Summer Update 2021 - Arthur Cox
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PENSIONS AND EMPLOYEE BENEFITS
Summer Update 2021
July 2021
TRANSPOSITION OF IORP II EMIR (EUROPEAN MARKET (“ARF”), vested Personal Retirement
INFRASTRUCTURE REGULATION) Savings Accounts (“PRSA”) or Approved
The domestic implementing regulations
for IORP II, the European Union Under the EMIR Regulation 648/2012 Minimum Retirement Funds (“AMRF”).
(Occupational Pension Schemes) as amended by EMIR Refit Regulation
Among the updates, Revenue have
Regulations, 2021 (the “Regulations”) 2019/834 (together the “Regulation”)
included a link to the new Refund of
were signed into Irish law on 22 April certain pension arrangements (which are
Taxes Paid on ARF Distributions Claim
last and, in the main they did not contain deemed to be financial counterparties
form which is to be completed by non-
anything unexpected. While there has under the regulations) are required to
resident claimants seeking a repayment
been some initial guidance from the clear certain over the counter (“OTC”)
of Irish tax on an Irish pension as well as
Pensions Authority (the “Authority”) on the derivative contracts including interest
additional information for refund claims
Regulations, the Authority has indicated rate, foreign exchange, equity, credit
made by non-resident claimants with
that it will issue a draft code of practice and commodity derivatives via a central
unit linked ARF funds. The additional
on IORP II in the week commencing 19 counterparty. Pension arrangements had
information includes further detail and
July for public consultation with the final originally been granted an exemption in
worked examples in relation to the
version to be published in November. respect of these clearing obligations until
application of double taxation agreements
This code of practice will supplement 18 June 2021.
to distributions from ARFs, vested PRSAs
the high-level obligations outlined in the
The Commission Delegated Regulation and AMRFs.
Regulations. Until then, trustees and
(EU) 2021/962 was recently published
employers should focus on familiarising
in the Official Journal and this regulation
themselves with the requirements of the
has further extended the central clearing RECENT CONSULTATIONS
Regulations and preparing for the first
exemption for pension arrangements by a Three consultations relating to pensions
compliance date (which relates to putting
further year until 18 June 2022. in Ireland have recently closed. The
in place a remuneration policy and having
a minimum of two trustees effectively topics addressed in the consultations
running a scheme) of 31 December 2021. included: the fees payable by pension
REVENUE UPDATE TO PENSIONS arrangements to the Authority; the gender
For more information in respect of the MANUAL CHAPTER 23
gap in supplementary pensions; and
Regulations please see our recent IORP II On 29 June Revenue updated chapter sustainability of the State Pension and the
briefing here. 23 of the Pensions Manual to provide Social Insurance Fund. Details of these
updated guidance for non-resident consultations are set out below:
owners of Approved Retirement Funds
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Summer Update 2021
Pensions Authority Consultation paper and it will be interesting to see what reporting disclosures and must make
on fees suggestions emerge to change the way these disclosures in the mandatory
i. The Authority has published a the supplementary pension system templates which are set out in the
consultation paper on fees paid by is structured to improve the financial annexes to the SFDR RTS for relevant
occupational pension schemes, trust position of women in retirement. products.
RACs and PRSA providers. This is partly The European Commission (the
being driven by the IORP II Directive Pension Commission Stakeholder “Commission”) sought to introduce RTS
which requires the Authority to adopt Forum to give guidance on the context and
a forward-looking risk-based approach i. The Pensions Commission (the format of ESG reporting under SFDR.
to supervision which will involve more “Commission”) was established The change in date in finalising the RTS
direct engagement with trustees and in November 2020 as part of a affects the reporting element of the SFDR
as a consequence an increase in Government commitment. The but does not affect the processes and
staff numbers within the Authority. Commission has been asked to develop principles underlying the reporting which
The Authority has stated that if its a range of options for the Government should already be in place in accordance
fee income remains unchanged, it to consider in order to address the with SFDR. Trustees are required to take
would represent just 60% of projected sustainability of the State Pension and environmental, social and governance
expenditure in 2022. The Authority the Social Insurance Fund in terms (“ESG”) factors (with related disclosures)
also noted that there has not been of pension age, eligibility criteria, into account in the context of the
an increase in fees paid by pension contribution rates, pension calculation requirements under both SFDR and IORP
schemes and PRSAs since 2002 methods and pension payment II (and to a related degree under the
(although there were two reductions for rates. It will also consider the issue of Shareholders’ Rights Directive (“SRD”)).
pension schemes in 2010 and 2011). retirement ages in private employment
ii. The Authority is proposing to change its contracts that are set below the State To the extent that you require any advice
fee structure as follows (to be reviewed Pension age, and pension provision for in relation to SFDR, IORP II or SRD please
again in 2024): long-term carers. contact the Arthur Cox Pensions team.
a. the primary fee would be an asset- ii. The Stakeholder Forum was held on
based levy charged on an equal basis 21 April 2021 and forms part of the PENSIONS AUTHORITY REPORT
to all pension schemes and PRSAs; Commission’s consultation process. ON DEFINED BENEFIT SCHEME
b. the introduction of a substantial Presentations were given by the OECD, STATISTICS FOR 2020
per scheme fee after an interval Age Action, the ESRI, IBEC, ICTU and On 8 June the Authority published
to allow and encourage scheme NWCI. The Forum aimed to facilitate an its report on defined benefit scheme
consolidation; and exchange of experiences, knowledge statistics for 2020. The Authority
and insights amongst key stakeholders expressed its concern about the level of
c. the fee structure and rates would and Commission members.
remain unchanged for single investment risk inherent in the provision
member schemes subject to the iii. The Commission was due to report to of defined benefit schemes and noted
temporary IORP II derogation. the Government by the end of June but that the risk is borne primarily on
has stated that it will instead report members who have not yet retired. The
iii. The closing date for submissions in shortly after the summer recess which Authority further noted that this group
respect of the Authority’s consultation ordinarily ends in September. Due continues to diminish and the risks
paper was 22 June 2021. It is not yet to this delay it is likely to be March associated with defined benefit schemes
known when the Authority expects to 2022 before the Government can becomes more concentrated as a result.
provide an update on the consultation make a decision on the Commission’s
process. recommendations. The report noted that there are currently
310,640 members of defined benefit
The Pensions Council (the “Council”) schemes consisting of 104,196 retired
REGULATORY TECHNICAL STAND- members, 136,485 deferred members
i. The Council launched a public ARDS (“RTS”) UNDER THE SUS- and 69,959 active members. The total
consultation and is seeking views on TAINABLE FINANCE DISCLOSURE funding standard related liabilities in
the gender gap in supplementary REGULATION (“SFDR”) DEADLINE
respect of these members is €61 billion
pensions arising as a result of current EXTENDED UNTIL 1 JULY 2022
which rises to €64.2 when the funding
practices within the supplementary The aim of SFDR is to lay down standard reserve is included. Total assets
pension system in Ireland. The Council harmonised rules on transparency for held by defined benefit schemes were
had already published a report on financial market participants (which valued at €70.5 billion with a total surplus
“Gender, Pensions and Income in term includes pension schemes) with of €9.5 billion. These figures mark an
Retirement”, which highlighted that the regard to the integration of sustainability increase in value from the 2019 figures
elimination of the gender pension gap risks, the consideration of adverse which noted total assets of €65.2 billion
would require, among other things, sustainability impacts and the provision and a total surplus of €7.2 billion.
changes that lie outside the domain of sustainability related information and
of current pension rules, such as to support the European Union’s goals The report notes that as of 31 March
increased provision for childcare and in relation to climate, sustainability and 2021, there are currently 560 schemes
other measures that would improve the environment. While certain ‘level 1’ (558 continuing schemes and 2 schemes
female participation in the workforce. obligations came into effect on 10 March in wind-up) subject to the funding
ii. At the request of the Minister for Social last (involving high-level principles-based standard provisions of section 44 of
Protection, the Council is now reviewing disclosure requirements), they were due the Pensions Act 1990. The figure of
more specifically the rules governing to be supplemented by more detailed 560 continuing schemes represents a
supplementary pensions. The closing ‘level 2’ requirements due to enter into decrease of 10 from the 2019 report.
date for submissions was 21 June 2021. force from 1 January 2022. This has now
Of the 558 continuing schemes, 374
The gender gap as it relates to income been deferred to 1 July 2022. From that
of the schemes are noted as current
both during working life and into date, certain entities must comply with
(contain active scheme members) and 184
retirement is a topical issue at present detailed pre-contractual and annual
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Summer Update 2021
are noted as frozen (the scheme is only that a member’s right to benefits would unpaid monies as well as the options
providing benefits for members whose be forfeited if unclaimed after a specified available to members in pursuing claims
service had terminated or continuing period of time it was held that the clause for unpaid benefits and breaches of trust
service in employment does not entitle did not constitute an effective forfeiture against current and former trustees.
members to long service benefits with no provision.
new members being admitted.
A further Deed was drafted in 2001 (the Iggesund Paperboard (Workington)
Pursuant to the Annual Actuarial Data “2001 Deed”) which contained explicit Ltd, Iggesund (UK) Pensions Limited v
Returns submitted it was found that 59 language to the effect that benefits would Messenger [2021] EWHC 627 (Ch)
of the 558 schemes did not satisfy the be forfeited if unclaimed. In contrast The High Court recently handed down
funding standard provided for in section to the 1992 Deed, it was held that the a decision in Iggesund Paperboard
44(1) the Act and that 112 of the 556 explicit reference to forfeiture rendered (Workington) Ltd, Iggesund (UK) Pensions
continuing schemes did not hold sufficient this provision an effective forfeiture Limited v Messenger in which it ordered
additional resources to satisfy the funding provision. the rectification of a trust deed and rules.
standard reserve. The funding standard The case concerned a pension increase
reserve liabilities of schemes ranged Interestingly, the High Court found that a
forfeiture provision does not necessarily rule which prior to the scheme being
from 1% to 15% of the funding standard amended had facilitated the use of an
liabilities. contravene a scheme’s amendment
power (to the extent that it contains index other than the retail price index
a restriction on diminishing accrued (RPI) to be applied to pension increases.
benefits) as it does not always act to The amended version of the trust deed
CASE LAW and rules omitted this flexibility (by
diminish the benefits to be provided to
There have been two recent cases members. As the forfeiture only operated omitting the words “… or such other index
before the High Court of England and in circumstances where a member failed as the actuary advises to be appropriate”)
Wales which are worth noting and which to make a claim it could not be said that thus hardwiring RPI as the basis for
may prove to be persuasive before the benefits were diminished but rather there increases to pensions in payment.
Irish courts. The first case relates to the was merely a risk of same. The High Court noted that there are “two
introduction of a forfeiture provision into
The Court further offered guidance on common situations in which rectification of
a trust deed and provides useful guidance
the extent of a trustee’s discretion to use pension deeds is sought. The first is where
in respect of the limitation periods which
unpaid monies. It outlined that a trustee the employer and trustees intended to make
operate in respect of claims for benefit
must first ensure that members are a particular change but the change was
arrears. The second case relates to the
not underpaid as oftentimes members incorrectly reduced to writing. The second
rectification of a trust deed where there
are not at fault for a failure to claim is where the employer and trustee did not
is evidence that there has been a clear
monies. However, the Court noted that intend to make the amendments, so that
mistake.
other factors such as administrative they did not address their minds at all to
difficulties in paying arrears or previous the relevant words”. The present case was
Punter Southall Governance Services deemed to fall into the second category
underpayment due to an error of a
Limited v Jonathan Hazlett (as a in that the words were omitted and their
previous trustee may be considered when
representative defendant) [2021] omission was not spotted.
using monies for purposes other than
EWHC 1652 (Ch) (“Axminster Carpets”)
paying members. The case highlights the detailed gathering
The Axminster Carpets case revolved of evidence which is required in a claim
around a number of legal issues in the The Court also offered guidance on the
limitation period for claiming arrears. for rectification. The Court noted on a
Axminster Carpets Group Retirement detailed review of the documentation
Benefits Plan (the “Plan”). This case It stated that there is no limitation
period for a member to claim arrears relating to the drafting of the amended
primarily related to the validity of deed and rules as well as evidence
forfeiture provisions and trustees’ or compensation for a breach of
trust caused by a current trustee. In from the individuals involved in drafting
discretion with regard to unclaimed same that “there was an error which was
benefits. Forfeiture provisions are circumstances where such arrears or
breach of trust arise as a result of the carried through from the beginning of the
often included in occupational pension drafting process”. The Court noted that
schemes, stating that a member loses actions of a previous trustee, members
have a period of six years from the breach this occurred notwithstanding the full
their right to benefits if they do not claim review of the documents by specialist
the benefits after a certain period of time in which to pursue a claim against the
previous trustee. The Court considered advisers. The Court described the case as
(typically six years). “the clearest possible case for rectification
that a claim for arrears does not include
The Plan was established in 1961 and interest but the court may award such of a pension deed based on an omission
came to be governed by a definitive interest at its discretion while claims for that was not noted by any of the persons
trust deed and rules in 1992 (the “1992 breach may include interest. involved”. The Court concluded that “the
Deed”). The 1992 Deed contained a short point is that there is no good reason
clause which gave the trustee the ability This case underlines the importance of to make any other order than an absolute
to apply unclaimed monies for other clear drafting when including a forfeiture order for rectification in the circumstances of
purposes. As the clause did not contain clause in a trust deed. Further, the case this case where what has been uncovered is
clear and explicit wording to the effect provides useful guidance to trustees as clearly an unintended error.”
regards their discretion in dealing with
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4 Summer Update 2021 KEY CONTACTS Philip Smith Sarah McCague Michael Shovlin Partner Partner Of Counsel +353 1 920 1204 +353 1 920 1051 +353 1 920 1046 philip.smith@arthurcox.com sarah.mccague@arthurcox.com michael.shovlin@arthurcox.com Daniel Watters Katie Lawless Doireann Nic Mhathúna Associate Associate Associate +353 1 920 1323 +353 1 920 1476 +353 1 920 1900 daniel.watters@arthurcox.com katie.lawless@arthurcox.com doireann.nicmhathuna@arthurcox.com This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright. © 2021 Arthur Cox LLP Dublin Belfast London New York San Francisco +353 1 920 1000 +44 28 9023 0007 +44 207 832 0200 +1 212 782 3294 +1 415 829 4247 dublin@arthurcox.com belfast@arthurcox.com london@arthurcox.com newyork@arthurcox.com sanfrancisco@arthurcox.com arthurcox.com
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