Social Welfare and Pensions Act, 2012

Author:Mr Philip Smith and Declan Drislane
Profession:Arthur Cox
 
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Summer 2012

The Social Welfare and Pensions Act, 2012 (the "2012 Act") was passed into law in February of this year. The 2012 Act amends the Pensions Act, 1990 in a number of ways. The main changes are:

The introduction of a risk reserve into the funding standard. This will apply to the all schemes that did not meet the statutory minimum funding standard ("MFS") on 1 June 2012. The Department of Social Protection have issued a press release indicating that the requirement to provide for a risk reserve will take effect from 1 January 2016. The current statutory minimum funding standard, which has been in abeyance for some time, will be restored and will apply until 1 January 2016. The standard will be revised to provide an allowance for the purchase of sovereign annuities and bonds. The Pensions Board has published deadlines by which schemes that are in deficit must submit funding proposals. Such schemes must submit a funding proposal by the later of 31 December 2012 or within 12 months from their last scheme year end falling on or before 31 May 2012. Funding proposals should have a term of three years but the Pensions Board may consider a longer term in exceptional circumstances. The normal maximum term allowed by the Board will be six years or until 31 December 2023 if later. The submission of an actuarial funding reserve certificate with effect from 1 January 2016 in addition to an actuarial funding certificate. If either certificate indicates that the scheme does not satisfy the MFS, the scheme must, except in certain circumstances, submit a funding proposal to the Pensions Board which will seek to restore funding by the next funding certificate date. The extension of section 50 orders to reduce prior revaluations of a preserved benefit. Previously the extent to which preserved benefits (and revaluation increases to preserved benefits) could be reduced by section 50 was unclear. The resulting benefit (after the section 50 reduction) must still be revalued in future in line with Pensions Act requirements – but this can be taken into account in setting the level of reduction. The 2012 Act permits the Minister the publish guidance in relation to the types of assets that can be used by trustees of pension schemes to meet all or part of their obligation to hold a risk reserve. The Pensions Board has published guidance to the effect that trustees may meet that risk reserve through a legally enforceable employer undertaking that...

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