17/02/2020 Briefing

Automatic Enrolment System

On 30 October, the Minister for Employment Affairs and Social Protection provided an update in relation to the design and implementation of an automatic enrolment retirement savings system.

The key features outlined in the update are:

  • the system will automatically enrol current and new workers aged between 23 and 60 that are earning €20,000 or more across all forms of employment each year. Workers in this age bracket that are earning less than €20,000 will not be automatically enrolled but will have the ability to opt in;
  • the funds will operate on a defined contribution basis and employers will be required to make a matching contribution on behalf of their participating employees at a specified contribution rate;
  • contribution rates for employers and employees will begin with an initial rate of 1.5% for the first three years which will increase by a further 1.5% every three years to a maximum of 6% at the beginning of the tenth year; and
  • a Central Processing Authority (“CPA”) will be established and will coordinate the system and source registered providers to provide a defined suite of retirement savings options. The CPA will establish minimum standards for service delivery and product features that will be required for each provider;
  • the funds will operate on a defined contribution basis;
  • employees will be responsible for selecting a provider and savings fund option;
  • members will be entitled to transfer funds accumulated in the automatic enrolment system between the savings products. Invested funds and scheme membership will follow the member on change of employment.

The Department for Employment Affairs and Social Protection has indicated that there are a number of areas that are still being designed, which include:

  • The full scope and role of the CPA;
  • The nature and functions of Registered Providers;
  • The financial incentive to be granted by the State;
  • The investment framework and funds to be offered by Registered Providers such as the design of the default fund and the pay-out phase; and
  • The implementation timeline.

It must be noted, however, that this is just an announcement and there is currently no draft legislation or definitive implementation timeline (although the expected implementation date is 2022). As such, the details of the system are still subject to change.

Memorandum of Understanding between the Pensions Authority and the Office of the Financial Services and Pensions Ombudsman

On 6 November the Pensions Authority (“PA”) and the Office of the Financial Services and Pensions Ombudsman (“PO”) together signed a memorandum of understanding outlining their wish to establish a framework for co-operation and information sharing about those elements of the provision of pension products and services which fall within their respective remits and to establish effective procedures for signposting members of the public to each other’s service.

The memorandum sets out a number of measures that both bodies will take in furtherance of cooperation:

  • the PA and PO will each nominate a liaison officer to operate and monitor co-operative arrangements;
  • the PA’s and PO’s websites dealing with their respective roles will contain appropriate links and signposting to the other body’s website for members of the public;
  • joint training initiatives for staff with regards to the functions of the other body’s respective functions; and
  • facilitate the exchange of information between the PA and PO.

IORP II Update

General
The implementation of the IORP II Directive had been held up pending the resolution of a case taken by the Association of Pensions Trustees Ireland Ltd against the Minister for Employment Affairs and Social Protection.

A stay on the transposition of the optional provisions in respect of schemes with less than 100 members was ordered by the High Court on 25 March 2019. The matter was adjourned and the High Court made an order to vacate the stay on 16 October 2019.

As the stay has been removed, it is open to the Irish government to proceed with implementing legislation. We are aware that draft legislation is in the process of being finalised. Unless the government excludes small schemes from the full remit of IORP II it seems likely that any legislation will be challenged.

Pensions Authority Guidance Note on IORP II
In October 2018, the PA issued guidance on the considerations for trustees arising from IORP II in anticipation of the directive being transposed into law by 13 January 2019.

In light of the fact that IORP II is likely to be transposed shortly, the PA guidance provides a useful starting point as to how affected pension schemes can prepare for IORP II.

The guidance advises trustees that they should document their compliance with the requirements of IORP II. In particular, the guidance outlines:

The PA’s particular areas of focus will include:

  1. Composition of the trustee board which encompasses a “fit and proper” assessment;
  2. Policies in place relating to a range of scheme administration, internal controls and the management of risks (including key function holders);
  3. the practical application of the agreed policies, procedures and operating principles.

The PA has indicated that when the legislation giving effect to the IORP II directive is published, the PA intends to issue further communications and guidance to assist trustees in understanding their obligations.

Safeway Ltd v Andrew Richard Newton and Safeway Pension Trustees Ltd [2019] (Case C-171/18)

The Court of Justice of the European Union (“CJEU”) has held that article 119 of the EC Treaty (now article 141 EC) did not allow a pension scheme to adopt a measure which equalised, with retroactive effect, the normal pension age of members to that of a previously disadvantaged category, in respect of the period between announcement of the measure and its adoption, although such a measure may be permissible if it is objectively justified This is the case even where such a measure is permissible under national law and the scheme’s trust deed. It appears that such retrospective amendments are prohibited solely where they conflict with EU law.

The judgment stems from a preliminary reference requested by the Court of Appeal of England and Wales.

The case itself related to the Safeway pension scheme and a written announcement that was issued by Safeway in 1991 which announced that the normal pension age would be equalised at age 65 for men and women. There was a significant gap between the announcement and application of the equalisation and the amendment of the governing deed and rules to provide for the equalisation. The updated deed and rules contained a clause that allowed for the retrospective effect of amendments.

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