ARTICLES
Pensions Insolvency Payment Scheme 2010 – Making an Application
by Robert Haniver
Many defined benefit pension schemes in Ireland are experiencing serious funding difficulties have insufficient resources to meet their liabilities and are unable to provide for their members.
If a defined benefit pension scheme is in deficit and wound up, many of its contributing members may find themselves without a pension fund. The order of priority followed by trustees when discharging liabilities on the winding up of a defined benefit pension scheme means priority is given to those members already in receipt of their pension. This may result in members who have yet to retire or have deferred their benefits being left without a pension where those already in receipt of benefits have exhausted the pension fund.
In response to the growing fears regarding the solvency of defined benefit pension schemes, the Government introduced legislation last year which provided for the Pensions Insolvency Payment Scheme (‘PIPS’). Section 22 of the Social Welfare and Pensions Act, 2009 (‘the Act’) paved the way for the PIPS, which came into force on 1st February 2010.
The purpose of the PIPS is to assist trustees to secure benefits under a scheme where the sponsoring employer is insolvent and the scheme is in deficit. The aim is to protect the entitlements of those members who have already retired and ensure that there is money left in the fund for those who have yet to retire or have deferred their benefits. However, this will assist only the minority of defined benefit pension schemes, as the ‘double insolvency’ requirement excludes pension schemes in deficit but whose sponsoring employer remains solvent and trading.
The Government, through the National Treasury Management Agency (NTMA), administers this new scheme. It is intended to run for three years, after which its operation will be reviewed. If it is terminated during or following the proposed three-year period, the participating pension schemes will have their pensions paid as agreed under the PIPS.
How does it work?
The PIPS enables trustees of ‘participating pension schemes’ to buy annuities from the Government at a lower cost than would be available on the open market. This is intended to leave more money in the pension fund to provide for those who have yet to claim their retirement benefits.
Trustees of a participating scheme can agree with the Minister an actuarially calculated lump sum, which is determined by the NTMA, to be paid to the Exchequer. This sum is used to cover the cost of paying the pensions of retired members. On receipt of the capital sum into the Exchequer, the Government takes responsibility for the future payment of pensions to the beneficiaries covered by the scheme at the rate agreed by the Minister when approving the application.
There are three stages to the application procedure involving certification of the pension scheme by the Pensions Board and the Minister for Finance.
Stage 1 – Certification from Pensions Board
The Pensions Board must first certify that a scheme seeking to join the PIPS is an ‘eligible pension scheme’. This is a screening step to ensure the pension scheme meets the statutory definition of a defined benefit pension scheme, is being wound up in deficit and the sponsoring employer is insolvent for the purposes of the Protection of Employees (Employers’ Insolvency) Act, 1984.
The trustees must apply for certification of eligibility by submitting the ‘Pensions Insolvency Payment Scheme Application Form to the Pensions Board for Certification’ together with the following:-
- Written confirmation by the trustees that the winding up of the pension scheme has commenced;
- A statement by the pension scheme’s actuary that, at the date of the commencement of winding up, the pension scheme did not satisfy the minimum funding standard as provided under section 44 of the Pensions Act, 1990;
- A statement of affairs of the insolvent employer;
- The notice of appointment of a liquidator or receiver to the insolvent employer; and
- A statutory declaration from the employer confirming its insolvency and a statutory declaration by the trustees that all reasonable efforts were made by them to ensure the information provided is complete and accurate. The decision of the Pensions Board as to eligibility is final and may not be appealed.
Stage 2 – Scheme Participation
If the Pensions Board approves the certification, the trustees can apply to the Minister for Finance to become a ‘participating pension scheme’ and qualify for PIPS payments. This is done by submitting the ‘PIPS Application Form to the Minister for Finance for Certification as a Participating Pension Scheme’ together with the following documents:-
- The Pensions Board’s certification of eligibility;
- The trustees written agreement to comply with and be bound by the terms of the PIPS;
- A statement from the pension scheme’s actuary of the value of the scheme’s assets, on the basis of the assets’ realisable market value on the date the assets were valued;
- The completed Payment Administrator Nomination Form. This is used by the trustees to nominate a payment administrator who will handle the making of payments to pensioners, on behalf of the Minister, under the PIPS. The payment administrator’s costs must be agreed and specified at this stage as these will be included in the sum calculated by the NTMA and quoted to the trustees for payment;
- A completed NTMA spreadsheet. This must include details of all pensioners to be covered by the PIPS application; and
- A statutory declaration by the trustees that all reasonable efforts have been made to ensure that the information provided in the application is complete and accurate.
Stage 3 – Quotation and Payments
Once the Minister is in receipt of the above information, a request is made to the NTMA to calculate the actuarial cost of the particular pension scheme participating in the PIPS. This is to ensure the PIPS is operated on a cost neutral basis for the Exchequer and is paid for by the participating pension schemes.
The NTMA calculates the cost of pension payments to be paid to individual pensioners or their survivors or dependants and the associated administrative cost to be charged by the Minister. A quotation is then provided by the Minister to the relevant trustees, which is non-negotiable and must be accepted or rejected by the trustees within 2 weeks.
If the Minister approves the application and the trustees accept the quotation, the Minister may certify this as a ‘participating pension scheme’. The trustees will then have to pay the quoted price to the Minister by electronic transfer. Once the Minister receives this payment, the trustees are deemed to have discharged their responsibilities to the relevant pensioners included in their PIPS application. The Minister will liaise with the payment administrator to pay the agreed amounts to the pensioners covered by the participating pension scheme.
For more information please contact the Corporate Law Department in O’Rourke Reid on (01) 240 1200 or lex@orourkereid.com
Pensions Board Application:
http://www.pensionsboard.ie/index.asp?locID=574&%0D%0A%20;docID=656
Minister for Finance Application:
http://www.finance.gov.ie/viewdoc.asp?DocID=6184&CatID=68&StartDate=1+January+2010&m