Legislative updates

Occupational Pension Schemes (Preservation of Benefits) Regulations 2023

On 17 October 2023, the Occupational Pension Schemes (Preservation of Benefits) (Amendment) Regulations 2023 (the “New Regulations”) came into force.  The main changes introduced by the New Regulations are:

• Increase in the threshold for transfers without member consent:  Section 35 of the Pensions Act 1990 (the “Pensions Act”) permits trustees of occupational pension schemes to make a transfer payment in respect of a member without the member’s consent, instead of providing a preserved benefit from the scheme, where the amount available for transfer is below a certain threshold set out in regulations.  The New Regulations increase this threshold from €10,000 to €20,000.
• Statutory member notifications may be made by electronic means:  Trustees are required to notify members at least 30 days before any transfer payment is made in accordance with section 35 of the Pensions Act.  The New Regulations provide for such notifications to be made by means of any electronic method.
• Revised list of schemes exempt from the provisions of Part III of the Pensions Act:  The New Regulations update the list of (public sector) schemes that are exempt from the preservation requirements in the Pensions Act.  The Single Public Service Pension Scheme has been included in the list of exempt schemes, and a number of other schemes have been added to or removed from the list.

Finance (No.2) Bill 2023

Following the Budget, the Finance (No.2) Bill 2023 (the “Finance Bill”) was introduced to Oireachtas on 19 October 2023.  The Finance Bill contains the following provisions on pensions:

• Revenue to no longer approve new Retirement Annuity Contracts (“RAC”):  Section 17 of the Finance Bill amends section 784 of the Taxes Consolidation Act 1997 (the “TCA”) to provide that from 1 January 2024 the Revenue Commissioners will not approve any RACs under section 784 except where the application for approval has been made before 1 January 2024.
• Loans to close companies added to list of taxable distributions:  Section 18 of the Finance Bill extends the list of transactions that are regarded as taxable distributions in section 784A of the TCA to include loans made by an Approved Retirement Fund (“ARF”) to a close company where the individual beneficially entitled to the assets of the ARF, or any person connected with that individual, is a participator in that close company.  The list of taxable distributions in section 784A is cross-referenced in the provisions of the TCA relating to occupational pension schemes and PRSAs, so loans to close companies from such schemes or arrangements will also be caught by this amendment.
• Removal of upper age limit to make initial withdrawal from Personal Retirement Savings Accounts (“PRSA”):  Section 19 of the Finance Bill amends section 787K of the TCA to remove the existing upper age limit of 75 years for holders to make initial withdrawals from their PRSA.
• Pension funds must register tenancies to avail of tax relief on rental income:  Section 20 of the Finance Bill inserts a new section 790F into the TCA to provide that from 1 January 2024, in order for occupational pension schemes, RACs, ARFs and PRSAs to avail of an exemption from income tax or capital gains tax on income derived from a qualifying lease, the relevant tenancy must be registered with the Residential Tenancies Board under the Residential Tenancies Act 2004.

The Finance Bill is expected to be brought through the Oireachtas in the coming weeks and may be subject to further amendment.

IORP II

Wind-up deadline for non-IORP II compliant schemes – 31 December 2023

The deadline set for employer-sponsored pension schemes which are not intending to comply with IORP II governance standards to be wound-up is 31 December 2023.  Trustees of schemes that are winding-up to meet this deadline should ensure that their scheme administrator updates the Pensions Data Register to record that the scheme has been wound-up.

Please contact us if we can be of assistance in advising on IORP II compliance deadlines.

Pensions Authority updates

Risk Conference 2023

On 11 October 2023, the Pensions Authority (the “Authority”) held its Risk Conference on the topic of risk management for pension schemes.  The Authority also used the conference to launch its guidance for trustees on conducting Own-Risk Assessments (“ORA”) (see further below).

A video recording of the conference is available on the Authority’s website here.

Authority publishes Own-Risk Assessment guidance for Trustees

On 11 October 2023, the Authority also published its guidance (the “Guidance”) for trustees on the ORA that trustees are required to conduct at least once every three years under section 64AL of the Pensions Act (and without delay following any significant change in the risk profile of the scheme). The Authority notes that the Guidance should be used to supplement trustees’ existing ORA processes and should not be used as a “starting point”. The Authority reminded trustees that the ORA should not be a “mechanistic” exercise.  Nonetheless, the Guidance contains a number of points that trustees should bear in mind when conducting their ORAs:

• Process:  Trustees must have a written ORA process in place, which should document how the ORA has been tailored to suit the needs of the specific scheme.
• Risk identification:  The risks that trustees will need to consider will differ depending on the nature of their scheme.  The Guidance provides a non-exhaustive description of the types of risk that may apply to a defined benefit (“DB”) scheme, a defined contribution (“DC”) scheme and a master trust.  The Guidance also contains an appendix setting out a list of questions under six different headings that trustees should consider when conducting the ORA.
• Evaluation:  The ORA should include an evaluation of each risk identified against specified levels of risk tolerance with a clear quantification or scoring of the risks.  Where trustees have outsourced certain services, they should be regularly seeking evidence-based information from service providers about risks and risk mitigation.Risk mitigation:  Based on findings from the ORA, trustees must decide whether to avoid, reduce, transfer, or accept a risk.  Trustees must be able to demonstrate to the Authority that the objective of their risk management decisions is to support good member outcomes.
• Documentation and reporting:  The ORA should be documented in a comprehensive written report, supported by evidence where available, which includes: (i) a detailed account of how the scheme’s risks were identified, measured and evaluated; (ii) what additional mitigations (if any) the trustees have decided to implement in light of the ORA; (iii) how the ORA findings will be integrated into the scheme’s risk management system; and (iv) the planned date of the next ORA.

The Guidance is available on the Authority’s website here and should be read in full by trustees and their advisers.

Authority publishes findings report on 2023 scheme survey

On 3 October 2023, the Authority published the results of its 2023 scheme survey, which had been issued to the trustees of 150 DB schemes and 150 DC schemes in July 2023.  The purpose of the survey was to assess trustee awareness and management of risks facing pension schemes.

The findings report notes that 68% of the DC schemes surveyed intend to wind up and transfer to an alternative pension arrangement.  However, only 6% of the DB schemes surveyed indicated an intent to wind up.

The Authority also noted that many schemes surveyed had not yet conducted an initial ORA.  The Authority reminded trustees that the latest date by which a scheme’s initial ORA can be completed is 22 April 2024, and that they should prioritise conducting an ORA in order to meet this deadline (see above for the Authority’s ORA guidance).

Authority publishes annual report and accounts for 2022

On 4 September 2023 the Authority published its annual report and accounts for 2022, accompanied by a statement from the Pensions Regulator.

The report noted that the Authority had concluded five prosecutions in 2022, resulting in one conviction in relation to non-remittance of employee contributions under section 58A(1) of the Pensions Act.  The four other prosecutions were struck out due to payment of arrears or the underlying matter being rectified in advance of the court date.

The Authority also opened 15 new investigations in 2022 into various alleged breaches of the Pensions Act whilst 17 investigations were finalised and closed.  The majority of new investigations opened related to the suspected non-remittance of contributions or the suspected failure to pay benefits.

The Pensions Regulator’s statement highlighted a number of points that may be relevant for schemes:

• As a result of the transposition of IORP II, the Authority is now obliged to apply a system of forward-looking risk-based supervision to pension schemes. The Pensions Regulator stated that this system would be implemented “in the coming months and years as the IORP II transition is completed”.
• The Pensions Regulator noted that trustees and their advisers have been looking to the Authority for guidance on risk assessment and other IORP II related matters.  The Pensions Regulator acknowledged that the provision of guidance is part of the Authority’s responsibilities and that the Authority will continue to provide such guidance where appropriate, but noted that trustees’ responsibilities are not limited to following guidance and that the Authority expects trustees to be pro-active and take the initiative in addressing the interests of members and beneficiaries of their schemes.
• The Authority considers that there are lessons to be learned from the issues that arose in the UK pensions market regarding Liability Driven Investments (LDI) in Autumn 2022.  The Authority is reviewing this area and is considering issuing guidance on this topic.

The Pensions Regulator also noted that the Authority has concerns regarding investment by pension schemes in unlisted, unregulated investments and whether these are appropriate for scheme members in all cases.  The Authority will address this point further as part of its forward-looking risk-based supervision.

European updates

Expiry of the final clearing exemption for pension schemes

On 18 June 2023, the exemption for pension schemes from the central clearing obligations of the European Market Infrastructure Regulation (“EMIR”) expired.  The EMIR central clearing obligation requires pension schemes to clear over-the-counter derivative contracts with a central clearing party.  The exemption had previously been extended on a number of occasions to allow further time for finalisation of the operational measures required for central clearing to operate efficiently.  Note that the UK has taken a different approach in this area, extending the exemption for pension schemes from the central clearing obligation under the UK equivalent of EMIR until 18 June 2025.

Case law update

McGaughey v Universities Superannuation Scheme Limited

In this case, the Court of Appeal of England and Wales (upholding an earlier decision of the High Court) dismissed a claim brought by two members of the Universities Superannuation Scheme (the “Scheme”) against the directors of the Scheme’s trustee company (the “Trustee Directors”).  The claimants raised a number of grounds for their claim, including that the Trustee Directors failure to take adequate steps to divest the Scheme’s assets from fossil fuel companies (in line with a stated commitment by the Trustee Directors that the Scheme’s investments would be carbon neutral by 2050) amounted to a breach of their statutory and fiduciary duties as directors to promote the success of the Scheme and its members, having regard to their long-term interests.

Although the Court of Appeal dismissed the claim primarily on procedural grounds, the Court nonetheless noted that even in the absence of such procedural factors, it was doubtful that the claimants would have a prima facie case for a breach of duty against the Trustee Directors. The Court stated that the Trustee Directors had complied with their duty under the Occupational Pension Schemes (Investment) Regulations 2005 to ensure the “security, quality, liquidity and profitability of the [Scheme’s] investments as a whole” and had taken appropriate professional advice which had informed them that immediate divestment from fossil fuel companies was not the most effective way to reach its carbon neutral target.  Nor did the Court consider it relevant that a “members’ ethical survey” completed by less than 1% of the Scheme’s membership had indicated a desire for the Scheme to divest from fossil fuel companies. In these circumstances, the Court concluded that “this was a claim which was bound to fail”.

Cases such as this, where activist scheme members seek to use litigation to influence the investment decisions of pension scheme trustees, are likely to become more common as the “ESG” agenda and concerns around “greenwashing” become more prominent (particularly in light of the introduction of the Sustainability-Related Disclosures Regulations that we referred to in our previous update).  The outcome of this case, which would be persuasive authority in Irish courts, shows that the Courts will expect trustees to remain focused on their strict legal obligations under legislation and the trust documents rather than bowing to pressure from activist members where (properly advised) the trustees conclude that the approaches advocated by activist members would not be in the interests of the scheme as a whole.