1. Business Breakfast Compliance – Pensions The Pensions Acts 1990 - 2005 Paul Kenny 5 April 2005 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 27 th July 2001  Pensions (Amendment) Act, 2002 passed on 13 April 2002  Social Welfare and Pensions Act, 2005 passed on 14 March 2005

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

5. 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

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 and Family Affairs on operation of Act and pensions matters generally

8. Compliance Implications Pensions 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 III Transfer 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 III Refunds of Contributions  WILL REFUNDS OF CONTRIBUTIONS CONTINUE TO BE PERMITTED?  NO, WHERE BENEFIT IS PRESERVED

13. Compliance Implications PART III Calculation 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 III Calculation 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. PART III Basic Preserved Benefit for Post 1991 Service  Scheme Details – Defined Benefit Retirement Age: 65 Pension Expectation: 2/3 rd 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

16. PART III Extension 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. 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

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 IV Actuarial 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

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. PART IV 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 - extended by Social Welfare and Pensions Act, 2005  Guidelines for trustees on www.pensionsboard.iewww.pensionsboard.ie

23. PART IV Funding 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

24. PART IV Funding Standard - Ring Fencing of AVcs  Are first priority on wind ups commencing after 1 June 2002

25. 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  Applies to DC schemes also

26. 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

27. Compliance Implications PART V DISCLOSURE 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?

28. PART V DISCLOSURE OF INFORMATION  Individual information  on request  on leaving service -preservation, statutory/non-statutory  winding-up  death in service  retirement

29. 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  New definition of “month”

30. PART V Disclosure 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

31. Part V Pensions Adjustment Orders  When the Order is served  When other events occur  death of either partner  cessation of dependency  retirement  leaving service  transfer  etc., etc.!!!!!

32. PART V INDEXATION 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)

33. 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)

34. 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

35. 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

36. 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

37. PART VI MEMBER 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)

38. 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

39. 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

40. 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

41. 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

42. 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

43. 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

44. 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

45. 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

46. 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

47. 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

48. 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

49. Part X - PRSAs  PRSA Compliance Strategy  Compliance Audits  ‘Whistleblows’  Social Welfare Inspectorate assists with compliance process

50. PART XI The Pensions Ombudsman - Compliance Internal Disputes Resolution

51. 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

52. 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

53. 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

54. Compliance Implications Before 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

55. 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

56. 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

57. 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

58. 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

59. 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

60. 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”

61. 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

62. Public Sector Appeals  Complainant has exhausted procedures  But it was before the Act  Through the hoops again?  We suggest……..

63. 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

64. PART XII Cross 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 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

65. Compliance Implications 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 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