7 June 2012: Today, The Pensions Board published revised rules for defined benefit schemes and announced the deadlines by which trustees must submit funding proposals to the Board to deal with scheme deficits.
The new rules set out how defined benefit schemes must meet their funding obligations and what steps they must take if they do not. These rules follow recent changes to the Pensions Act 1990, as amended, which were introduced on enactment of the Social Welfare and Pensions Act 2012.
The key changes contained in the new rules are as follows:
- schemes will normally be allowed until 2023 to clear existing deficits
- a risk reserve will be required with effect from 1 January 2016
- where schemes hold sovereign annuities or sovereign bonds they will be allowed credit for these in their funding standard calculations.
Many defined benefit schemes are in deficit and in a number of cases, the deficit is substantial. The Pensions Board has published deadlines by which these schemes must submit funding proposals to tackle these deficits. The first of these deadlines falls on 31 December 2012.
The full set of rules, contained in “statutory guidance” is available under 'Related Articles'. The Board has also published an overview guide to help trustees and their advisors understand the new rules.
Brendan Kennedy, Chief Executive of The Pensions Board stated today: “We have today published all the information that scheme trustees and their advisers need to prepare funding proposals to deal with scheme deficits. It is now up to trustees to familiarise themselves with their obligations, and to prepare and submit proposals which will put the finances of their scheme on a long-term stable footing.”
Kennedy went on to say: “Defined benefit pension schemes have made long-term undertakings to their members. Our objective must be to see as many defined benefit schemes as possible put on a secure footing and prudently managed so that the members receive the pensions they are expecting.”
The Board will also announce details on its website of public information meetings which will be held later this month to assist trustees and scheme advisors with any technical questions they have in relation to the new funding standard requirements.
The Board continues to up-date guidelines, information and FAQs on changes in relation to pensions as they occur on theBoard’s website. The Board provides a free “News by e-mail” alert service – which is available at www.pensionsboard.ie
For further information, please contact:
Head of Information
The Pensions Board
Tel: (01) 613 1900
The Pensions Board
The Pensions Board is the statutory body established by The Pensions Act 1990 to regulate occupational pension schemes, trust based RACs and Personal Retirement Savings Accounts (PRSAs) and to advise the Minister for Social Protection on overall pension policy development. See www.pensionsboard.ie
The Social Welfare and Pensions Act 2010, as amended, facilitated the introduction of sovereign annuities as an option for schemes to consider as part of their funding plans. A sovereign annuity is an annuity contract issued by insurance companies where the annual income payment is linked directly to payments under bonds issued by Ireland or any other EU Member State (known as reference bonds). Sovereign annuities can only be purchased by the trustees of occupational pension schemes. Further information and guidance on sovereign annuities and bonds is available on the Board’s website.
Funding standard risk reserve
The Social Welfare and Pensions Act 2012 further amended the Pensions Act to require the trustees of a defined benefit scheme hold a risk reserve. The concept of a risk reserve has been introduced with effect from 1 June 2012 and from 1 January 2016, schemes will be obliged to put in place a recovery plan if they do not hold the reserve. In addition to the submission of an actuarial funding certificate, trustees of pension schemes will now be required to submit a funding standard reserve certificate. If either certificate indicates that the scheme does not satisfy the relevant funding requirements, the scheme must, except in certain circumstances, submit a funding proposal to the Board to restore funding by the next funding certificate date.