Business Breakfast Compliance – Pensions The Pensions Acts 1990 - 2005
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Transcript of 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
PART IV Funding Standard
- Ring Fencing of AVcs
Are first priority on wind ups commencing after 1 June 2002
PART IV Funding Standard
- 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
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
PART VIQualifications 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
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