Case Update

A recent case in the High Court, Willis & Ors v the Pensions Ombudsman and Emer Lawlor (Notice Party) shows the extent of the Financial Emergency Measures in the Public Interest (No.2) Act 2009 ("FEMPI"). On an appeal from the Pensions Ombudsman, the High Court uphold the Ombudsman's ruling that the plaintiffs - the Trustees of the Irish Blood Transfusion Service pension scheme - had not applied the provisions of FEMPI correctly.

Section 2 of FEMPI imposed salary cuts on public servants. Section 3 provided that the cuts should be disregarded for the purposes of calculating pension entitlements in the case of public servants who retired before 29 February 2012. The employers had reduced Dr Lawlor's salary in accordance with Section 2 of FEMPI although the applicability of the legislation was disputed. The Trustees argued that the pension scheme was not a 'public service pension scheme' within the meaning of FEMPI. Thus, they believed Section 3 of FEMPI could not apply to the employee. The Ombudsman found for the member on the basis that FEMPI could not be partially implemented. The Trustees appealed the decision. The High Court declined to overturn the Ombudsman's decision holding that a clear and serious legal error had not been demonstrated.

Comment

The High Court accepted the Pension Ombudsman's broad justice approach and declined to apply a technical approach to the detriment of the member. The Court indicated that the Trustees should have made further enquiries of the employer when presenting their case to the Ombudsman. This case highlights the importance in trustees and employers ensuring that full information is considered in making IDRP determinations and in responding to Pensions Ombudsman investigations.

Preparing for 2014

Changes to State Pension Age

With effect from 1 January 2014, the State Pension (Transition) will be abolished and the age from which a State (Contributory) Pension will first be paid will change from age 65 to age 66. From 1 January 2021, it will increase to age 67 and from 1 January 2028, it will increase to age 68.

Trustees and employers should review the terms of their pension schemes to see what effect these changes will have on their schemes. Where there are bridging pensions or integration / coordination with the State pension, amendments to the scheme documentation are likely to be required. The latest indications are that there may be draft legislation on this issue before the year end. If you would like our help with auditing documentation to assess the position in preparation for amendment and/or the legislation, please contact any member of the pensions team.

Other legislative changes

Announced in Budget 2013, changes to the amount of tax relief that can be claimed on pension contributions are expected to come into force in 2014. The intention was that with effect from 1 January 2014, tax relief on pension contributions will only be available in relation to schemes providing a retirement income of up to €60,000 per annum. It remains to be seen how this will work in detail. The budget speech is the likely channel for more information.

Legislation is anticipated in early 2014 to deal with the change in the priority order on winding up of DB schemes. The Minister for Social Protection is awaiting receipt of a technical report which she will present to Government with a view to amending the priority order under Section 48 of the Pensions Act, 1990 (as amended). This area has not been made easier by the Waterford Crystal decision in the ECJ.

Solvency II type proposals shelved

The European Commission is expected to present a Directive in autumn 2013 designed to improve the governance and transparency of occupational pension schemes. However, the Directive will not cover the issue of pension scheme solvency. The issue of solvency requirements for pension schemes and of a possible EU proposal to reinforce solvency requirements has been mooted for some time but in response to submissions from those countries with significant funded pension systems the Commission has concluded that it is necessary to continue technical work in this area before publishing any guidance or enshrining any requirements in a Directive.

Auto-Enrolment – employers with UK payroll and Irish pension scheme

New pension laws came into force on 1 October 2012 across the United Kingdom which require employers to automatically enrol eligible employees ("jobholders") into a pension scheme and make limited employer contributions to same. Employers have been separated into 43 bands according to the of their payroll scheme size, with each band being assigned a particular monthly "staging date".

Larger employers have already been through this process. Over the coming 18 months medium and smaller enterprises will be enrolling with up to 30,000 employers a month falling within the scope of the legislation at the peak of the process.

Irish employers with employees based in the United Kingdom, in particular in Northern Ireland using a UK payroll, should take a particular note of these developments. Auto-enrolment will be an issue for Irish employers of cross-border employees who fall within the scope of this regime.

Employers should be aware that many of the smaller staging dates come into force during 2014.

Under UK auto enrolment, employers are required to automatically enrol their eligible "jobholders" as active members of an "automatic enrolment scheme" with effect from the date on which each jobholder becomes eligible. Not all jobholders are eligible; to be eligible for auto-enrolment, a jobholder must:

  • Be at least 22 and not have reached state pension age; and
  • Be paid earnings that exceed the earnings trigger of £7,475 (in 2011/12) in a relevant pay reference period.

Once enrolled, the employer will be obliged to pay mandatory minimum contributions in a defined contribution (DC) scheme or offer a minimum level of benefits in a defined benefit (DB) scheme. Qualifying schemes used as an alternative to auto-enrolment must not require members to make choices or provide information. There are serious penalties for non-compliance and for inducing members to opt out of enrolment.

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.