Welcome to the Mason Hayes & Curran Pensions Update which will briefly outline the proposed changes for pensions contained in the Social Welfare and Pensions Bill 2012 (the "Bill").
Background to this Update
The funding standard for defined benefit pension schemes has been in abeyance for some time. On 28 October 2011, the Irish Government announced changes to the funding standard. Legislation to effect those changes has since been awaited. On 5 April 2012, the Bill was finally published incorporating some of the proposed changes to defined benefit pension schemes.
The Government plans to introduce a risk reserve requirement over an extended period of time from the re-introduction of the funding standard. The Department of Social Protection issued an accompanying press release to the Bill which states that the requirement to provide for a risk reserve will take effect from 1 January 2016. Some of the previously proposed changes have not been included in the Bill, the notable omissions being the proposed adjustments to the priority order on winding up in deficit and the proposed Pension Board powers to direct the winding up of schemes in certain circumstances. The long-term fate of these proposals is not yet entirely clear and they are not mentioned in the press release.
Sections 8 to 26 of the Bill provide for the amendment of the Pensions Act 1990 which will give effect to the changes with the intention of strengthening the regulatory structure of defined benefit pension schemes to protect scheme members.
Summary of Defined Benefit Pension Changes Proposed in the Bill
In addition to maintaining sufficient assets to meet the liabilities of a pension scheme, the changes will require the trustees to hold a risk reserve. The risk reserve will be the aggregate of two amounts: - 15% (this percentage may be prescribed to be anywhere between 0% and up to 50%) of the amount of the funding standard liabilities less the value of EU bonds and cash (and any other prescribed assets) held and - The amount by which the funding standard liabilities would increase on the effective date if there was a 0.5% fall in interest rates (interest rate fall may be prescribed to be anywhere between 0% and up to 5%) subject to an offset as prescribed. Trustees will be required to submit an actuarial funding reserve certificate to the Pensions Board in addition to an actuarial funding certificate. Subject to certain exceptions, a funding proposal must be submitted to...