Pensions Update: Spring 2022
This is the Spring update from our Pensions Group. The update covers new developments from the Pensions Authority; IORP II; the Finance Act 2021 and recent case law.
Pensions Authority updates
Pensions Authority Engagement Programme Findings Report 2021
As part of its 2021 engagement programme, the Pensions Authority (the “Authority”) met with trustee boards (including those of master trusts) as part of its move to a forward looking risk-based approach to supervision. The primary purpose of the engagements was to examine how well schemes were equipped to meet the enhanced governance requirements under the European Union (Occupational Pension Scheme) Regulations 2021 (the “IORP II Regulations”). In its report on the engagement programme, published on 14 December 2021, the Authority stated that it expects all trustee boards, and their advisers, to fully consider its findings and evaluate their own practices to establish if improvements are required. The key areas addressed and the expectations set out by the Authority in the report were in respect of: minimum qualification and experience requirements for trustees; appointment of key function holders; requirement for written policies; management of outsourced service providers; contractual arrangements with service providers; communication and information to members; defined contribution investment; defined benefit de-risking and engagement on employer covenant; and master trust specific issues. The report is available on the Pensions Authority’s website.
Annual Compliance Statement (“ACS”)
The preparation of an ACS is a new requirement introduced by the IORP II Regulations. Trustees must prepare an ACS not later than 31 January each year for the preceding calendar year. The deadline for the preparation and signing of the 2021 ACS was 31 January 2022, although that ACS did not have to be submitted to the Authority. It is not currently anticipated that there will be any significant alteration to the existing format of the ACS for 2022. However, the 2022 ACS will be required to be submitted to the Authority by 31 January 2023.
Employer guide to Defined Contribution Master Trusts
On 16 December 2021, the Authority published an employer guide to defined contribution master trusts. The guide provides information for employers on defined contribution master trusts and what they should look for when selecting a master trust. The guide is available on the Authority website.
Occupational pension schemes fee rates for 2022
The Minister for Social Protection, with the consent of the Minister for Public Expenditure and Reform, has approved revised Authority fees for occupational schemes with effect from 1 January 2022. The increased fees were stated as being necessary to meet the Authority’s staffing and IT costs arising from the implementation of IORP II and the implementation of forward-looking risk-based supervision. The revised rates are as follows:
|Occupational pension scheme fee rates|
|Year||Fee per member for schemes with 500 or less active members||Flat fee for schemes with 501-1000 active members||Fee per member for schemes with 1001 plus active members|
For group schemes, the revised fees are payable by 31 March 2022. Certain public sector schemes excluded from the application of the funding standard (by virtue of section 52 of the Pensions Act) pay 40% of the above rates. Fees for single member schemes are payable yearly in arrears and the revised fee rate will apply with effect from 1 January 2023. There is no change to Personal Retirement Savings Account (“PRSA”) fees.
IORP II related statutory instruments and regulations
Following the introduction of the IORP II Regulations a suite of new regulations that amend existing regulations made under the Pensions Act 1990 (as amended) (the “Pensions Act”) were signed into law in late 2021. Most of these relate to operational practicalities and are required to align existing definitions and requirements with updated legislation and the new IORP II requirements. They include:
Disclosure of Information requirements
- The Occupational Pension Schemes (Disclosure of Information) (Amendment) Regulations 2021 (S.I. No. 637 of 2021) amend the earlier disclosure regulations to provide that the Annual Benefit Statement and Statement of Reasonable Projection provisions no longer apply once a pension scheme makes the first Pension Benefit Statement available to members in accordance with the provisions of the IORP II Regulations. Pension schemes that commenced before 22 April 2021 must make the first Pension Benefit Statement available by 31 December 2022 while one-member arrangements that commenced before 22 April 2021 must make the statement available from 22 April 2026. Pay-as-you-go schemes will continue to provide the Annual Benefit Statement.
- The exemptions for one-member arrangements and defined contribution schemes in respect of audited accounts and valuation accounts have been removed. However, transitional arrangements will apply to one-member arrangements established before 22 April 2021 for a period of five years.
- The regulations provide for updated disclosure obligations for pension schemes to which the IORP II regulations apply, specifically an obligation to communicate changes to scheme rules within four weeks of a change as well as setting obligations relating to how and when information is provided to various parties. The regulations also include additional information that should be included in scheme booklets (contained in Schedule C – Basic Information About the Scheme).
The Trust RACs (Investment) Regulations 2021 (S.I. 634 of 2021) and Occupational Pension Schemes (Investment) Regulations 2021 (S.I. 636 of 2021) revoke and replace the existing investment regulations. A significant outcome of the new rules is that the definition of a “regulated market” appears to have been narrowed such that it refers to EU financial markets. This may pose challenges for the operation of the “prudent person” rule in the Pensions Act, which requires that pension scheme assets are invested predominantly in regulated markets – given that US and UK markets are now excluded from the definition of regulated markets, it may be difficult to achieve this requirement while also ensuring that a scheme’s assets are properly diversified. A further change introduced by the new rules is that one member arrangements are no longer permitted to borrow without restriction. There is also a new requirement to include information on how the investment policy takes environmental, social and governance factors into account in the Statement of Investment Policy Principles.
A number of consequential amendments to investment regulations have also been made by the Occupational Pension Schemes (Trustee) (Amendment) Regulations 2021 (S.I. 626 of 2021) and the Trust RACs (Trustee) (Amendment) Regulations 2021 (S.I. 627 of 2021). On a related note, the Occupational Pension Schemes (Funding Standard) (Amendment) Regulations 2021 (S.I. 635 of 2021) remove the exemption for small member-controlled schemes to include up to 20% self-investment in the calculation of scheme resources in the actuarial funding certificate.
Updating information to be provided to the Pensions Authority
The Occupational Pension Schemes (Registration) (Amendment) Regulations 2021 (S.I. 628 of 2021) and the Trust RACs (Registration) (Amendment) Regulations 2021 (S.I. 629 of 2021) make certain Brexit-related changes and reduce the period in which the Authority is to be notified of a change in the basic information submitted to them on registration in relation to a scheme (e.g. name and address of the trustees, name of the scheme, scheme year). Previously this had to be done within 12 months of the change and now it must be done within one month.
Funding standard changes
The Occupational Pension Schemes (Funding Standard Reserve) (Amendment) Regulations 2021 (S.I. 631 of 2021) among other things, update the list of prescribed assets that can be used to satisfy the funding standard reserve.
Occupational Pension Schemes (Cross-border) (Amendment) Regulations 2021 (S.I. 632 of 2021) and the Trust RACs (Cross-border) (Amendment) Regulations 2021 (S.I. 633 of 2021) extend the requirement to prepare and issue Pension Benefit Statements to cross-border schemes amongst other things.
The existing Bulk Transfer Regulations have been updated by the Occupational Pension Schemes (Duties of Trustees in Connection with Bulk Transfer) (Amendment) Regulations 2021 (S.I. 630 of 2021) which have reduced the timeline for notifying members (from two months to one month) and have removed the one month period for consideration of written observations (trustees must still give observations “due” consideration). The regulations provide that members may be communicated with electronically in relation to a bulk transfer and where members cannot be notified electronically, the trustees must publish a newspaper notice.
Other legislative changes – the Finance Act 2021
The Finance Act 2021 contains some of the reforms proposed by the Interdepartmental Pension Reform and Taxation Group last year and in relation to pensions:
- introduces a new provision into section 772 of the Taxes Consolidation Act 1997 to the effect that where a member dies in service, spouse or dependants’ benefits can be taken as either a pension or the benefits transferred to an Approved Retirement Fund (“ARF”);
- the requirement for an Approved Minimum Retirement Fund (“AMRF”) for those who cannot demonstrate a guaranteed income of more than €12,700 per annum has been abolished;
- the prohibition on transfers from an occupational pension scheme to a PRSA for members with more than 15 years’ service has been abolished; and
- a new provision has been introduced whereby employers can be granted tax relief on employer pension contributions to occupational pensions set up for the employees of another company where there is an agreement in place between the two companies.
Public consultation on Retired Workers Access to Industrial Relations Mechanisms for Pension Related Issues
The Department of Enterprise, Trade and Employment has commenced a public consultation in relation to the introduction of a statutory right for retired persons to be included in collective trade disputes. This consultation has arisen as a result of proposals set out in a Private Member Bill on the subject. From a pensions law perspective, the consultation notes that under section 50 of the Pensions Act there are limits on the amount by which pensioner benefits can be reduced and there is also an opportunity for pensioner members to make submission to the trustees of a scheme in the context of a scheme restructuring. It also notes that pensioner members may avail of the opportunity to become scheme trustees. From an employment law perspective, while pensioners do have access to the industrial relations bodies, this is for a period of six months post-retirement and relates solely to matters arising pre-retirement. The consultation sets out a series of five questions on which the Department is seeking input. The consultation period will run for six weeks until Friday 22 April 2022.
Irish – Cassidy v Portfolio Concentrate Solutions unlimited ADJ-00027954 (AO: Patsy Doyle)
The Workplace Relations Commission (“WRC”) has awarded €40,000 (40 weeks’ pay) to a complainant for the effects of age discrimination after he was mandatorily retired at age 65. The complainant worked for the respondent for more than 30 years. He had sought an extension of his employment but this was not granted on the basis of inter-generational fairness. The respondent stated that it had a mandatory retirement age of 65 and claimed the complainant was on full notice of this. In view of its health and safety obligations, the employer considered 65 to be a reasonable age to impose retirement.
The WRC found that the respondent did not act in compliance with Section 34(4) of the Employment Equality Acts when it applied the mandatory retirement age of 65 to the complainant, which was not objectively and reasonably justified by a legitimate aim and the means of achieving that aim were not appropriate and necessary. The WRC stated that the respondent “presented as being fearful” of managing a transition to work patterns to help address the transition to State pension age moving to 66 rather than 65.
The WRC also stated that it was dissatisfied with a delay in processing the complainant’s grievance to the point “where it became akin to an almost academic exercise”, one month after his official retirement. It stated that, crucially, the employer did not request any medical, risk or operational assessments of the complainant in his day-to-day role. It found that the complainant was discriminated against on age grounds and that compensation was the most appropriate remedy where two years had passed since the complainant’s employment was ended. It also ordered the respondent and the Union to engage in a collaborative exercise on the provisions of the Code of Practice on Longer Working within 3 months of the decision.
The case shows the importance of employers carefully considering requests from employees to work beyond their contracted retirement age, particularly where the contracted retirement age is now below the State pension age.
UK – Mitchells & Butlers Pensions Ltd v Mitchells & Mitchells & Butlers Plc  EWHC 3017 (Ch)
The UK High Court upheld a claim by the trustee of the Mitchells & Butlers Pension Plan (the “Plan”) to rectify the pension increase provisions in three deeds that were executed in 1996, 2002 and 2006. The rectification claim was made on behalf of the members of the scheme against the principal employer of the Plan. The Court found that amendments to the 1996 deed which provided the principal employer with the power to set the rate of pension increases and removed the existing Trustee’s power to select the index by which pensions were increased, along with the restatements made to the rules in 2002 and 2006, were mistakes and ordered rectification.
A number of issues were determined in the judgment. Overall it was held that the amendments were invalid due to the fact that there was a clear failure to consult the actuary which was a condition precedent to any amendment power exercised and such failure to comply with the requirement rendered the changes void. In any event, the amendment as replicated in the 2002 Deed was also deemed to be void under section 67 of the Pensions Act 1995 (as then in force) due to errors when instructing the Scheme Actuary to provide a section 67 certificate.
The case is the newest addition to the long list of authorities on rectification from a pensions perspective, however it may be regarded as unusual as rectification was granted against the principal employer. It demonstrates the courts’ willingness to grant rectification where there is a clear mistake when supported by witness statements and proper consultation.