The Minister for Finance confirmed in his budget speech that the 0.6% Pension Levy will not apply beyond the end of 2014. The additional 0.15% pension levy introduced for 2014 and 2015 will expire as provided in legislation at the end of 2015.
It has been estimated that €2.3 billion has been paid in levies by pension schemes since 2011.
The ending of the pension levies is an opportunity for trustees and employees, who have not yet resolved who will bear the cost of the pension levies, to reach a decision on the matter in the knowledge that no future levies are proposed for the time being.
OMEGA PHARMA CASE
The case was brought by the trustees of the Omega Pharma Ireland Pension and Death Benefit Scheme (the “Scheme”) against an overseas principal employer and Irish participating employers in the Scheme. The case arose after the employers announced redundancies in September 2012 and the intention to wind up the pension scheme. The principal employer issued the trustees with three months’ notice of its intention to terminate liability to contribute to the Scheme in accordance with the Scheme rules.
Clause 8.1 of the Scheme’s 2004 trust deed stated that the employers shall pay the Trustees “the moneys which the Trustees determine, after consulting the Actuary and the Principal Employer, to be necessary to support and maintain the Fund in order to provide the benefits under the scheme.”
The Trustees sought to engage with the trustees seeking contributions but the principal employer failed to respond to the Trustees’ correspondence and in the absence of any engagement by the Company, the trustees served a contribution demand for €3.01 million (later reduced back to €2.23 million) on the Company.
Justice Moriarty found that during the three month notice period, the Trustees were entitled to make a final contribution demand.
Having taken professional advice, the Trustees determined that funding on the statutory minimum funding standard (“MFS”) basis was insufficient to provide the benefits under the Scheme but that an annuity buy-out basis would be ‘excessive’ (resulting in a deficit of €5.8 million). A combination of annuity buy-out and MFS had been recommended by the scheme actuary and had been sought. The Court was of the opinion that the trustees had come to a reasonable decision in the absence of any response from the employer but the Court offered no guidance on what was an appropriate basis for a contribution demand. Moriarty J stated that “once trustees had acted honestly and in good faith, taking into account all relevant considerations and excluding irrelevant ones, the appropriate standard for review of their decisions is whether no reasonable body of trustees could have come to the same decision.”
Pending appeal, it is difficult to draw any formal conclusions from the judgment. It would appear, at this stage to suggest that:
having taken appropriate advice, it is not unreasonable on a wind-up for trustees to seek funding in excess of the MFS basis;
fund contribution demands can be validly issued in a notice period (although each wind-up should be considered in light of the scheme’s own terms);
it is risky for employers not to engage with trustees who consult them; and
Courts are reluctant to overturn decisions properly taken by trustees that appear to have been reasonably arrived at.
Omega Teknika Limited has indicated an intention to appeal the judgment and there remains uncertainty until an appeal is heard.
PENSIONS AUTHORITY GUIDELINES FOR TRUSTEES OF DEFINED BENEFIT SCHEMES
Since the early 2000’s, a majority of schemes have failed to meet the MFS resulting in wind-ups, reductions in benefits or a membership freeze. As at 21 September the Pensions Authority notes that, there were 61 schemes which remained non-compliant with the MFS.
As a result, the Authority published draft Guidelines for trustees to assist them in ensuring that schemes are managed effectively and encouraging trustees of schemes who are not meeting the MFS to accelerate their efforts to find a solution to their funding deficit without Authority intervention.
The draft Guidelines look at four key areas:
Scheme Data – this sets out what practices the Authority expects trustees to follow in order to understand and manage the funding and investment of their defined benefit scheme.
Governance – this outlines governance practices relevant to the financial management of a scheme.
A list of periodic tasks to be undertaken by the trustees to include:
review of investment strategy;
review of contribution and funding adequacy;
preservation/review of risk matrix;
discussions with employer about contributions and related issues;
review of investment management performance; and
review of scheme costs.
Analysis by the trustees the purpose of which is to identify threats to the ability of the scheme to meet its liabilities and to consider what action to be taken in response.
PENSIONS AUTHORITY PUBLISHES MODEL DISCLOSURE DOCUMENTS
The Pensions Authority has published the first in a series of model documents on disclosure of information requirements. The first model documents to be published are an annual benefit statement for a defined contribution scheme and a statement of reasonable projection (SRP). The publication of these documents is in response to submissions received to the Pensions Authority’s DC pension consultation paper published last year. The submissions indicated that the quality of member information needs to be improved considerably and made more user-friendly.
The Pensions Authority notes that: “It is important that pension scheme members receive accurate and understandable information in a structured manner so that they can make informed decisions about their retirement savings.”
The Pension Authority proposes to issue further model disclosure documents over the next few months.
NEW SECTION 50 REGULATIONS
On 2 September 2014, new Regulations setting out the information and notification requirements to be carried out by scheme trustees before the Pensions Authority issues a unilateral section 50 direction (i.e. other than a direction on application by the Trustees), were signed.
Where the Authority proposes to make a unilateral direction under section 50 or section 50(B) of the Pensions Act and where the Authority requires, members must be notified of the proposed direction by trustees and the members will be given an opportunity to make submissions to the Pensions Authority in relation to the direction. Those submissions must be considered by the Pensions Authority prior to its making a direction under Section 50.