The Irish Pensions Experience Human Resources and Industrial Relations stream of the MSc UCD Michael Smurfit Graduate Business School Tuesday 22 February 2011 David Malone Head of Information The Pensions Board

Established by the Pensions Act, 1990 Main functions are set out in the Act and include –to monitor and supervise the operation of the Act and pension developments generally Board has 2 statutory roles – regulatory and policy Promoting pensions development, information and awareness is an associated support function. Board conducts the National Pensions Awareness Campaign (NPAC) on behalf of Government as recommended in the “Securing Retirement Income” report of the National Pensions Policy Initiative published in 1998

The Pensions Board focus Three key operational areas: Supervision, regulation and enforcement Policy, legal and actuarial Information and awareness

Pensions information Enquiry service ‘PRSA’s Employers’ Obligations’ ‘What are my pension options?’ ‘Women and pensions’ ‘Pensions Explained’ ‘Trustee & Employer On-the-spot Fines’ ‘Investments, Fees & Charges’ ‘Simple Pensions Calculator’ ‘Advanced Pensions Calculator’ ‘Savings Calculator’ Free Online Trustee Training, Guidance & FAQs, alerts & Trustee supports

Types of pensions Company Pensions a.Defined benefit schemes b.Defined contribution schemes Personal Retirement Savings Accounts (PRSAs) Retirement Annuity Contracts (RACs) or Personal Pensions

Numbers in Irish private pensions  Company Pension Schemes (at 31 December 2009) 586,488 members in 1,307 DB schemes 266,909 members in 82,939 defined contribution schemes  Personal Retirement Savings Accounts (PRSAs) (at end Sept 2010) (Over 181,000 PRSAs with asset value of €2.44 billion) (91,229 employers had signed up with a PRSA provider)  Personal Pension Plans and Retirement Annuity Contracts (RACs) (In excess of 200,000 contracts – Irish Insurance Federation)

Why have a Pension? Life expectancy is increasing - the average person retiring today aged 65 has a life expectancy of years What kind of lifestyle do you want in retirement and how will you fund it? Current State pension = € per week Consumer Market research shows that approximately 8 out of 10 people say - that the State pension will not meet all their needs in retirement Pension = Income in Retirement Tax Relief on Pensions Income Tax and PRSI relief on employee contribution Part of your retirement benefit may be paid as tax-free cash sum

Changing world we live in We are Living Longer More Contract Work More mobility in careers Changing work patterns More Part Time Working Single Parent Households Smaller Families Separation/Divorce

Changing Demographics No’s at Work 2,000,1002,268,0002,125,000 Aged over ,000844,0001,532,000 No’s at work per person over

Tax relief on personal contributions The maximum contribution rate as a percentage of total pay/net relevant earnings on which you can receive tax relief is: Highest age at any time during the tax year Limit Under 30 15% % % % % 60 and over 40% Notes: For tax purposes these contributions are limited to earnings up to a maximum of €115,000 in any year.

Pensions in the workplace The workplace is the optimum location for pension provision and for pension information and education There is a stronger commitment from employees to participate in pension schemes where the employer makes a contribution A company benefits from having: –a reputation and respect as a good employer –a workforce that feels valued and important –increased loyalty and commitment from staff –an enhanced staff recruitment, reward and retention package “A good pension is a valuable asset, don’t leave work without it”

Employers’ Obligations/ Opportunity Access for all Employees –By law an employer must provide ALL employees with some form of access to a pension, whether they are in full-time, part-time, temporary, contract or casual employment. –All employers regardless of the size of their workforce are obliged to provide access to a Standard PRSA if those employees fall into the category of “excluded employees” (details available on the Board’s website). –Pensions Board encourages employers to regard pensions as part of the recruit, reward & retain approach to staff –Pensions Board also encourages all employees to ask the employer about their pension rights

The National Pensions Framework Introduced by the Minister for Social Protection in March 2010 The recommendations in the Framework include : increasing the State pension age to 66 in 2014, 67 in 2021, 68 in 2028 introducing auto-enrolment into a pension for those aged 22 years or over and in employment from offering an opt-out mechanism for employees - proposing matched contributions from the employer and the State new model defined benefit pension scheme new model for public servants An Implementation Group has been established to progress the National Pensions Framework

Regulation, Supervision & Enforcement On the spot fines regime introduced in September fine for each offence = €2,000 Registered Administrators introduced in November 2008  Compulsory trustees training – introduced February 2010

The Board’s powers Section 18 Authorisation – furnishing of information Section 58 Prosecution for non-remittance of deductions within 21 days Section 87 High Court order to have company pay ‘unpaid’ contributions to scheme

Trustee Information Under the Pensions Act trustees have the main responsibility for: –the administration of funded occupational pension schemes –compliance with the requirements that apply to these schemes. Under the Act, the Board has a responsibility to: –provide guidance for trustees on their duties and responsibilities in relation to scheme administration –issue codes of practice on specific aspects of trustees duties. These responsibilities are a clear recognition of the central role which trustees have in: –ensuring schemes are properly administered –members’ pension rights are fully safeguarded and that they and their dependants ultimately receive their pensions.

Responsibility of Trustees  The main duties of Trustees under the Act are to: register the scheme with the Pensions Board ensure contributions are deducted and paid over to the scheme invest the funds and pay the benefits ensure that the funding standard is met keep records and accounts preserve or transfer benefits ensure equal pensions treatment apply the resources of the scheme on wind up disclose information as required

Compulsory Trustee Training Who must receive training? From 1 February 2010 very trustee must undertake trustee training in accordance with section 59AA of the Pensions Act. This includes: –individual trustees –member trustees –all directors of a company which is acting as a corporate trustee –pensioneer trustees –professional trustees. When will a trustee be obliged to undertake trustee training? Trustees are required to receive training within six months of their appointment and at least every two years thereafter.

What is trustee training required to cover? Trustees will be required to receive training on: (a) the Pensions Act, the regulations made under it and any other law of general application governing the operation of their scheme such as the: –Pension provision of the Family Law Acts –Protection of Employees (Part-Time Work) Act 2001 –Protection of Employees/Employers (Insolvency) Act 1984 –Protection of Employees (Fixed Term Work) Act 2003 –Employment Law –Finance legislation –EU “IORPS” Directive. (b) the duties and responsibilities of trustees generally.

Supports for Trustee Training The Board supports appropriate trustee training in the following ways: –the Trustee Handbook –an extensive range of guidance and FAQs on pension matters generally –booklets and checklists for trustees –the Board provides an information and enquiry service –a register of trustee training providers is available on the Board’s website –the Board has developed an e-learning facility for trustees which is free of charge and can be accessed on the Board’s website

What’s expected of Trustees The essential job of trustees is to look after money on behalf of others - responsible for over €70 billion of pension savings - trustees are essential to the operation of the Irish pensions system. Before describing what the Pensions Board expects of trustees, it may be useful to set out what we do not expect: –trustees are not expected to be full-time –are not expected to be pension professionals –are not expected to be infallible. Nonetheless, trustees are looking after money on behalf of other people. Therefore there are minimum standards they must satisfy: –they must have certain basic knowledge –they must engage –they must act reasonably –they must have process

Making Decisions The Pensions Board expects trustees to be organised and to have process. This means formal recorded meetings, proper agendas which deal with all important issues and records of decisions. As well as being important and useful in itself, this process is the best means for trustees to demonstrate that they have been reasonable. Where trustees do not have the knowledge themselves, they should engage professionals.

Engaging Professionals The main areas are administration, investment, communication and, for DB schemes, funding. By definition, these experts will be talking about matters that the trustees are not familiar with. It is the trustees’ job to question them, to push back, and not to accept answers that they don’t understand or do not feel to be right. This is probably the most challenging aspect of being a trustee. Trustees must recognise that it is their responsibility to make decisions, and their options should be set out for them clearly by the professional advisers. It is important that trustees identify the decisions that they are making, and that they have set out the alternatives among which they are deciding.

When things go wrong ! Where there is a problem, trustees should inform the Pensions Board. What the Board wants to see is : –prompt notification by trustees – there should be no effort to conceal the problem –a full description of what happened, why, and what effect it had on members –what is being done to rectify the problem –what is being done to ensure it will not happen again Trustees should remember that administers are now regulated: –this is an important additional protection for trustees –where trustees believe that administrators are not doing their job, trustees should inform the Pensions Board –this does not remove the obligation on the trustees to resolve their own issues, but it will help the Pensions Board to improve standards.

Sanctions for Non-Compliance On-the-spot fines for specified breaches Mainly administrative type breaches: –Late registration of schemes –Failure or delay in notifying amendments to the Board –Disclosure of information – failure to provide required/requested information –Failure to reply to a Board request for information –Failure or delay in submitting AFCs (for funded DB schemes only) Fine for each offence is €2,000 per trustee/administrator Fine cannot be paid out of the resources of the scheme More serious breaches of the Act will continue to be dealt with in the Courts

Registered Administrators (RAs) From 1 November 2008 trustees of every scheme (including large Trust RACs) must appoint an RA to provide “core administration functions”  Core administration functions are: -preparation of annual reports -preparation of benefit statements -maintenance of sufficient and accurate member records to discharge above  No RA qualification specified but RA must be satisfied they are competent and capable of:  providing core administration functions  have systems and procedures in place to deliver services (S OCIAL W ELFARE AND P ENSIONS A CT, 2008)

On-the-spot fines Introduced in Social Welfare Law Reform and Pensions Act, 2007 Alternative to going to court - more efficient way of addressing compliance issues Board gives offender 21 days to remedy the offence and pay the appropriate fine (€2,000) On-the-spot fines apply to a range of lesser offences under the Pensions Act, including: –failure to register a scheme with the Board –failure to provide scheme members with appropriate information –failure to respond to requests for information from the Pensions Board –employers not advising employees of pension or PRSA deductions

Pension Adjustment Orders (PAOs)  PAOs do not apply for judicial separations or foreign divorces; –if granted before 1/08/1996, –Irish divorces granted before 27/02/1997 –for non judicial separations i.e. separation by agreement.  A PAO designates part of the pension benefits –to a non member spouse –or person representing a dependent child.

PAOs - continued  Separate PAOs can be made in relation to; –retirement benefits (benefit payable to a member spouse) –and contingent benefits (e.g. Death in service benefits).  PAO in relation to contingent benefits must be made with 12 months of judicial separation or divorce.  General info on a spouse’s pension can be sought through the trustees of the pension scheme.  Personal info will be given on your spouses consent and if no consent is given you may apply for a court order for info to be released.

PAOs - continued  Court rules on 2 key factors – relevant period and relevant percentage.  A ‘designated benefit’ is awarded and will commence at same time as member spouse unless an ‘independent benefit’ is requested, i.e. transfer of a designated benefit either within the scheme or to another scheme, to a bond, or a PRSA.  Further info – see and the Family Law and Women & Pensions bookletswww.pensionsboard.ie The Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010 (“the Act”) entered into force on 1 January It extends marriage- like benefits to same sex couples in registered civil partnerships in the areas of property, social welfare, succession, maintenance, pensions and tax. It also establishes a financial redress scheme for opposite sex and same-sex cohabiting couples who meet certain conditions.

Equal Pension Treatment Original Part VII of Pensions Act applied to equal treatment on gender grounds only New Part VII introduced via Social Welfare Act 2004 now 9 discriminatory grounds Number of exceptions For a for redress – The Equality Tribunal and Circuit Court Pensions Board may refer certain matters to Equality Tribunal Equality Tribunal may request Pensions Board to prepare report / answer questions in relation to schemes Guidance Notes and Information Booklet

Equal Pension Treatment Discriminatory grounds: 1.Gender 2.Marital status 3.Family status 4.Sexual orientation 5.Religious belief 6.Age 7.Disability 8.Race 9.Membership of Traveller community

Pension models in other countries The Pensions Board - National Pensions Review 2005 APPENDIX 4 - Mercer HR Consulting report on Pension Provision in Other Countries 04.pdf United Kingdom - the number of employees in DB plans has declined in recent years due to increased compliance and higher company contributions. Replacement ratios from DC plans are likely to fall unless both employer and employee contributions increase. This may lead to pension adequacy problems in future years. Germany - the increasing cost of state pension provision has led the Government to establish a commission to look at means of reducing costs, including increases in the normal retirement age. Italy - the state system is essentially a DC/career average plan with very few occupational pension schemes. The generous benefits provided are expected to lead to difficulties in funding benefits but the problem remains unresolved at the present time. France - the generous nature of state benefits means occupational plans are uncommon, except for senior employees. There have been changes to the state system to reduce costs. Netherlands - the majority of occupational plans are DB (over 80%) but the number of DC plans is increasing due to higher flexibility and the control available to employers over costs. Spain - occupational plans tend to cover higher paid employees. Recent trends indicate that employees are starting to contribute to such plans to help share costs.

Pension models in other countries Sweden - there are two contractual pension plans in private industry – ITP and SAF-LO. Affiliation to these plans is compulsory for all members of the Confederation of Swedish Enterprise. Thus between social security and these mandatory plans, the majority of Swedish residents are covered for mandatory pension benefits. United States - the provision of occupational DB plans is becoming less common due to increased compliance and higher company contributions. There has also been an increase in the social security retirement age although IRS regulations mean that this cannot effectively be reflected in occupational plans. Canada - as in other developed countries, increased compliance and additional contribution requirements mean DB occupational plans are being critically evaluated. Chile - was one of the first countries to introduce a social security system with individual DC accounts. Due to coverage and benefit levels, there are very few occupational pension schemes. Japan - in order to control the cost of social security benefits, the Government has proposed an increase in the retirement age and a cut in pension payments of approximately 20%. Australia - the minimum level of employer contribution to occupational plans has increased since first being introduced at 3%. Over time employers switched from DB to DC plans as a result of the minimum level, which became standard contribution rate to retirement benefits. Singapore - to help control the cost of social security benefits, the Government’s aim is to increase the retirement age from the present age 62 to age 67.

Pensions - further research The Pensions Board The National Pensions Review Report - January, 2006 Special Savings for Retirement Report - July 2006 Trusteeship Report Department of Social Protection The National Pensions Framework was published by Government on 3 March European Insurance and Occupational Pensions Authority (EIOPA) International Organisation of Pension Supervisors (IOPS)

Pensions - further research Revenue Commissioners Department of Finance Irish Civil Service Pensions Information Centre Office of the Pensions Ombudsman Financial Regulator Society of Actuaries in Ireland Irish Insurance Federation Irish Association of Pension Funds TASC National Association of Pensions Funds The Pensions Regulator UK Pensions Ombudsman – UK Pensions Policy Institute Pensions Management Institute The Pensions Tracing Service UK ed/pensiontracing.asp ed/pensiontracing.asp

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