Notes on Social Welfare and Pensions Bill 2007
The Social Welfare and Pensions Bill 2007 was published by the Department of Social and Family Affairs on 16 February, 2007.
Part 3 of the Bill provides for a number of amendments to the Pensions Act 1990 in relation to Occupational Pensions and Retirement Annuity Contracts. Set out below is information on these amendments:
- Trust Retirement Annuity Contracts (trust RACs)
- Fines and penalties
- Miscellaneous amendments
- Additional information regarding on-the-spot fines
- Full text of Social Welfare and Pensions Bill 2007
Section 36 and Schedule 2 provide for a number of amendments to the Pensions Act 1990 as follows –
Part 1 of Schedule 2 provides for amendments to the Pensions Act in relation to Trust Retirement Annuity Contracts (trust RACs). While most RACs are set up under individual contracts with an insurer and are governed by the Life Directives, it is the view of the Department of Social and Family Affairs and the Pensions Board that trust RACs come under the remit of the Directive 2003/41/EC on the activities and supervision of Institutions for Occupational Retirement Provision (known as the IORPs Directive). In order to comply fully with the provisions of the IORPs Directive, it is therefore necessary to bring such trust RACs under the remit of certain provisions of the Pensions Act where appropriate.
The consequential amendments to the Pensions Act provided for in Part 1 of Schedule 2 are as follows –
- amends section 2 to incorporate trust RACs into the relevant definitions of the Act and inserts new definitions into the Act to define a ‘small trust RAC’, and a ‘trust RAC’. In addition amendments are made to some existing definitions to incorporate trust RACs.
- amends sections 3 and 3B dealing with offences and prosecutions so as to apply them to trust RACs as well as occupational pension schemes.
- amends section 4 so as to allow the Pensions Board and the Revenue Commissioners to exchange information in relation to trust RACs in the same way as is already permitted in relation to occupational pension schemes.
- amends section 5 so as to permit regulations under that section to apply to trust RACs as well as occupational pension schemes.
- amends section 10 to impose certain obligations on the Board in relation to trust RAC schemes.
- amends section 18 so that the Board’s power to appoint an authorised person to investigate the state and conduct of a scheme will also apply to trust RACs.
- amends section 25 so that fees payable to the Board may be prescribed for trust RACs as well as for occupational pension schemes.
- amends Part V of the Pensions Act in relation to the Disclosure of Information so as to bring trust RACs within the remit of Part V where appropriate. It requires the trustees of a trust RAC (other than a small trust RAC) to provide such information as may be prescribed in relation to the trust RAC and to prepare such reports and accounts as are required.
- amends Part VI of the Pensions Act where appropriate, dealing with general duties, qualifications and appointments of trustees of schemes, so as to apply Part VI to trustees of trust RACs. Trustees will be required to register trust RACs with the Board and the barring prohibition for schemes shall also apply to trust RACs.
- amends Part VIII of the Pensions Act, where appropriate, dealing with compulsory and voluntary reporting to the Pensions Board, so as to also apply those sections to trust RACs.
- amends sections 88, 89 and 90 of Part IX of the Act, dealing with miscellaneous applications to the High Court, so as to also apply those sections to trust RACs.
- amends Part XI of the Act to bring certain trust RACs within the jurisdiction of the Pensions Ombudsman.
- amends Part XII of the Act where appropriate, in relation to cross-border schemes so as to apply this Part to trust RACs.
Part 2 of Schedule 2 provides for further amendments to the Pensions Act in relation to fines and penalties, which may be imposed under the Act, as follows –
- amends the Pensions Act, where appropriate, to provide that any fines imposed under the Act shall not be paid out of the resources of the scheme, trust RAC or out of the assets of any PRSA, as the case may be.
- increases the level of fines for both summary and indictable offences under the Act from £1,500 (€1904.61) to €5,000 for a summary offence and from £10,000 (€12,697.38) to €25,000 for an indictable offence.
- Section 3A of the Pensions Act was inserted by section 39 of the Social Welfare Law Reform and Pensions Act 2006 to provide an alternative to the prosecution of an offence under the Act. Section 3A provides that the Pensions Board may notify a person in writing that it is alleged that an offence has been committed and that if, within 21 days of the notice, the person has remedied the offence to the satisfaction of the Board and paid the appropriate fine, the prosecution will not be instituted. Section 3A is now further amended to specify the sections of the Act a contravention of which will warrant the application of an on-the-spot fine.
Part 3 of Schedule 2 provides for a number of miscellaneous amendments to the Pensions Act, as follows –
- amends section 3 which is a technical amendment to clarify a cross reference in section 3(2A)(c) by inserting a reference to section 81G of the Pensions Act.
- amends section 10 of the Act to clarify that one of the functions of the Pensions Board is to exercise all powers and duties conferred on the Board by the Pensions Act 1990.
- inserts a new section 22A into the Pensions Act in relation to the accountability of the Chief Executive of the Pensions Board before the Public Accounts Committee. The insertion of this new section is on foot of the implementation of the Mullarkey Report on the Accountability of Secretaries General and Accounting Officers and, in particular, to the report’s recommendations that Government Departments put down in writing the accountability to the Public Accounts Committee (PAC) of Accounting Officers and of the CEOs (or equivalent) of any bodies under their aegis. The report provides that the relevant legislation establishing State Bodies should make the CEO (or equivalent) explicitly accountable to the PAC in similar terms to the Accounting Officers of Government Departments under Section 19 of the Comptroller and Auditor General (Amendment) Act 1993.
- amends section 26 to clarify a cross reference in subsections 26(1)(a) and 26(6) by substituting section 81G for 75. The original section 75 of the Pensions Act had previously been replaced and renumbered as section 81G (section 22 of the Social Welfare (Miscellaneous Provisions) Act 2004).
- amends sections 38(4), 53(3), 58(3) and 64A(3) of the Pensions Act, by inserting a six month time limit on the right to appeal to the High Court on a point of law from a determination of the Pensions Board. The determinations of the Pensions Board under these sections may be made for the purposes of the preservation of benefits under Part III, the funding standard under Part IV, disclosure of information under Part V and the duties of trustees under Part VI.
- amends section 43 of the Pensions Act in relation to the Funding Standard under Part IV of the Act. Section 31(a) of the Social Welfare and Pensions Act 2005 amended section 41 of the Pensions Act to bring certain Defined Contribution schemes under the remit of Part IV of the Pensions Act. Section 43(1)(c) of the Act is now amended to provide that such schemes affected by the amendment in section 31(a) of the Social Welfare and Pensions Act 2005, must produce their first AFC with an effective date no later than 1 April 2007.
- Trustees of defined benefit pension schemes are required under Part IV of the Act to prepare Actuarial Funding Certificates (AFC) at 3 yearly intervals which test whether the assets of the scheme would have been sufficient at a specified date to meet the liabilities of the scheme if the scheme had wound up at that date. If the assets would not have been sufficient, a funding proposal must be submitted to the Pensions Board. The funding proposal is designed to ensure that the scheme will have enough assets to meet its liabilities at the date the next AFC is due (i.e. in 3 years). Section 49(3) of the Act allows the Board, on application to it by the trustees, to extend this funding period and to specify a date later than the effective date of the next AFC where certain specified conditions are met and in the circumstances and on the terms that the Board consider appropriate.
As schemes, which had been exempt from the funding standard and which cease to be exempt as per section 43(1)(d) of the Act, did not previously have to meet the funding standard they would not be able to meet the specified conditions that would allow the Board to consider an extended funding period. Section 49(3) of the Act is now amended to provide that the Board may also extend the funding period beyond the date of the next AFC in respect of these schemes, where the Board considers it necessary or appropriate and not contrary to the interests of the members.
- amends section 50 of the Pensions Act to allow a reduction in some or all of the accrued benefits for active members, without the requirement that the scheme meets the funding standard immediately after the reduction takes place. This amendment is to provide for a situation where the trustees of a scheme have submitted a funding proposal to the Board pursuant to section 49 of the Pensions Act and the active members, with full knowledge and understanding, have willingly consented to the reduction of some or all of their accrued benefits under the scheme in order to enable the scheme to satisfy the funding standard at the later date specified in the funding proposal. The amendments provide the Board with the power to direct a reduction in benefits, such that the scheme could, in the opinion of the scheme actuary, reasonably be expected to satisfy the funding standard by the date specified in the funding proposal.
- a technical amendment to section 50, which corrects a cross-reference in section 50(2)(a).
- amends section 54 of the Pensions Act to enable the Pensions Board to require scheme actuaries to furnish information and documentation described as actuarial work directly to the Board, rather than through the employer and trustees. The term actuarial work is defined in section 51A of the Pensions Act and this amendment also makes it clear that the Board’s request for information can extend to underlying documents, data and advice.
- amends section 59A of the Pensions Act to clarify that the trustees of a scheme are regarded as possessing the qualifications and experience specified in regulations, pursuant to section 59A, where the trustees themselves have the specified qualifications and experience or have satisfied the Board that their advisers do.
- a technical amendment to section 81G of the Pensions Act for clarification, to refer to a defined benefit scheme as well as a defined contribution scheme. Section 81G is also amended by inserting a six month time limit on the right to appeal to the High Court on a point of law from a determination of the Pensions Board as to whether a scheme is a defined benefit or a defined contribution scheme for the purposes of Part VII (equal pension treatment) of the Pensions Act. This is similar to the amendments being made to sections 38(4), 53(3), 58(3) and 64A(3).
- amends section 104(11) of the Pensions Act to provide that PRSA providers must give at least two months prior notice only in relation to any increase in charges. Previously, the two months notification period applied to all changes in charges, including decreases.
- inserts a new section 143A in the Pensions Act in relation to the accountability of the Pensions Ombudsman before the Public Accounts Committee (PAC). This is similar to the amendment being made in relation to the Chief Executive of the Pensions Board as above. The amendments are on foot of the implementation of the Mullarkey Report on the Accountability of Secretaries General and Accounting Officers and, in particular, to the report’s recommendations that Government Departments put down in writing the accountability to the PAC of Accounting Officers and of the CEOs (or equivalent) of any bodies under their aegis.
- technical amendment to Part XII of the Pensions Act in relation to cross-border schemes. Section 150 of the Act is amended to clarify that the authorisation conditions required to operate cross-border schemes are applicable continuously from the time of the granting of authorisation. This amendment allows the Pensions Board exercise its discretion to revoke an authorisation for the operation of a cross border scheme if it is satisfied that the conditions of authorisation have not been or are not being complied with continuously.
Additional information regarding on-the-spot fines
Section 3A of the Pensions Act is being amended to specify the sections of the Act, contravention of which will be dealt with in future by the application of an administrative penalty. These sections are set out in Appendix 1 below.
The revised Section 3A requires the Board to notify a person in writing that it is alleged that a contravention of one of the specified sections of the Act has been committed and that if, within 21 days of the notice, the person has remedied the offence to the satisfaction of the Board and paid the appropriate fine, the prosecution will not be instituted.
The specified sections to which the revised Section 3A applies meet the following criteria:-
- the contravention is of a straightforward procedural nature and its commission can be readily proved by the Board;
- the contravention is one which would be liable to summary prosecution under the Act;
- the contravention is capable of being remedied, and
- the principle of proportionate regulation and enforcing compliance would be best served by applying Section 3A to the contravention.
Where the administrative penalty is not paid and the breach remedied within 21 days of the notice of the intention to prosecute being served, a prosecution of the offence which gave rise to the application of the on-the-spot fine will be instituted.
The following contraventions of the Act are specified:-
a) Failure by an employer
- to respond to a request by the Board to confirm and supply documentation showing that he has either put in place a pension scheme or a standard PRSA arrangement for employees (Section 18(2)(c));
- to provide a notice to the employee of amounts deducted from the employee’s salary and remitted to the PRSA provider and the amount contributed by the employer directly (Section 121(5));
- to comply with any of the disclosure of information requirements under the Act (Section 54(1));
- to comply with a request by the Board for information (Section 54(4)),
- to comply with any request for information reasonably required by the actuary or auditor or trustees (Section 54(4);
- to provide a monthly statement to the employee concerned and the trustees of the amount deducted from the employee’s salary and remitted to the scheme and the amount paid over directly by the employer(Section 58A(3));
b) Failure by the trustees
- to pay annual fees to the Board (Section 25);
- to make a transfer payment where the member has requested same and failure by the receiving trustees to accept the transfer payment (Section 34)
- to submit an AFC to the Board within 9 months of the effective date of the certificate or where an AFC is required as a result of a negative intervaluation statement in the annual report, failure to submit same to the Board within 12 months of the last day of the period to which the annual report refers (Section 43)
- to comply with any of the disclosure of information requirements (section 54(1));
- to comply with a request for information by the Board (Section 54(4));
- to comply with any request for information reasonably required by the actuary or auditor or trustees (Section 54(4));
- to comply with various requirements in relation to the preparation of the annual report (Section 55)
- to comply with various requirements in relation to the preparation and auditing of the annual accounts (Section 56(1));
- to cause the assets and liabilities of a defined contribution scheme to be valued annually (Section 56 (2A));
- to prepare, review and revise the statement of investment policy principles as appropriate (Sections 59(1B) and (1C));
- to provide members with information on the different investment options available to them, so that members can give appropriate investment directions (Section 59(2)(a)(iii) or (iv);
- to comply with the rules regarding increases to pensions in payment (Section 59C);
- to register the scheme with the Board or to update the register as required (Section 60);
- to furnish a statement of benefits comparison to the member in transferring funds to a PRSA (Section 113(2));
c) Failure by the actuary
- to apply the limitation on calculations of the resources of a defined benefit scheme in preparing the AFC (e.g failure to ignore self-investment in excess of 5%) in calculating the assets available to meet the funding standard (Section 47).
- to respond to the Board’s request to furnish it with actuarial work (Section 54(4)(c))
The full text of the Bill can be viewed on the Department of Social and Family Affairs website (www.welfare.ie). Full text of Social Welfare and Pensions Bill 2007.