2016 was a mixed bag with little change for pensions in Ireland. We outline how early markers indicate that 2017 is more likely to bring considerable discussion with possible movement and change, with potential for tangible impact in a number of key areas.
The big issues for consideration will include the ongoing implications for defined benefit scheme funding on the back of a protracted low bond yield environment and swings brought about by the prospect of Brexit. These may settle as the reality of precisely what Brexit means begins to take shape and the implications become clearer. It is very likely that policy changes under the new Trump administration in the United States will also have an impact on markets.
Back home, the Minister for Social Protection, Leo Varadkar, has indicated that he is determined to grasp the nettle of pension’s coverage in Ireland and has indicated his aim of creating a universal pension scheme. During the latter part of 2016, the Pensions Authority commenced a consultation process with all pensions’ stakeholders. The purpose was to review current pension provision and seek input on a number of proposals for the future of pensions in Ireland. It is expected that the outcome of the consultation will be available in early 2017. Among the issues on which views were sought were experience and qualification requirements for pension trustees, an authorisation process and closer supervision of pension schemes, and rationalising of pension scheme numbers.
Media reports during December 2016 and early 2017 flagged a number of areas for possible pensions activity and potential change. In particular, the announcement of Independent News & Media’s intention to cease contributing to its defined benefit scheme and certain reports exploring the impact of discussions on public sector pay of the value of public sector pensions were greeted with considerable negative media attention. There was also a suggestion that striking members of An Garda Síochána should not accrue pension entitlements. Since the New Year began, Minister Varadkar is widely reported to have identified possible changes in relation to compulsory retirement ages and plans to offer larger State pensions to those who work longer. Labour Party TD, Willie Penrose, has drafted a bill to amend the Pensions Act in relation to the winding up of an underfunded defined benefit pension scheme by a solvent employer. We understand the plan was to introduce the bill when the Dáil reconvened. If such measures are eventually passed, they will certainly provide pause for thought among solvent employers who might be considering a defined benefit scheme wind up and to certain parties considering corporate transactions.
Clearly, serious thought is being given to pensions issues and, in certain quarters, to the value and cost of providing public sector pensions, an issue that has remained largely undiscussed for years. Given the amount of publicity surrounding these issues, it may prove impossible to ignore them for much longer and 2017 may be the year where they are actually moved to the next level.
In short, the big ticket items for pensions in Ireland in 2017 are bound to include any one or more of the following:
Publication of the recommendations of the Pensions Authority’s consultation;
Progress of the Labour Party bill or, alternatively, consideration of and responses to recent calls for protection from solvent employers winding up defined benefit pension schemes;
Further discussion following on from the Horgan Review of the Gardaí and comments made by the Minister for Public Expenditure relating to the value of public sector pensions and the implications of that value in relation to public sector pay;
The extent or otherwise to which the Minister for Social Protection progresses his stated intentions to create a universal pension scheme and possible other reforms including those following the Pensions Authority consultation; and
Finally, the EU IORP II (Pensions) Directive was published in the Official Journal on 23 December 2016 and came into force on the 12th January 2017. Member States now have until 13 January 2019 to transpose it into their national laws and the 2003 first pensions Directive will be repealed from that date. Thoughts will now turn to the transposition of this Directive during 2017 and beyond.
2017 looks set to bring change or at least much conversation around a number of pensions issues which have been bubbling for a time. We will keep our readers updated as matters progress.