The Minister for Social Protection recently announced that the Irish Government has approved the publication of the General Scheme of the Social Welfare and Pensions Bill 2017 (the “Bill”).
The Bill contains key measures to increase the protections available for members of Defined Benefit Occupational Pension Schemes (“DB Schemes”) in Ireland. The Bill also contains provisions to afford same-sex couples equal pension rights to those granted to married couples.
The main purpose of the Bill is to strengthen the position of trustees and increase the protections offered to pension scheme members. It intends to achieve these aims by shifting the balance of powers in pension schemes from the employer to the trustee.
The Bill introduces the following key measures for DB Schemes in Ireland:
- Where a scheme is in deficit on the Minimum Funding Standard (“MFS”) basis, trustees will now need to submit a funding proposal to the Irish Pensions Authority (the “Authority”) within six months of the effective date of the actuarial funding certificate, that is the date on which the actuary carries out a scheme valuation.
- Employers who sponsor DB Schemes, whether or not those schemes are in deficit, are required to give 12 months’ notice to the Trustees and to the Authority of their intention to stop contributions. This 12 month period applies regardless of what is contained in the trust deed and rules. For a scheme in deficit, the employers and trustees are required to enter into discussions to agree a funding proposal before the 12 month period expires.
- The Bill states that employer contributions payable during the notice period must not fall below those payable immediately prior to issuing the notice of intent to stop contributions. The notice period may be reduced provided that such reduction is not contrary to the interests of the members.
- The Bill also proposes a greater level of communication with all classes of members during the scheme wind-up. It requires that trustees and employers “make such notifications, consult with and provide such information to members, deferred members and beneficiaries…as may be prescribed in Regulations”.
- Where a funding proposal has not been submitted, the Bill provides powers to the Authority to determine a schedule of contributions that will restore DB Schemes which do not satisfy the funding standard or funding standard reserve to an adequate funding position. The amounts specified in the schedule will form a debt due by the employer to the pension scheme. If the debt is not paid, the employer may be pursued by the Trustees in court proceedings.
Equal Pension Treatment Provisions
The Bill includes technical provisions to extend a spouse’s pension to same-sex spouses and civil partners. The need for this change was highlighted by a recent case before the European Courts of Justice (CJEU). The case highlighted differing treatment experienced by same-sex couples in terms of the payment of a spouse’s pension.
Although the changes will impact only a limited number of occupational pension schemes, this significant equal treatment proposal aims to ensure that same-sex couples enjoy the same rights and entitlements as any other married couples do.
We anticipate that the Bill will be enacted shortly but there are likely to be a number of amendments made before it is enacted. The question really is what will happen between now and enactment? When the UK adopted similar provisions, they did so overnight and without consultation in order to prevent a glut of wind-ups.
Will employers see this as an opportunity to wind-up defined benefit arrangements before the onerous new provisions become law or will they continue to run these schemes irrespective of the new legislative changes? The Bill will certainly see Employers facing more onerous obligations when winding up DB Schemes in the future, but it is unlikely to lead to a glut of wind-ups in the short term. The majority of DB schemes remaining most likely have notice periods in place already which have prevented employers from winding them up to date. The Bill will extend these notice periods but will not radically change the existing position for those schemes.
Employers and trustees should familiarise themselves with the governing documentation of their schemes and ascertain how these legislative changes will impact their schemes or business decisions that will be made. Scheme-specific advice is critical as different considerations may apply for different schemes.