1. Changes to the Funding Standard The impact of legislative changes on defined benefit pension scheme funding David Malone 25 June, 2012

2. The Pensions Board Established by the Pensions Act, 1990 Supervision, regulation and enforcement Policy, legal and actuarialInformation and awareness (Delivers NPAC on behalf of the Government)

3. Numbers in Irish private pensions (as at April 2012)  Company Pension Schemes  532,000 members in 1,098 defined benefit schemes - 993 schemes with 197,000 members are subject to the Funding Standard - 335,000 approx are Public Service employees  240,000 members in over 100,000 defined contribution schemes (includes frozen and AVC schemes) - 50,000 approx are single member schemes  Personal Retirement Savings Accounts (PRSAs) 190,000 PRSAs with asset value of €3.03 billion  Personal Pension Plans/Retirement Annuity Contracts (RACs) (200,000 + contracts – Irish Insurance Federation)

4. Changing Demographics

5. Background to Funding Standard changes Government announcement October 2011 Social Welfare and Pensions Act 2012 Statutory Guidance Regulations

6. What are the key changes? Funding Standard Reserve (FSR) Funding Proposals (Section 49) Benefit Reductions (Section 50) Funding Standard calculations where scheme holds sovereign annuities/sovereign bonds (known as S53B basis)

7. Funding Standard Reserve Amount: 15% of funding standard liabilities less EU sovereign bonds/cash held plus Effect on funding standard liabilities of ½% drop in interest rates less the amount by which resources would increase as a result of the same change

8. Funding Standard Reserve When interest rates go down - bond asset values rise; however, scheme liabilities also increase as it costs schemes more to purchase annuities. The risk reserve for the impact of a 0.5% drop in interest rates is equal to the difference between the rise in liabilities minus the increase in bond asset values. Scheme Liabilities 10m Scheme Assets Bonds and Cash 5m Equities 5m Risk Reserve calculations Impact of 0.5% drop in interest rates = 0.5m 15% of value of equities = 0.75m Total Risk Reserve 1.25m

9. Funding Standard Reserve When does it apply? Schemes must check whether they hold FSR from 1 June 2012 and submit certificates from that date. Schemes must hold FSR from 1 January 2016 and if they don’t they must file Funding Proposal (FP) but –If FP end date after 1 January 2016, FP must –anticipate holding FSR –If Section 50 sought, scheme must satisfy FSR immediately (or at end of FP period)

10. Funding Standard Reserve Unsecured undertakings can be used for FSR in certain cases Self-investment/concentration of investment limits don’t apply to FSR New Funding Standard Reserve Certificate (FSRC) FSRC effective dates follow AFC effective dates

11. Benefit Reductions (Section 50) Board can issue S50 directions where scheme fails FSR Clarification around preservation rules Board can now specify actual measures (likely to be what’s in application) Benefit reductions must be carried out within one month of direction Application requirements now in statutory guidance

12. Statutory Guidance What is Statutory Guidance? Distinct from existing Board guidance Binding Legal instrument A breach amounts to an offence Prescribed by Minister via Funding Standard Regulations Can’t be altered without Ministerial consent

13. Statutory Guidance Section 42 – FS calculations where scheme holds sovereign annuities/sovereign bonds (S53B basis) Section 47 – Unsecured Undertaking Guidance Section 47 – General Contingent Asset Guidance Section 49 – Funding Proposal Guidance Section 50 – Benefit Reduction Guidance

14. Deadlines for filing The later of: 31 December 2012 or within 12 months of last scheme year end falling on or before 31 May 2012 If funding proposal incorporates reduction under S50, the above deadlines subject to minimum of 9 months from 31 May 2012

15. What now? Trustees assess the current and future position Negotiation with the employer Decision Submit funding proposal

16. Pensions information Enquiry service info@pensionsboard.ie/ 01-6131900 Information booklets Pension checklists Pension calculators Free Online Trustee Training, Guidance & FAQs, E-mail alerts & Trustee supports

17. Thank you