Social Welfare and Pensions Bill 2017

by Brian Buggy, Partner and head of the Pensions Practice at Matheson

On 9 May 2017, the Irish Minister for Social Protection, Leo Varadkar (the “Minister“), announced the publication of The General Scheme of the Social Welfare and Pensions Bill 2017 (the “General Scheme“). The General Scheme aims to offer greater safeguards to members of defined benefit pension schemes and, as published, has the potential to significantly alter the funding regime for such schemes. The publication of the General Scheme has particular significance for any defined benefit pension scheme with an immediate termination power, as well as schemes that are underfunded by reference to the statutory minimum funding standard (“MFS“).

At this point, we would alert employers and trustees to the following headline issues:

For Employers

The General Scheme proposes that employers will be required to provide 12 months’ notice to the Pensions Authority and to the scheme trustees where they wish to cease contributions to a defined benefit pension scheme (subject to a trustee power to agree to truncate the notice period in certain circumstances). Where notice to cease contributions is served the employer must pay contributions, at least equal to the contributions payable immediately prior to the notice, for the period of the notice. Employers and trustees are also required to enter negotiations to agree a funding proposal where the scheme does not meet the MFS.

Of particular concern for employers will be the fact that the explanatory notes to the General Scheme confirm that the intention is that, during the 12 month notice period, trustees will be able to make a contribution demand where their scheme allows this. This means that in schemes where employers previously had an immediate termination power and a contribution power drafted against the employer there will be a fundamental shift in the balance of powers, in favour of trustees.

Currently, there is no legal certainty as to whether funding proposals constitute legally enforceable contracts and the duty to agree a funding proposal falls to the trustees under the Pensions Act 1990 (as amended). Under the General Scheme, if a defined benefit pension scheme does not satisfy the MFS and a funding proposal has not been agreed between the employer and trustees (or the employer fails to make a contribution under an agreed funding proposal), the Pensions Authority has the power to determine a schedule of contributions that will restore the scheme to an adequate funding position. The schedule of contributions will be treated as a debt due to the trustees by the employer.

For Trustees

Trustees (particularly those of schemes where the employer has an immediate termination power) should be aware that there is a risk employers may take pre-emptive action to wind up their schemes before the General Scheme is enacted. Trustees in this position should consider whether a contribution demand might be appropriate.

In summary, the charges proposed by the General Scheme are significant. Employers and trustees may have very different concerns and should carefully consider the provisions outlined in the General Scheme with their advisors. As the Minister has indicated that the proposals will be brought into effect as soon as possible (he has indicated a preference to have the Bill enacted before the summer recess) we would advise against delay in seeking advice.

About the author

Brian Buggy is a partner and head of the Pensions Practice at Matheson. He has extensive experience in many areas of pensions and employee benefits law, with particular emphasis on employee benefit structures, establishment of employee benefit schemes, legislative drafting, establishment of revenue approved pension schemes, pensions regulatory compliance, pensions trusteeship issues and the establishment of revenue approved employee share ownership plans for public sector companies.

Brian acts for a wide range of national and multinational employer companies, Government Departments, state bodies and trustees of pension schemes. He has advised on numerous large commercial transactions involving transfer of employees and has extensive experience of complex documentation and benefits issues that arise in such transactions. He has extensive experience of working with public sector companies on establishment of share plans for employees.