Pensions Update: Spring 2023
The update covers topical issues regarding master trusts, pension scheme data protection policies and the latest updates from the Pensions Authority.
Master trusts – Applicability of Pension Adjustment Orders (“PAOs”)
An ongoing issue in respect of master trusts is the applicability of pension adjustment orders (“PAOs”) made prior to a scheme transferring to the master trust. These orders would have been made by the Court in relation to the original pension scheme and served on the original scheme trustees. A question has arisen as to whether master trust trustees can administer these orders in the new master trust. Some master trust providers have indicated that they are not in a position to do so, creating a concern for beneficiaries of these orders (generally former spouses or civil partners of pension scheme members).
The Law Society has been engaging with the Pensions Authority (the “Authority”) on this issue, with a view to resolving it as soon as possible (including through emergency legislation if necessary). On 2 March 2023, the Law Society published a letter to the Authority in which it proposed that, given the uncertainties around the timing and passing of any legislation, the Authority should issue urgent guidance to trustees under its statutory authority in the Pensions Act to clarify the position on the applicability of PAOs to master trust arrangements. No formal guidance has yet been issued.
In light of the recent Data Protection Commission decision in the Whatsapp case, which found the platform to be in breach of its GDPR obligations for failing to adequately explain to users the legal basis on which it was processing their personal information, pension scheme trustees may wish to review their data protection policies to ensure that the legal basis for processing is clearly set out both in those policies and in the data protection notice issued to scheme members. This may form part of the regular reviews of data protection policies that trustees are required to undertake under the terms of such policies. Please contact us if we can assist in reviewing and updating scheme data protection documentation or related communications to pension scheme members.
Government’s Summer Legislative Programme – Automatic Enrolment Retirement Saving System Bill
The Automatic Enrolment Retirement Savings System Bill (the “Bill”) is listed for priority publication in the Government’s Summer Legislative Programme.
On 3 May 2023, the Joint Oireachtas Committee on Social Protection published its pre-legislative scrutiny report on the Bill. The Committee made a total of 21 observations and recommendations on the Bill, including that the scope of the automatic enrolment system should be widened by removing the proposed minimum age limit of 23 and the proposed minimum income threshold of €20,000 per annum.
Pensions Authority updates
Updated pension benefit statement projection assumptions
Under Regulation 33 of the European Union (Occupational Pension Schemes) Regulations 2021 (the “IORP II Regulations”), the trustees of a funded scheme must provide active and deferred members with an annual Pension Benefit Statement (“PBS”) which contains key information prescribed in the IORP II Regulations in relation to their pension benefits.
A PBS must include a projection of the estimated value of a member’s benefits at retirement. On 10 March 2023, the Authority published its updated guidance on the assumptions to be used in preparing these projections. Many of the changes in the updated guidance reflect the persistence of high inflation and the rapid increase in interest rates since the Authority’s original guidance was published in July 2022. These changes include:
(a) an increase in the assumed maximum gross investment return for equities and property from 4% p.a. to 5.75% p.a;
(b) an increase in the assumed maximum gross investment return for fixed interest securities from 1% p.a. to 2.5% p.a;
(c) an increase in the assumed salary inflation rate or benefit deflation rate from 1.5% p.a. to 3% p.a.; and
(d) an increase in the assumed maximum interest rate for annuity calculations from 0.5% p.a to 2% p.a..
The updated guidance must be applied to any PBSs being prepared with an effective date on or after 1 May 2023.
Authority publishes summary of regulatory activity for 2022
On 13 March 2023, the Authority published its summary of regulatory activity for 2022. Headline figures include the following:
(a) The Authority concluded five prosecutions, securing a conviction in one case (relating to non-remittance of employee pension contributions within the statutory timeframe). The other cases were struck out due to payment of arrears or the underlying matter being rectified in advance of the court date;
(b) 17 investigations into breaches of the Pensions Act were finalised and closed during the year, and 15 new investigations were opened;
(c) A sample of group schemes and one member arrangements (“OMAs”) were subject to spot checks to confirm compliance with their obligation to prepare an Annual Compliance Statement (“ACS”) for 2021. The spot checks showed that most schemes had completed the ACS, but that there was a lack of understanding about the ACS process and requirements among the trustees of smaller schemes; and
498 of the 533 DB schemes that are subject to the funding standard satisfied the standard at 31 December 2022. 30 of the 35 schemes that did not meet the funding standard have funding proposals in place or are in the process of submitting such proposals.
Authority publishes membership and PRSA data as at 31 December 2022
Alongside its summary of regulatory activity, the Authority also published a summary of occupational pension scheme membership and PRSA data as at 31 December 2022. The data shows that:
(a) the total number of defined benefit schemes decreased from 658 to 636 in the course of 2022 (with a further 183 of these 636 schemes labelled as “frozen” and 14 labelled as being in wind-up);
(b) the total number of defined contribution schemes decreased from 85,964 to 85,228 in the course of 2022; and
(c) the number of PRSA contracts increased by 19,175 in the course of 2022 so that the total number of PRSAs at 31 December 2022 was 349,326 with total assets under management of €8.9 billion.
Authority settles legal proceedings to remove professional trustee
On 28 March 2023, the Authority announced that it had settled legal proceedings in relation to an application to the High Court under section 63 of the Pensions Act to remove the professional trustee of seven sample small, self-administered pension schemes (“SSAPs”).
The Authority resolved to suspend the legal proceedings on the basis that the professional trustee agreed that they will:
(a) cease to act as trustee of the seven sample SSAPs and will co-ordinate the appointment of a replacement professional trustee within six weeks;
(b) cease to act as trustee of all other SSAPs within 12 months;
(c) not accept any new appointment to act as a pension scheme trustee for a 5 year period; and
(d) communicate with impacted scheme members and employers to inform them of the process by which they will cease to act as trustee and a replacement will be appointed.
The Authority stated that the resolution achieved was the “best outcome for members by avoiding legal proceedings, minimising costs and reducing the risk of disorderly transfer”. The case nonetheless shows that the Authority is willing to use its powers under the Pensions Act to seek the removal of trustees where the Authority considers that they are failing to act in members’ best interests, in particular where the Authority perceives a conflict between the interests of members and the personal or financial interests of trustees.
European updates – EIOPA consultation on the IORP II directive review
On 3 March 2023, the European Insurance and Occupational Pensions Authority (“EIOPA”) launched a public consultation on its technical advice to the European Commission for the review of the IORP II Directive. EIOPA’s technical advice covers areas such as the adequacy of the Directive from a prudential and governance perspective; cross-border activity and transfers; the functioning of Pension Benefit Statements; sustainability and diversity. Stakeholders are invited to comment on all aspects of the advice, and those wishing to do so must complete an online survey available on the EIOPA website.
The consultation closes on 25 May 2023 and EIOPA will provide its final technical advice to the European Commission in October 2023