Last year signalled a number of forthcoming changes to the regulatory environment for pensions in Ireland. We examine these developments and how they helped shape the pensions landscape in 2016. We also highlight some possible developments likely to occur during 2017.
2016 saw a number of developments in Ireland which will shape the pensions regulatory landscape for a number of years. The Pensions Authority announced their strategy for the next five years. Further insight was also provided into the amalgamation of the Pensions Ombudsman with the Financial Services Ombudsman and the extension in roles and functions it will entail. Finally, we may have had a watershed moment in the decline of defined benefit pension schemes in Ireland.
The Pensions Authority five-year plan
The Pensions Authority’s Statement of Strategy 2016-2020, released in March 2016, set out the Authority’s vision, values and strategic objectives. This statement outlined how the Authority envisages its functions and regulations will evolve over the next five years.
The vision is for a pensions environment where pensions savings are secure and well-managed. The Authority will be heavily involved in advancing proposals for pensions reform and simplification. This reform will include proposals to reduce the number of defined contribution pension schemes and proposals on Personal Retirement Savings Accounts.
It remains important for trustees to adopt and maintain good financial management practices and to have processes to identify and mitigate risk within their schemes. Trustees would be advised to assess their own scheme(s), identify any issues relating to the risk priorities and take action to reduce or eliminate those risks. Trustees should also be aware that the Authority has flagged an intention to target those who fail to comply with their legal obligations.
The new Financial Services and Pensions Ombudsman (“FSPO”)
The Irish Government announced plans to amalgamate the offices of the Financial Services Ombudsman and Pensions Ombudsman into the FSPO. The proposals were contained in a draft bill that covers three main areas:
- the role and functions of the FSPO;
- the consumer complaints procedure; and
- the establishment and operation of the FSPO Council.
It details the functions and powers of the Council, including the power to make regulations, set levies and fees and power to collect levies. No similar role was previously in place for pensions in Ireland. Along with powers to investigate, mediate and adjudicate, the draft bill sets out some notable functions envisaged for the FSPO including:
- continuing a case following the death of a beneficiary;
- issuing preliminary determinations;
- notifying of persistent instances of complaints; and
- waiving requirements for complaints to go through an internal dispute resolution process first.
Decline of defined benefit pensions
Late in 2016, Independent News & Media (“INM”) sought to wind-up the company’s defined benefit pension schemes. This move followed a significant benefit cut agreed to by members in 2013. The winding-up would see a further reduction of about 30% in the value of the benefits payable by the schemes. INM’s balance sheet would strengthen by approximately €25 million and savings of over €1 million per year would also result.
The staff protested against this proposal and the ICTU urged trustees to appeal to the High Court to review the wind-up. The trustees sought an additional employer contribution of €12 million, in addition to enforcing previous commitments provided in relation to employer contributions. This dispute raised attention to a perceived " gap in the law” which the Pensions Authority is in the process of reviewing where a solvent employer can wind up a defined benefit pension scheme in an underfunded position. Several senators have called for restrictions on employers winding-up a defined benefit scheme unless it was funded to 90% of the statutory funding standard.
What’s on the horizon for 2017?
2017 will no doubt see the perennial subject of funding of defined benefit pension schemes rise to the surface once more. The political interest in this topic that existed before Christmas 2016 seems to have temporarily vanished, but it is anticipated there will be some developments on the issue as the year progresses.
The Pensions Authority looks set to embark upon their five-year plan and 2017 should certainly bring increased emphasis on the governance and management of pension schemes. Unfortunately, the role of the pension scheme trustee will not get any easier this year!