business breakfast compliance – pensions the pensions acts 1990 - 2005

Business BreakfastCompliance – Pensions

The Pensions Acts 1990 - 2005

Paul Kenny 5 April 2005Pensions Ombudsman

Mary Hutch Head of Information & Training

The Pensions Board

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

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 2001Pensions (Amendment) Act, 2002 passed

on 13 April 2002Social Welfare and Pensions Act, 2005

passed on 14 March 2005

PENSIONS ACT, 1990

Part I – Preliminary and GeneralPart II – Establishment of Pensions

BoardPart III – Preservation of BenefitsPart IV – Funding StandardPart V – Disclosure of InformationPart VI – Trustees of Scheme*1 Part VII – Equal Treatment

*1 Equal Pension Treatment introduced by Social Welfare Act, 2004

PENSIONS ACT, 1990

*2 Part VIII– Compulsory and Voluntary Reporting

*2 Part IX – Miscellaneous Applications to the

High Court*2 Introduced by the Pensions (Amendment) Act, 1996

*3 Part X – Personal Retirement Savings Accounts

*3 Part XI – Pensions Ombudsman*4 Part XII – Cross Border Schemes*3 Introduced by the Pensions (Amendment) Act,2002

*4 Introduced by the Social Welfare and Pensions Act,2005

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

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 pensions matters generally

Compliance Implications Pensions Act – Part II

Investigation by the Board;Information Requests

Registration – updates

Pay Fees

PENSIONS ACT– PART IIIPreservation 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

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

PART IIITransfer Options

TRANSFER OF PRESERVED BENEFIT –

Funded schemeRevenue approved policy or contractUnfunded (Public Sector Scheme), with

consent of trusteesPRSA subject to certain Revenue

conditionsOverseas arrangements

PART III Refunds of Contributions

WILL REFUNDS OF CONTRIBUTIONS CONTINUE TO BE PERMITTED?

NO, WHERE BENEFIT IS PRESERVED

Compliance Implications

PART IIICalculation of Preserved Benefits – DC

SchemesCalculation 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

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 ExpectationB = Scheme Service Completed after 01/01/’91C= Total Potential Scheme Service This is Basic Preserved Benefit

PART IIIBasic Preserved Benefit for Post 1991

Service

Scheme Details – Defined BenefitRetirement Age: 65Pension 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: 25Joined scheme: 1 Sept. 1993 As full Member at Age: 30Leaves at Age: 45Salary 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 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

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

PART IV PENSIONS ACT

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

Small change made to Standard by Social Welfare and Pensions Act, 2005

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.

PART IVActuarial Funding Certificate

Submit to Board within 9 months of effective date of valuation

First Certificate with effective date after 01.06.02 states certified percentage- Re pre 1.1.91 revaluation (up to 100%)

By 1.6.2012 this certified percentage must be 100%

Cert also shows whether or not scheme satisfied Funding Standard

If does not satisfy, funding proposal required Section 50 Order

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

PART IVFunding Standard

Extension of TimeSection 49 (3)

allows Board, on application by trustees, to specify later date than effictive date for next AFC

specified conditions to be met

- extended by Social Welfare and Pensions Act, 2005

Guidelines for trustees on www.pensionsboard.ie

PART IVFunding Standard

Social Welfare & Pensions Act, 2005

AFCs every three years Date of first AFC due after 22 September 2005 unchanged New period applies to any subsequent AFCs

Grounds for extensions – Regulations

DC schemes to value liabilities – Regulations

DC schemes to prepare AFCs if pay pensions from assets

Frozen etc. schemes with over 100 active or deferred members no longer exempt from Funding Standard

Early retirement consent if underfunded

Schemes which fail funding Standard Recommended disclosure of funding position to members For consideration in revision to Disclosure Regulations


- Ring Fencing of AVcs

Are first priority on wind ups commencing after 1 June 2002


- Transfers on Wind Up

To a funded schemeTo a Revenue approved policy or

contractTo a PRSA subject to Revenue

conditions Applies to DC schemes also

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

Compliance Implications

PART VDISCLOSURE OF INFORMATION

Documents:Trust deed & rules – up to date?Valuation Annual report

- evidence of issue or notificationAccounts where relevantBASIC INFORMATION (i.e., the scheme

booklet)- fully compliant and up to date?

PART VDISCLOSURE OF INFORMATION

Individual information on request on leaving service

- preservation, statutory/non-statutory winding-up death in service retirement

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”

PART VDisclosure of Information

Social Welfare and Pensions Act, 2005

Schemes frozen prior to 1993 exempted from obligation to prepare annual reports audited accounts actuarial reports (where relevant)

Now exemption limited only to ‘small schemes’

Small schemes = those with less than 100 active and deferred members

Change is necessary to comply with EU Pensions Directive

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.!!!!!

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 N.B. these provisions have not yet commenced (Pensions

(Amendment) Act, 2002)

Compliance Implications PART VI

PENSIONS ACT

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 (not yet

commenced – Pensions Amendment Act, 2002)

PART VITrustees Duties


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

PART VIQualifications of Trustees


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

PART VIMEMBER TRUSTEESHIP

Regulations effective from 1.1.1994Permit 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 processExisting trustees must commence processPreliminary Poll or straight to election

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

N.B. These provisions have not yet commenced (Pensions (Amendment) Act, 2002)

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

Compliance Implications 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

Part VIIEqual 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

Part VIII PENSIONS ACT

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

Compliance Implications 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

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

PART VIII VOLUNTARY REPORTING

Any person whether or not relevant personAny matter concerning state and conduct of

scheme or PRSA e.g. maladministrationReport in writing or otherwise Protection against unfair dismissal provided

report made in good faith Also no liability or action will arise

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’ interests

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 PRSAMandatory employer accessUsual tax reliefs applicableTransfers to and from other pension

arrangements are facilitated as far as possible

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

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

Part X - PRSAs

PRSA Compliance Strategy

Compliance Audits

‘Whistleblows’

Social Welfare Inspectorate assists with compliance process

PART XI

The Pensions Ombudsman - Compliance

Internal Disputes Resolution

Why is the Pensions Ombudsman There?

To investigate complaints & DisputesTo give Financial redress

To individualsWhere they have lostThrough maladministrationOf a pension scheme or PRSA

To decide questions of Fact or Law

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

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

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

Complaint Considered

•Notice of Determination in writing– Conditions to be met

»WHAT HAS BEEN DECIDED »WHAT IS RELIED UPON IN DECIDING»THAT COMPLAINANT IS NOT BOUND…..»BUT CAN TAKE THE PROBLEM ONWARDS

to the Pensions Ombudsman

Trustees Don’t Have the Power?

This often happens:

• Employer power of augmentation• Employer discretion to pay dependants• Employer discretion to divert• Employer decision on ill-health enhancement• Adviser interpretation of e.g., Revenue limits• Insurer allocation, calculations• Actuarial calculation, calculation of preserved benefit

Trustees must consult, etc. – but eventually they must deliver Notice of Determination

Structure of IDR

Considerations in Ireland: Simple User-friendly Saving time Trustees can decide structure of IDR procedure appropriate to

scheme - size, circumstances IDR result not binding on the complainant

Time Scale

“Relevant Person” – i.e., Trustees, Minister or PRSA Provider has

Three Months from receipt of all necessary information, to furnish

Notice of Determination

What Happens in Practice?

Complainants Don’t know about IDR Write to the Ombudsman Told about IDR and possible exceptions Apply for IDR ……………..

Do the trustees know about IDR?• Who’s the consultant?• Is there a consultant?

– PO Office will write to the trustees, send booklet

Practice Varies

Some schemes have good and established IDR processes –e.g., Expert adjudicator recommends solution Committee considers

If not, advice is available IR machinery may not be suitable Trustees and HR people need to understand IDR

requirement may not suit established “Grievance Procedures”

Public sector

Traditionally appeals take time – 3 month limit! Local expertise may be absent Appeals procedures not defined; e.g.,

S. 11(5) “…may appeal to the Minister…..” Attempts to substitute other procedures (e.g., Pensions

committee, etc) Local Government scheme has put in new procedure and

removed Ministerial appeal

Public Sector Appeals

Complainant has exhausted procedures

But it was before the ActThrough the hoops again?We suggest……..

Failure to Operate IDR

Breach of the Pensions Act Criminal Offence But sanction on employer / trustee does not give

redress Powers may be reviewed……….. Watch this space

PART XIICross Border Schemes

New part added by Social Welfare and Pensions Act, 2005 to implement EU Pensions Directive requirements

Allow employers in one jurisdiction to sponsor pension schemes in another jurisdiction

CB schemes defined by their activitiese.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

Compliance ImplicationsPart 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 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