A. New Pension Rights for Mobile Workers
The European Union (Supplementary Pension Rights) Regulations 2019 (the Regulations) amend the Pensions Act 1990 (the Act) and transpose certain requirements related to Directive 2014/50/EU (the Portability Directive) into Irish law. The Portability Directive established minimum standards for the protection of mobile workers’ pension rights. The Regulations apply to “outgoing workers”, which broadly covers any active members that become deferred members of a pension scheme and who move between Member States in the EU. The Regulations came into operation on 13 September 2019 and created the following rights for outgoing workers.
1. Refund of Contribution (new Section 32A in the Act)
The Regulations provide outgoing workers with a right to a refund of pension contributions where they become deferred members without an entitlement to a preserved benefit. In the case of defined benefit schemes, a refund of contributions paid by or on behalf of the outgoing worker must be made. For defined contribution schemes, the outgoing worker is entitled to:
- receive the sum of the contributions paid by, on behalf of, and in respect of the outgoing worker (whether the contributions were paid by the employer or the outgoing worker or both); or
- be paid the value of the investments arising from those contributions.
2. Transfer Payments (new Section 35 (1A) in the Act)
The Regulations permit trustees of a scheme (in the case of outgoing workers) to make transfer payments with the written consent of an outgoing worker. This would apply to an outgoing worker regardless of whether they were entitled to a preserved benefit.
3. Maximum Eligibility Periods (new Section 39A)
The Regulations now restrict the eligibility conditions that can be imposed on outgoing workers. Outgoing workers shall be admitted to membership following a waiting period of no longer than 12 months from the commencement of employment. For any outgoing workers in service before 13 September 2019, the 12-month period is back-dated to when they commenced service.
The definition of “outgoing worker” does not elaborate on what is meant by moving “between Member States”. Presumably, it is intended to cover workers who make a medium to long-term move to another Member State. The recitals to the Portability Directive gave Member States the option to put the onus on the employee to notify trustees where they move to another Member State. Unhelpfully, the Regulations did not include such a requirement.
As a result, it is unclear if trustees will now be expected to put in place procedures to screen exiting members to establish if they are moving to another Member State. It is also unclear if there will be an onus on trustees to periodically follow up with deferred members to check if they have moved to another Member State and become an outgoing worker.
Similarly, will employers now be required to assess whether a new hire is an incoming “outgoing worker”, i.e. have they moved from another Member State and ceased to be an active member of a pension scheme?
Leaving aside these uncertainties, the Regulations are also problematic in terms of tax legislation. Tax legislation makes provision for the repayment of contributions to an employee but only in respect of employee contributions, not employer contributions.
Until these issues are clarified, complying with the requirements of these Regulations in practice will prove challenging for trustees and employers alike.
B. Pensions Regulatory Update – In Brief
1. IORP II
The delayed transposition of the IORP II Directive has been a source of frustration for many stakeholders within the pensions industry during 2019. Progress on that front has been complicated by the legal challenge brought by the Association of Pension Trustees of Ireland (APTI) regarding the proposed mode of transposition. That case was heard before the High Court during mid-October. Following initial legal arguments, the case was adjourned, and the Court lifted the order preventing the implementation of IORP II.
The adjournment of APTI’s case paves the way for the transposition process to begin, although the exact timing of when IORP II will come into force remains unknown. It is expected that APTI’s challenge will be back before the High Court if single member schemes are made subject to IORP II’s requirements. Group schemes should not be affected by any such challenge and should continue preparation to address some of the new requirements that will come into force once IORP II is finally transposed.
2. Auto Enrolment
The Government published an update on 30 October 2019 on the design of the proposed Automatic Enrolment Retirement Savings System (AE). This follows on from the Government’s ‘Roadmap for Pension Reform 2018-2023’ and the subsequent Strawman proposal on AE that was issued for public consultation last year, and which we reviewed in detail here.
The key change that resulted from the consultation process has been to scale back the relatively aggressive rate of contribution increases in the Strawman proposal. Under the updated proposal, employees will make an initial default minimum contribution of 1.5% of gross salary which will be matched by their employer. The contribution will increase by 1.5% every three years, capping at a maximum contribution of 6% at the beginning of year 10. This compared to the original proposal of 1% increases every year up to a maximum of 6% by year 5.
Notably, the opt-out provisions have also been expanded, with employees now being given the opportunity to opt-out of the scheme during a six-month window after each increase in contributions. The initial mandatory six-month contribution and corresponding opt-out period of two months remains in place.
Various elements of the AE proposal are still under consideration, including the scope and role of the proposed Central Processing Authority and how any State supported financial incentive will work. Final proposals on these elements are due to be put before Government for consideration during Q1 2020. Once those issues have been settled, and the overall design of the AE system finalised, legislation would need to follow promptly if the Government is to meet what looks like an increasingly ambitious launch date for AE of 2022.
3. ECB/EIOPA Statistical Reporting Requirements
EIOPA and the ECB have introduced new statistical reporting requirements that will require pension schemes to gather a significant amount of data on assets, liabilities and membership numbers. Schemes will be required to submit reports on an annual and quarterly basis. These reports will need to be submitted to both the Central Bank of Ireland (CBI) and the Pensions Authority.
The Pensions Authority has deferred the collection and reporting of data to EIOPA for a short period owing to technical issues. This deferment does not impact ECB reporting to the CBI.
For many of the larger schemes in Ireland, the provisional deadline for filing the first quarterly return with the CBI is 9 December 2019. Failure to comply with these requirements exposes schemes to potentially significant fines. If trustees have not already done so, they should ensure that their administrators have the necessary procedures in place to comply with the reporting requirements and deadlines laid down by the CBI.
Please contact Ian Devlin or your usual contact at William Fry for further information.
Contributed by: Jane Barrett