheme year preceding the year of account.

There is no change to the Authority's fee rates for the 2024 year of account.

Pensions Authority updates

Authority publishes information on supervisory review process

On 6 December 2023, the Authority published information on the supervisory review process ("SRP") that it is required to conduct under section 26J of the Pensions Act 1990, following the transposition of the IORP II Directive.

Where a scheme is selected for review as part of the SRP, the review will consist of an assessment by the Authority of the scheme's system of governance, the risks that the scheme faces and the ability of the scheme to manage those risks.

The SRP programme will commence in 2024, with the Authority focusing on master trusts and large defined benefit schemes. The schemes selected for the SRP in 2024 will be notified early this year and will be provided with information on the SRP process in advance.

Authority publishes engagement and audit finding report for 2023

On 18 December 2023, the Authority published its Engagement and Audit Findings Report (the "Report") for 2023. The Report set out the Authority's observations from its engagement and audit activity in 2023.

The Authority's engagement activity included face-to-face meetings with the 17 Master Trusts ("MTs") registered with the Authority (including six new MTs established in late 2022 or in 2023) and a number of large DB schemes. The Authority also conducted a series of compliance audits across a range of DB and DC schemes. However, the Authority expects all pension scheme trustees to consider its observations and use them as a basis for evaluating their own practices and make improvements where necessary.

Some of the Authority's key observations were as follows:

  • Administrative capacity: the Authority highlighted a growing problem with administrative capacity, due to the mass transition of pension schemes into MTs – the issue of administrators disclosing information to members outside of timeframes set out in trustee-administrator SLAs was expressly referenced. The Authority expects MT trustees to satisfy themselves that their administration standards are fit for purpose and that where breaches of SLAs occur, the MT trustees take steps to enforce the relevant provisions and consider the breaches when conducting the administrator's annual and critical reviews.
  • Support for retiring members: the Authority noted that practices amongst MTs varied widely in relation to the information and supports available for members approaching retirement, with some MTs providing information to members three months before their retirement date, while others provided information several years in advance. The Authority noted that it expects to provide further information on its expectations in this area in 2024.
  • MT engagement with employers: The Authority found varying standards in place regarding MT practices around engagement with employers enrolled in their MTs. The Authority reminded MT trustees that the type and frequency of communications with employers must be documented in a formal written policy and that the Authority may look for documented evidence of compliance with such a policy in future.
  • Employer covenant: The Authority reminded DB schemes that regular engagement with their sponsoring employer(s) is required and that the Authority expects an evidence-based view of the strength of the sponsoring employer's covenant to the scheme to form a key component of trustees' ORA.
  • Appointment of KFHs: The Authority conducted sample audits across both DB and DC schemes in 2023 and found a significant proportion of schemes had not appointed KFHs (in most cases as they were in the process of winding-up) or had appointed KFHs but had not notified the Authority of the outsourcing of key functions. The Authority reminded trustees of their obligation to appoint KFHs and to notify the Authority of the outsourcing of a KFH appointment not later than four weeks following the making of that appointment and before the appointment enters into force.

In its conclusion to the Report, the Authority reiterated that all IORP II-driven transitions into MTs and PRSA arrangements should have been completed by the end of 2023. If a scheme has not completed its transition by this deadline, the Authority expects to see that the trustees have a clear plan and timeline in place to complete scheme wind-up. Failure to evidence such a plan may result in enforcement action.

Department of Finance – Review of the Standard Fund Threshold

The Standard Fund Threshold ("SFT") sets the maximum total capital value for a tax-relieved pension at retirement and is currently set at €2 million. On 14 December 2023, the Minister for Finance announced the commencement of a targeted and focused examination of the SFT regime. The review will consider the role of the SFT in the current pension landscape, the current structure of the SFT and its potential impacts on recruitment and retention, as well as the rate at which the SFT should be set at. It is expected that the results will be presented to the Minister for Finance for consideration by summer 2024.

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.