Social Welfare and Pensions Act 2009
April 2009
The Social Welfare and Pensions Act 2009 (“the Act”) was signed into law on 29 April 2009. All provisions of the Act are effective from that date.
The Minister has introduced some very significant changes to the laws regulating defined benefit pension schemes. These changes are intended to assist employers and trustees responsible for schemes which are facing serious funding difficulties. The changes are summarised below, as are some additional changes made to the Pensions Act.
Winding Up of Scheme – Priority Order
The Act changes the way that funds are disbursed if a defined benefit pension scheme is wound up with a deficit. Pensioners will continue to get first priority for their pensions, but any future pension increases will not be granted until workers who have also contributed to the scheme and have yet to retire, receive their share of the benefits.
Reduction of Benefits
Under the Act, the Pensions Board can now direct that both deferred and active members’ benefits, as well as pension increases, can be reduced where in the opinion of the scheme’s actuary this is required, so that the scheme will meet the funding standard following the reduction.
Amendment of Benefit Provisions
A new Section of the Pensions Act has been introduced which allows trustees with the consent of the Pensions Board to amend the terms of a scheme if the only other option for the trustees is to wind up the scheme due to insufficient funds.
Pensions Insolvency Payment Scheme
In a ground breaking development, the Act sets out a framework for the establishment of a new Pensions Insolvency Payment Scheme (“PIPS”). No establishment date has been announced for the PIPS as yet.
The PIPS is being introduced to assist trustees in securing benefits under a scheme where the sponsoring employer is insolvent and the scheme is in deficit. Under the scheme, the scheme trustees can pay a sum to the Exchequer to recover the cost of paying the pensions of retired members instead of buying annuities.
The PIPS will not allow trustees to secure benefits for pensioners taking into account future increases to pensions. The benefit from the PIPS will be a level, and not increasing, pension.
Other Changes
The Act has also introduced other amendments to the Pensions Act in relation to which we believe trustees and employers should be aware:
- The sanction for failure by a sponsoring employer to remit contributions to the trustees of a scheme within the prescribed time limit has been increased. Now conviction on indictment will result in a fine not exceeding €25,000 or imprisonment for a term not exceeding 5 years or to both. Previously, the prison term was 2 years.
To assist in the prosecution of these offences the Pensions Act has been amended to provide that certain documentation will be admissible as evidence; e.g. payslips of employees, payroll books and ledgers, and reproductions of payroll documents stored in non-legible form.
These amendments signal the intention of the Board to continue enforcement of the statutory requirements on employers to remit contributions. - The Act has also introduced a statutory protection of trustees for a breach of trust. In addition to anything contained in the trust documentation, the Court can exonerate a trustee in an action for breach of trust where the Court is satisfied that the trustee has acted honestly and reasonably having regard to all the circumstances of the case.
The new legislation, in particular the change in winding up priorities and the powers to reduce benefits, is significant. It will present opportunities for any trustees and employers who are currently grappling with the difficulties presented by an underfunded pension scheme.
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