Business Breakfast Compliance – Pensions The Pensions Acts 1990 - 2004

1. Business BreakfastCompliance – PensionsThe Pensions Acts 1990 - 2004 Paul Kenny 3 June 2004 Pensions Ombudsman Mary Hutch Head of Information & Training The Pensions Board

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

4. 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 • Part VII – Equal Treatment

5. PENSIONS ACT, 1990 *¹ Part VIII – Compulsory and Voluntary Reporting *¹ Part IX – Miscellaneous Applications to the High Court *¹ Introduced by the Pensions (Amendment) Act, 1996 *² Part X – Personal Retirement Savings Accounts *² Part XI – Pensions Ombudsman *² Introduced by the Pensions (Amendment) Act,2002

6. PENSIONS ACT - PART II Functions of Pension 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

7. 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, Community and Family Affairs on operation of Act and pensions matters generally

8. Compliance ImplicationsPensions Act – Part II • Investigation by the Board; Information Requests • Registration – updates • Pay Fees

9. PENSIONS ACT– PART III Preservation of Benefits • Applies to early leavers who have completed 2 years qualifying service • Entitlement 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

10. 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

11. PART IIITransfer Options • TRANSFER OF PRESERVED BENEFIT – • Funded scheme • Revenue approved policy or contract • Unfunded (Public Sector Scheme), with consent of trustees • PRSA subject to certain Revenue conditions • Overseas arrangements

12. PART IIIRefunds of Contributions • WILL REFUNDS OF CONTRIBUTIONS CONTINUE TO BE PERMITTED? • NO, WHERE BENEFIT IS PRESERVED

13. Compliance Implications PART IIICalculation of Preserved Benefits – DC Schemes • Calculation of preserved benefit depends on whether scheme is defined benefit or defined contribution • If D.C. plan – value of preserved benefit at date on which it becomes payable must be equal to accumulated value of appropriate contributions • Appropriate contributions= contributions paid by, or in respect of members, between date of joining scheme and date of termination of relevant employment • Accumulated Value means realisable value of investments secured by contributions less any expenses • Member also entitled to preserved benefit in respect of all AVC’s made to a scheme

14. PART IIICalculation of Preserved Benefits – Defined Benefit Schemes • In defined benefit schemes preserved benefit is calculated on basis of uniform accrual • Long service benefit is assumed to build up uniformly over member’s entire reckonable service • Calculation involves formula • A X B C A = Pension Expectation B = Scheme Service Completed after 01/01/’91 C= Total Potential Scheme Service • This is Basic Preserved Benefit

15. Scheme Details – Defined Benefit Retirement Age: 65 Pension Expectation: 2/3rd of final salary where final salary is salary at date of retirement, or date of leaving service Member Details: Joined company at age: 25 Joined scheme: 1 Sept. 1993 As full Member at Age: 30 Leaves at Age: 45 Salary at Leaving: €15,000 Preserved Benefits Calculation: Pension Expectation: €10,000 (i.e. 2/3rds, €15,000) Scheme service: 15 years (i.e. 45 – 30) Total Potential Scheme Service: 35 years (i.e. 65- 30) Preserved Benefit*: €4,286 p.a. (.i.e. €10,000 x 15/35) *payable from age 65 PART IIIBasic Preserved Benefit for Post 1991 Service

16. PART IIIExtension of Preservation to Cover Pre 1991 Service Additional Preserved Benefit • This will be calculated as the greater of 3 formulae: • The leaving service benefit provided under the rules, less the basic preserved benefit already calculated • Pre-1991 preserved benefit calculated using the same formula as for post-1991 preserved benefit, but based only on reckonable service prior to 1 January 1991, and • Benefit equal in value to the members’ contributions to the scheme, less basic preserved benefit already provided

17. PART III Minimum Value of Contributory Retirement Benefit • Applies to contributory defined benefit schemes • Minimum benefit on retirement – 120% of member's ordinary contributions • AVC’s not taken into account • Interest

18. PENSIONS ACT - Part IV Funding Standard • Applies to Defined Benefit Schemes • To ensure that, at a minimum, scheme has sufficient funds to secure pension rights on wind up • To comply with funding standard schemes must be able to meet certain liabilities • benefits required by AVCs or transfers relating to AVCs • pensions in payment • benefits relating to transfers (other than AVCs) • benefits earned in respect of service before or after 1 January 1991 (excluding revaluation of preserved benefits for pre 1 January 1991 service) • a specified percentage of any other benefits payable (including revaluation of preserved benefits for pre 1 January 1991 service) • estimated expenses of scheme wind-up

19. Compliance Implications PART IV Funding Standard • Actuarial Valuations • effective date not later then 3 ½ years of previous e.d. • Schemes established after 1 January 1991 • e.d. of initial valuation not later than 3 ½ years after scheme commencement • subsequent valuations not later than 3 ½ years after previous e.d. • Calculation of scheme’s assets for meeting standard must exclude • after 31 December 2003 any self investment • after 31 December 2003 concentration of investment in excess of 10 per cent.

20. PART IVActuarial Funding Certificate • Submit to Board within 9 months of effective date of valuation • Levels of solvency – pre 1/1/91 service • First Certificate states level • Re pre 1.1.91 benefits (up to 100%) • Subsequent certificates show level has not dropped • Schemes with an effective date on or after 1.1.2001 must be fully funded for all liabilities including pre 1.1.91 • Where deterioration – funding proposal • Pensions Board be satisfied proposal reasonable • Section 50 Order

21. PART IV Funding Standard- Intervaluation Review • DB schemes subject to intervaluation review • during 3 ½ year interval actuarial review to establish if scheme still satisfies FS • annual report to disclose results of review • corrective measures to be taken where negative assessment arises - notify Board - prepare full AFC

22. Funding Standard Extension of Time • Section 49 (3) • allows Board, on application by trustees, to specify later date than effictive date for next AFC • specified conditions to be met • Guidelines for trustees on www.pensionsboard.ie

23. PART IV Funding Standard - Ring Fencing of AVcs • Will be first priority on wind ups commencing after 1 June 2002

24. PART IV Funding Standard - Transfers on Wind Up • To a funded scheme • To a Revenue approved policy or contract • To a PRSA subject to Revenue conditions • Will apply to DC schemes also

25. PENSIONS ACT – Part V 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

26. Compliance ImplicationsPART VDISCLOSURE OF INFORMATION • Documents: • Trust deed & rules – up to date? • Valuation • Annual report • evidence of issue or notification • Accounts where relevant • BASIC INFORMATION (i.e., the scheme booklet) - fully compliant and up to date?

27. PART VDISCLOSURE OF INFORMATION • Individual information • on request • on leaving service • preservation, statutory/non-statutory • winding-up • death in service • retirement

28. PART VREMITTANCE 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 • New definition of “month”

29. Part VPensions Adjustment Orders • When the Order is served • When other events occur • death of either partner • cessation of dependency • retirement • leaving service • transfer • etc., etc.!!!!!

30. PART VINDEXATION OF PENSIONS IN PAYMENT • New provisions require that the possibility of granting indexation be examined where scheme rules do not require increases of the lower of 4% or CPI or a fixed 3% • New provisions also apply where increases are granted on a discretionary basis • applies to DB schemes • actuarial valuation – comment by actuary • trustees to consider • trustees to present considerations to employer, if consent required • details of process to be set out in annual report • DC Schemes • disclosure to encourage member to opt for a lower but increasing pension

31. Compliance Implications PENSIONS ACT – PART VI • Trustee Duties – section 59 • COLLECT CONTRIBUTIONS – new time limits • Invest – time limits • pay benefits • keep records – membership and financial • obey the Act • Wind up without undue delay • New consultation processes

32. PART VIMEMBER 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

33. PART VIMEMBER SELECTION OF INVESTMENT • New provisions in Part VI of Act • Purpose is to exempt trustees from liability where they invest at direction of member • Effect is to exempt trustees where they comply with requirements for disclosure and investment in default of member selection • Only applies where scheme rules provide for trustees to invest as directed by members

34. PENSIONS ACT – PART VIIEqual 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

35. Compliance ImplicationsPART VIIEqual 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

36. Part VIIEqual 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

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

38. Compliance ImplicationsPART 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

39. 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

40. 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

41. PENSIONS ACT– Part IX 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

42. 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

43. Compliance Implications 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

44. 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

45. Part X - PRSAs • PRSA Compliance Strategy • Compliance Audits • ‘Whistleblows’ • Social Welfare Inspectorate to assist with compliance process

46. PART XIThe Pensions Ombudsman - ComplianceInternal Disputes Resolution

47. Why is the Pensions Ombudsman There? • To investigate complaints & Disputes • To give Financial redress • To individuals • Where they have lost • Through maladministration • Of a pension scheme or PRSA • To decide questions of Fact or Law

48. Who Can Complain? • an actual or potential beneficiary • a member or a former member • a surviving dependant • a person claiming to be a member or a surviving dependant • a contributor to a PRSA • a personal representative of a member or contributor • a widow or widower of a member or contributor If a person cannot act for themselves, a representative may make the complaint

49. Against Whom? • Former / trustee • Former / employer • Former / PRSA provider • Other category to be prescribed • Regulations: “Administrator” includes persons • Providing administration service • To whom S.59 duties delegated • Interpreting or applying scheme rules • To whom PRSA provider has delegated

50. Compliance ImplicationsBefore a Complaint is Taken…….. • Internal Disputes Resolution • Complaint in writing • To trustees (OPS) • To Minister (Public Authority) • To Provider (PRSA)Unless…… • Dispute or complaint already subject to investigation by the Board • Which certifies - “completed or terminated…………” OR • Scheme in Winding Up OR • Frozen Scheme with no Employer trading