Pensions and Employment Law

1. Ballymun Community Law Centre Pensions and Employment Law Mary Hutch Head of Information and Training The Pensions Board 1 June 2005

2. BACKGROUND TO LEGISLATION Establishment of Advisory National Pensions Board in 1986 Examined position of occupational pension schemes and how they should be regulated Proposed the introduction of the Pensions Act Pensions Act, 1990 came into effect – 21 December 1990 Complements and re-affirms existing Trust Law

3. BACKGROUND TO LEGISLATION Pensions (Amendment) Act, 1996 became law on 2 July 1996 National Pensions Policy Initiative (NPPI) Pensions (Amendment) Bill, 2001 published on 27th July 2001 Pensions (Amendment) Act, 2002 passed on 13 April 2002 Social Welfare and Pensions Act, 2005 passed on 14 March 2005

4. OCCUPATIONAL PENSION SCHEMES IN IRELAND 112,665 occupational (i.e. employers) pension schemes 724,333 members in occupational pension schemes Assets = €52 billion (Approximate figure currently quoted by IAPF)

5. OCCUPATIONAL PENSION SCHEMES Employees in Private/ Commercial Public Sector Employer(s) establish schemes on voluntary basis Scheme must be set up as a trust Separate from employer’s business Trustees responsible for administration Schemes financed on a pre funded basis-resources set aside in a trust fund for payment of pensions, when due.

6. OCCUPATIONAL PENSION SCHEMES Employees in Non Commercial Public Sector Schemes set up by public sector agencies for employees Schemes financed on ‘pay as you go’ basis from current revenue in the same way as salaries and wages

7. TYPES OF SCHEMES Defined Benefit Schemes Pension and other benefits payable to scheme members and dependants are clearly defined Guaranteed benefit – risk borne by employer Benefit is usually a fraction of final salary for each year of service Most common benefit formula – 1/60th of salary for each year of service Majority of scheme members in these schemes – 66.7% Gradual Move to Defined Contribution schemes

8. TYPES OF SCHEMES Defined Contribution Scheme • Contributions into the scheme are defined e.g. 10%of annual pay. ‘What you see is what you get’ • Pension and other benefits are based on amount of contributions made during member’s service and returns earned from investment • Risk borne by employee • 33.3% of members in Defined Contribution schemes

9. TRUSTS • Legal obligation binding a person (the ‘trustee’) • to use certain property • for the benefit of other people (the ‘beneficiaries’) • Trustee is legal owner of the trust property • Use trust property for beneficiaries in accordance with terms of trust • Trust concept is ancient • Successfully adapted in modern times as legal vehicle for establishment of pension schemes

10. WHY ARE PENSION SCHEMES ESTABLISHED UNDER TRUST? Very favourable tax concessions Funds are controlled by trustees not employer company Trustees must act in interests of beneficiaries not employer Fund is separate from employer’s assets Beneficiaries can enforce rights under trust

11. THE PENSIONS ACT, 1990 • Brought together and set down clearly duties and responsibilities of pension scheme trustees • High degree of overlap between trustees duties under general trust law and duties under Act • Pensions Act effectively complements and reaffirms existing trust law • together provide foundation for regulation of occupational pension schemes in Ireland • Established statutory body to oversee operation of Act • The Pensions Board

12. PENSIONS ACT, 1990 • Part I – Preliminary and General • Part II – Establishment of Pensions Board • Part III – Preservation of Benefits • Part IV – Funding Standard • Part V – Disclosure of Information • Part VI – Trustees of Scheme • *1 Part VII – Equal Treatment *1Equal Pension Treatment introduced by Social Welfare Act, 2004

13. THE PENSIONS ACT, 1990 • *2 Part VIII – Compulsory and Voluntary Reporting • *2Part IX – Miscellaneous Applications to the High Court *2Introduced by the Pensions (Amendment) Act, 1996 • *3Part X – Personal Retirement Savings Accounts • *3Part XI – Pensions Ombudsman • *4 Part XII – Cross Border Schemes *3Introduced by the Pensions (Amendment) Act,2002 *4introduced by the Social Welfare and Pensions Act, 2005

14. PENSIONS ACT – PART II Functions of the Pensions Board • To monitor and supervise operation of Act, including activities of PRSA providers, provision and operation of PRSAs • Issue guidelines to trustees on duties and responsibilities and codes of practice on specific duties • Issue guidelines/ guidance notes on duties and responsibilities of PRSA providers in relation to PRSA products • Encourage training for trustees • Advise Minister on standards for trustees and on their implementation • Issue guidelines for scheme administrators on requirements of Act • Provide information to members on their rights under the Act

15. PENSIONS ACT - PART II • Investigate complaints and, if necessary, take Court proceedings for breach of Act • Register schemes and PRSAs and collect fees due • Advise Minister for Social and Family Affairs on operation of Act and on pensions matters generally

16. THE PENSIONS BOARD Regulation Activities Regulatory Activities Scheme Registration – schemes required to register with Pensions Board Funding Standard – requirement to submit an Actuarial Funding Certificate (AFC) at specific times Disclosure Compliance – conduct random audits of schemes. Also work with providers to ensure compliance Investigations “Regular” – arising from complaints or audits Whistleblow reports – mandatory for fraud or misappropriation Sanctions Strong powers of investigation Powers of direct intervention in scheme administration by application to High Court Prosecutions may be brought

17. PENSIONS ACT – PART III Preservation of Benefits • Applies to early leavers who have completed 2 years qualifying service • Entitlements to have benefits either: • preserved in scheme they are leaving, and in case of defined benefit schemes, revalued at end of every year, or • avail of transfer options • Scheme may provide higher benefits

18. PART III Preservation/Revaluation Reduction of vesting period from 5 to 2 years – where members leave service after 1 June 2002 Preservation extended to pre-1991 service Revaluation extended to pre-1991 service

19. PART III Transfer Options • TRANSFER OF PRESERVED BENEFIT • Funded Scheme • Revenue approved policy of contract • Unfunded (Public Sector Scheme), with consent of trustees • PRSA subject to certain Revenue conditions • Overseas arrangements

20. PART III Refunds of Contributions • WILL REFUNDS OF CONTRIBUTIONS CONTINUE TO BE PREMITTED? • NO, WHERE BENEFIT IS PRESERVED

21. PART IV PENSIONS ACT Funding Standard • Applies to Defined Benefit (DB) schemes • To ensure that, at a minimum scheme has sufficient funds to meet prescribed liabilities • Monitored by Actuarial Funding Certificates (AFCs) every 3 1/2 years (soon to be 3 years) • Extension of time possible subject to specified conditions • Intervaluation Reviews

22. PART V PENSIONS ACT DISCLOSURE OF INFORMATION • Trustees must give information to members about personal entitlements • Information about running of scheme and its finances must be made available to - scheme members - other beneficiaries - trade unions representing scheme members * Details are contained in the Disclosure of Information Regulations S.I. No. 349 of 1998 * Revised Regulations expected to issue mid 2005

23. PART V REMITTANCE OF CONTRIBUTIONS BY EMPLOYER Applies to employers All employee contributions to be remitted within 21 days from end of month of deduction DC employer contributions to be paid within 21 days of end of month Corresponding disclosure to be made to employee and trustees by employer

24. PART VI PENSIONS ACT Trustees Duties • To register the scheme • To ensure contributions are received • To invest the funds • To pay the benefits • To keep records • To apply resources of scheme on wind-up

25. PART VI Trustees Duties Social Welfare and Pensions Act, 2005 • S59 being amended to give Minister power to introduce regulations on pension scheme investment • Regulations will give effect to requirements of EU Pensions Directive • Regulations pending on: • Prudent investment, diversification of assets, unregulated markets • Investment policy principles • Borrowing All Regulations to be in place by 23 September 2005

26. PART VI Qualifications of Trustees Social Welfare and Pensions Act, 2005 • New Section 59A to comply with EU Pensions Directive • Prohibits certain people from acting as trustees • Section requires Minister to make Regulations setting out qualifications and experience that trustees must possess • Pensions Board can: • make determinations regarding compliance with new requirements • remove trustees who do not satisfy requirements

27. PART VI MEMBER TRUSTEESHIP Regulations effective from 1.1.1994 Permit qualified members to participate in selection of trustees Can select half total number (excluding chairperson) Affect – - Funded schemes with 50 or more members - Directly invested schemes with 12 or more members Valid request initiates process Existing trustees must commence process Preliminary Poll or straight to election

28. PART VII PENSIONS ACT Equal Pension Treatment Original Part VII prohibited discrimination on gender ground only New Part VII introduced by SW (Miscellaneous Provisions) Act, 2004 Provides for equal pension treatment 9 Discriminatory Grounds

29. PART VII Equal Pension Treatment • No discrimination on any discriminatory grounds in respect of any rule of a scheme • Rules governing • access • contribution arrangements • benefits • retirement ages* • Survivors benefits *Ages can be fixed for admission/benefits provided no gender discrimination

30. PART VII Equal Pension Treatment • Examine scheme rules to ensure no provisions contrary to principle of equal pension treatment • If scheme rules discriminate more favourable treatment must be applied until rules amended • could have funding implications • Claims for redress → ODEI

31. PART VIII PENSIONS ACT Compulsory and Voluntary Reporting to Board “Whistleblowing” • From 2 July 1996 duty placed on relevant persons - to report instance of fraudulent conversion or - material misappropriation of scheme assets WHICH THEY BELIEVE • Has occurred • Is occuring, or • Is to be attempted

32. PART VIII WHISTLEBLOWING • RELEVANT PERSON IS: • An auditor • An actuary • A trustee • An insurance intermediary • An investment business firm • A person preparing or instructed to prepare Annual Report • A person appointed by trustees to carry out specified duties • A PRSA provider, actuary or auditor of business of PRSA provider • An employee of S121 employer • OBLIGED TO MAKE COMPULSORY REPORT: • Does not apply to information obtained pre 2.7.1996

33. PART VIII COMPULSORY REPORTING Relevant Person Suspected fraud / misappropriation of scheme resources or PRSA Additional PRSA obligations Report in writing as soon as possible As offence not to report Defence for relevant person to show contravention applicable to another and reasonable steps taken to secure compliance Protection for persons acting in good faith No liability or action will arise e.g. defamation proceedings

34. PART VIII VOLUNTARY REPORTING Any person whether or not relevant person Any matter concerning state and conduct of scheme or PRSA e.g. maladministration Report in writing or otherwise Protection against unfair dismissal provided report made in good faith Also no liability or action will arise

35. PART IX PENSIONS ACT Miscellaneous Applications to the High Court High Court can make various orders on application to it by Pensions Board, to - Order employer to pay arrears of contribution - Order restoration of scheme resources - Order disposal of investments - Injunction prohibiting misuse/misappropriation Provisions extended by Social Welfare and Pensions Act, 2005 to allow Board to - apply to High Court to prohibit disposal of assets of a scheme - where Board receives request from another EU Member State - Court is satisfied that prohibition is necessary to protect members’ interest

36. PART X- PERSONAL RETIREMENT SAVINGS ACCOUNTS - PRSAS For employees, self-employed, homemakers, carers, unemployed or any other category Contract between individual and PRSA provider - Investment account holding units in investments managed by approved PRSA provider Two types – PRSA and Standard PRSA Mandatory employer access Usual tax reliefs applicable Transfers to and from other pension arrangements are facilitated as far as possible

37. PART X - PRSAs Employers must sign up to a PRSA provider for access to at least one Standard PRSA Notify employees of the right to contribute Allow reasonable access to advice Allow reasonable paid time off to get advice

38. PART X - PRSAs Employers must deduct employee contributions from payroll, if requested Pay over employee contributions and employer contributions, if any, within 21 days of the end of the month Tell employees and provider of amounts deducted

39. PART XI The Pensions Ombudsman • Deals with - complaints by “actual or potential beneficiary” of financial loss occasioned by maladministration by “a person responsible for the management of “a scheme/PRSA (trustee, PRSA provider, employer - dispute of fact or law referred to Ombudsman by “actual or potential beneficiary” in relation to an act by a “person responsible for management of” the scheme/PRSA • Actual or potential beneficiary – broad definition; not just a member or PRSA contributor - member, dependant, dependant of deceased member or widow/widower

40. PART XI The Pensions Ombudsman What is not covered? Complaints or disputes; - between trustees and employers - between trustees - falling outside time limit - which have not gone through the internal disputes resolution procedure provided for - which are already the subject of Court proceedings - which are not ones of fact or law or do not involve maladministration

41. PART XI The Pensions Ombudsman What is the time limit for referrals to the Ombudsman? 6 years from the date of the act giving rise to the complaint/dispute or 3 years from the date on which the person became aware or ought to have become aware of the act giving rise to the complaint or dispute, or such longer period as the Ombudsman may allow if it appears that there are reasonable grounds and it would be just and reasonable to extend the period However, for complaints or disputes occurring prior to the passing of the Act, an absolute limit of 6 years applies

42. PART XI The Pensions Ombudsman REDRESS - Ombudsman can give directions, including for financial redress - Financial redress cannot exceed the actual loss of benefit HOW WILL DECISIONS OF THE OMBUDSMAN BE ENFORCED? - By application to the Circuit Court WHAT ABOUT LEGAL COSTS? - No power to award legal costs - Expenses and allowances may be awarded HOW WILL PENSIONS OMBUDSMAN’S OFFICE BE FINANCED? - By the exchequer

43. PART XII Cross Border Schemes New part added by Social Welfare and Pensions Act, 2005 to implement EU Pensions Directive requirements Allows employers in one jurisdiction to sponsor pension schemes in another jurisdiction CB schemes defined by their activities e.g. - Irish registered scheme is CB scheme where it receives contributions from employer located in another Member State or EEA Country - Danish registered scheme is CB scheme where it receives contributions from an employer located in Ireland

44. PART XII Cross Border Schemes • Irish schemes cannot just decide to admit overseas members • prior Pensions Board authorisation required • DB schemes operating cross-border must be fully funded at all times • Compliance with relevant Social and Labour Law required • Exemptions from parts of the Pensions Act for overseas members • Regulations pending: • Social and Labour Law issues • Exemptions from parts of Pensions Act • Authorisation All to be in place by 23 September 2005

45. Further Information • Pensions Board Locall 1890 65 65 65 • Web → www.pensionsboard.ie • Information Booklets free of charge – online and copies available from the Board’s Information Unit • Technical Guidance Services for Practitioners and Trustees available by subscription • Enquiry Service: Information Unit on 1890 65 65 65 or 01 6131900 info@pensionsboard.ie