Pensions and Employment LawPensions and Employment Law

Mary Hutch Head of Information and TrainingThe Pensions Board

1 June 2005

Ballymun Community Law Centre

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BACKGROUND TO LEGISLATION

Establishment of Advisory National Pensions Board in 1986

Examined position of occupational pension schemes and how they should be regulated

Proposed the introduction of the Pensions Act

Pensions Act, 1990 came into effect – 21 December 1990

Complements and re-affirms existing Trust Law

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BACKGROUND TO LEGISLATION

Pensions (Amendment) Act, 1996 became law on 2 July 1996

National Pensions Policy Initiative (NPPI)

Pensions (Amendment) Bill, 2001 published on 27th July 2001

Pensions (Amendment) Act, 2002 passed on 13 April 2002

Social Welfare and Pensions Act, 2005 passed on 14 March 2005

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OCCUPATIONAL PENSION SCHEMES IN IRELAND

112,665 occupational (i.e. employers) pension schemes

724,333 members in occupational pension schemes

Assets = €52 billion (Approximate figure currently quoted by IAPF)

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OCCUPATIONAL PENSION SCHEMES

Employer(s) establish schemes on voluntary basis

Scheme must be set up as a trust

Separate from employer’s business

Trustees responsible for administration

Schemes financed on a pre funded basis-resources set aside in a trust fund for payment of pensions, when due.

Employees in Private/ Commercial Public Sector

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OCCUPATIONAL PENSION SCHEMES

Schemes set up by public sector agencies for employees

Schemes financed on ‘pay as you go’ basis from current revenue in the same way as salaries and wages

Employees in Non Commercial Public Sector

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TYPES OF SCHEMES

Defined Benefit Schemes

Pension and other benefits payable to scheme members and dependants are clearly defined

Guaranteed benefit – risk borne by employer

Benefit is usually a fraction of final salary for each year of service

Most common benefit formula – 1/60th of salary for each year of service

Majority of scheme members in these schemes – 66.7%

Gradual Move to Defined Contribution schemes

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TYPES OF SCHEMES

Contributions into the scheme are defined e.g. 10%of annual pay. ‘What you see is what you get’

Pension and other benefits are based on amount of contributions made during member’s service and returns earned from investment

Risk borne by employee

33.3% of members in Defined Contribution schemes

Defined Contribution Scheme

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TRUSTS

Legal obligation binding a person (the ‘trustee’)

to use certain property

for the benefit of other people (the ‘beneficiaries’)

Trustee is legal owner of the trust property

Use trust property for beneficiaries in accordance with terms of trust

Trust concept is ancient

Successfully adapted in modern times as legal vehicle for establishment of pension schemes

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WHY ARE PENSION SCHEMES ESTABLISHED UNDER TRUST?

Very favourable tax concessions

Funds are controlled by trustees not employer company

Trustees must act in interests of beneficiaries not employer

Fund is separate from employer’s assets

Beneficiaries can enforce rights under trust

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THE PENSIONS ACT, 1990

Brought together and set down clearly duties and responsibilities of pension scheme trustees

High degree of overlap between trustees duties under general trust law and duties under Act

Pensions Act effectively complements and reaffirms existing trust law

together provide foundation for regulation of occupational pension schemes in Ireland

Established statutory body to oversee operation of Act

The Pensions Board

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PENSIONS ACT, 1990

Part I – Preliminary and General

Part II – Establishment of Pensions Board

Part III – Preservation of Benefits

Part IV – Funding Standard

Part V – Disclosure of Information

Part VI – Trustees of Scheme

*1 Part VII – Equal Treatment

*1 Equal Pension Treatment introduced by Social Welfare Act, 2004

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THE PENSIONS ACT, 1990

*2 Part VIII – Compulsory and Voluntary Reporting

*2 Part IX – Miscellaneous Applications to the High Court

*2 Introduced by the Pensions (Amendment) Act, 1996

*3 Part X – Personal Retirement Savings Accounts

*3 Part XI – Pensions Ombudsman

*4 Part XII – Cross Border Schemes

*3 Introduced by the Pensions (Amendment) Act,2002

* 4 introduced by the Social Welfare and Pensions Act, 2005

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PENSIONS ACT – PART II

Functions of the Pensions Board

To monitor and supervise operation of Act, including activities of PRSA providers, provision and operation of PRSAs

Issue guidelines to trustees on duties and responsibilities and codes of practice on specific duties

Issue guidelines/ guidance notes on duties and responsibilities of PRSA providers in relation to PRSA products

Encourage training for trustees

Advise Minister on standards for trustees and on their implementation

Issue guidelines for scheme administrators on requirements of Act

Provide information to members on their rights under the Act

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PENSIONS ACT - PART II

Investigate complaints and, if necessary, take Court proceedings for breach of Act

Register schemes and PRSAs and collect fees due

Advise Minister for Social and Family Affairs on operation of Act and on pensions matters generally

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THE PENSIONS BOARD

Regulation Activities

Regulatory Activities

Scheme Registration – schemes required to register with Pensions Board

Funding Standard – requirement to submit an Actuarial Funding Certificate (AFC) at specific times

Disclosure Compliance – conduct random audits of schemes. Also work with providers to ensure compliance

Investigations

“Regular” – arising from complaints or audits

Whistleblow reports – mandatory for fraud or misappropriation

Sanctions

Strong powers of investigation

Powers of direct intervention in scheme administration by application to High Court

Prosecutions may be brought

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PENSIONS ACT – PART III

Preservation of Benefits

Applies to early leavers who have completed 2 years qualifying service

Entitlements to have benefits either: preserved in scheme they are leaving, and in case of defined benefit

schemes, revalued at end of every year, or avail of transfer options

Scheme may provide higher benefits

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PART III

Preservation/Revaluation

Reduction of vesting period from 5 to 2 years – where members leave service after 1 June 2002

Preservation extended to pre-1991 service

Revaluation extended to pre-1991 service

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PART III

Transfer Options

TRANSFER OF PRESERVED BENEFIT

Funded SchemeRevenue approved policy of contractUnfunded (Public Sector Scheme), with consent of trusteesPRSA subject to certain Revenue conditionsOverseas arrangements

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PART III

Refunds of Contributions

WILL REFUNDS OF CONTRIBUTIONS CONTINUE TO BE PREMITTED?

NO, WHERE BENEFIT IS PRESERVED

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PART IV

PENSIONS ACT

Funding Standard

Applies to Defined Benefit (DB) schemes

To ensure that, at a minimum scheme has sufficient funds to meet prescribed liabilities

Monitored by Actuarial Funding Certificates (AFCs) every 3 1/2 years (soon to be 3 years)

Extension of time possible subject to specified conditions

Intervaluation Reviews

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PART V

PENSIONS ACT

DISCLOSURE OF INFORMATION

Trustees must give information to members about personal entitlements

Information about running of scheme and its finances must be made available to

- scheme members

- other beneficiaries

- trade unions representing scheme members

* Details are contained in the Disclosure of Information

Regulations S.I. No. 349 of 1998

* Revised Regulations expected to issue mid 2005

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PART V

REMITTANCE OF CONTRIBUTIONS BY EMPLOYER

Applies to employers

All employee contributions to be remitted within 21 days from end of month of deduction

DC employer contributions to be paid within 21 days of end of month

Corresponding disclosure to be made to employee and trustees by employer

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PART VI

PENSIONS ACT

Trustees Duties

To register the scheme

To ensure contributions are received

To invest the funds

To pay the benefits

To keep records

To apply resources of scheme on wind-up

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PART VI

Trustees Duties

Social Welfare and Pensions Act, 2005

S59 being amended to give Minister power to introduce regulations on pension scheme investment

Regulations will give effect to requirements of EU Pensions Directive

Regulations pending on: Prudent investment, diversification of assets, unregulated markets Investment policy principles Borrowing

All Regulations to be in place by 23 September 2005

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PART VI

Qualifications of Trustees

Social Welfare and Pensions Act, 2005

New Section 59A to comply with EU Pensions Directive

Prohibits certain people from acting as trustees

Section requires Minister to make Regulations setting out qualifications and experience that trustees must possess

Pensions Board can: make determinations regarding compliance with new requirements remove trustees who do not satisfy requirements

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PART VI

MEMBER TRUSTEESHIP

Regulations effective from 1.1.1994

Permit qualified members to participate in selection of trustees

Can select half total number (excluding chairperson)

Affect –

- Funded schemes with 50 or more members

- Directly invested schemes with 12 or more members

Valid request initiates process

Existing trustees must commence process

Preliminary Poll or straight to election

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PART VII

PENSIONS ACT

Equal Pension Treatment

Original Part VII prohibited discrimination on gender ground only

New Part VII introduced by SW (Miscellaneous Provisions) Act, 2004

Provides for equal pension treatment

9 Discriminatory Grounds

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PART VII

Equal Pension Treatment

No discrimination on any discriminatory grounds in respect of any rule of a scheme

Rules governingaccesscontribution arrangementsbenefits retirement ages*Survivors benefits

*Ages can be fixed for admission/benefits provided no gender

discrimination

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PART VII

Equal Pension Treatment

Examine scheme rules to ensure no provisions contrary to principle of equal pension treatment

If scheme rules discriminate more favourable treatment must be applied until rules amendedcould have funding implications

Claims for redress → ODEI

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PART VIII

PENSIONS ACT

Compulsory and Voluntary Reporting to Board “Whistleblowing”

From 2 July 1996 duty placed on relevant persons

- to report instance of fraudulent conversion

or

- material misappropriation of scheme assets

WHICH THEY BELIEVE• Has occurred• Is occuring, or• Is to be attempted

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PART VIII

WHISTLEBLOWING

RELEVANT PERSON IS: An auditor An actuary A trustee An insurance intermediary An investment business firm A person preparing or instructed to prepare Annual Report A person appointed by trustees to carry out specified duties A PRSA provider, actuary or auditor of business of PRSA provider An employee of S121 employer

OBLIGED TO MAKE COMPULSORY REPORT: Does not apply to information obtained pre 2.7.1996

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PART VIII

COMPULSORY REPORTING

Relevant Person

Suspected fraud / misappropriation of scheme resources or PRSA

Additional PRSA obligations

Report in writing as soon as possible

As offence not to report

Defence for relevant person to show contravention applicable to another and reasonable steps taken to secure compliance

Protection for persons acting in good faith

No liability or action will arise e.g. defamation proceedings

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PART VIII

VOLUNTARY REPORTING

Any person whether or not relevant person

Any matter concerning state and conduct of scheme or PRSA e.g. maladministration

Report in writing or otherwise

Protection against unfair dismissal provided report made in good faith

Also no liability or action will arise

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PART IX

PENSIONS ACT

Miscellaneous Applications to the High Court

High Court can make various orders on application to it by Pensions Board, to

- Order employer to pay arrears of contribution

- Order restoration of scheme resources

- Order disposal of investments

- Injunction prohibiting misuse/misappropriation

Provisions extended by Social Welfare and Pensions Act, 2005 to allow Board to

- apply to High Court to prohibit disposal of assets of a scheme

- where Board receives request from another EU Member State

- Court is satisfied that prohibition is necessary to protect

members’ interest

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PART X-

PERSONAL RETIREMENT SAVINGS

ACCOUNTS - PRSAS

For employees, self-employed, homemakers, carers, unemployed or any other category

Contract between individual and PRSA provider

- Investment account holding units in investments managed by

approved PRSA provider

Two types – PRSA and Standard PRSA

Mandatory employer access

Usual tax reliefs applicable

Transfers to and from other pension arrangements are facilitated as far as possible

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PART X - PRSAs

Employers must sign up to a PRSA provider for access to at least one Standard PRSA

Notify employees of the right to contribute

Allow reasonable access to advice

Allow reasonable paid time off to get advice

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PART X - PRSAs

Employers must deduct employee contributions from payroll, if requested

Pay over employee contributions and employer contributions, if any, within 21 days of the end of the month

Tell employees and provider of amounts deducted

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Deals with

- complaints by “actual or potential beneficiary” of financial loss occasioned by maladministration by “a person responsible for the management of “a scheme/PRSA (trustee, PRSA provider, employer

- dispute of fact or law referred to Ombudsman by “actual or potential beneficiary” in relation to an act by a “person responsible for management of” the scheme/PRSA

Actual or potential beneficiary – broad definition; not just a member or PRSA contributor - member, dependant, dependant of deceased member or widow/widower

PART XI

The Pensions Ombudsman

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Complaints or disputes;

- between trustees and employers

- between trustees

- falling outside time limit

- which have not gone through the internal disputes resolution procedure provided for

- which are already the subject of Court proceedings

- which are not ones of fact or law or do not involve maladministration

PART XI

The Pensions Ombudsman

What is not covered?

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6 years from the date of the act giving rise to the complaint/dispute or

3 years from the date on which the person became aware or ought to have become aware of the act giving rise to the complaint or dispute, or

such longer period as the Ombudsman may allow if it appears that there are reasonable grounds and it would be just and reasonable to extend the period

However, for complaints or disputes occurring prior to the passing of the Act, an absolute limit of 6 years applies

PART XI

The Pensions Ombudsman

What is the time limit for referrals to the Ombudsman?

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REDRESS

- Ombudsman can give directions, including for financial redress

- Financial redress cannot exceed the actual loss of benefit

HOW WILL DECISIONS OF THE OMBUDSMAN BE ENFORCED?

- By application to the Circuit Court

WHAT ABOUT LEGAL COSTS?

- No power to award legal costs

- Expenses and allowances may be awarded

HOW WILL PENSIONS OMBUDSMAN’S OFFICE BE FINANCED?

- By the exchequer

PART XI

The Pensions Ombudsman

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PART XII

Cross Border Schemes

New part added by Social Welfare and Pensions Act, 2005 to implement EU Pensions Directive requirements

Allows employers in one jurisdiction to sponsor pension schemes

in another jurisdiction

CB schemes defined by their activities

e.g. - Irish registered scheme is CB scheme where it receives

contributions from employer located in another Member

State or EEA Country

- Danish registered scheme is CB scheme where it receives

contributions from an employer located in Ireland

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PART XII

Cross Border Schemes

Irish schemes cannot just decide to admit overseas members prior Pensions Board authorisation required

DB schemes operating cross-border must be fully funded at all

times

Compliance with relevant Social and Labour Law required

Exemptions from parts of the Pensions Act for overseas members

Regulations pending: Social and Labour Law issues Exemptions from parts of Pensions Act Authorisation

All to be in place by 23 September 2005

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Further Information

Pensions Board Locall 1890 65 65 65

Web → www.pensionsboard.ie

Information Booklets free of charge – online and copies available from the Board’s Information Unit

Technical Guidance Services for Practitioners and Trustees

available by subscription

Enquiry Service: Information Unit on 1890 65 65 65 or 01 6131900 info@pensionsboard.ie