Final Code of Practice for Trustees of Occupational Pension Schemes and Trust Retirement Annuity Contracts
The Pensions Authority (the "Authority") published the final version of the Code of Practice for Trustees of Occupational Pension Schemes and Trust Retirement Annuity Contracts (Trust RACs) (the "Code") on 18 November 2021. The publication of the Code follows public consultation run by the Authority in
respect of the initial draft Code published during the summer. The Code sets out the Authority's minimum expectations
for schemes in the areas covered within the Code. Broadly speaking the Code is not dissimilar to the draft published by the Authority in July 2021 but there are a number of differences, some of which are set out below:
Governance
The Governance provisions of the Code remain largely unchanged however some of the main clarifications include:
- the previous requirement to notify the Authority of the proposed appointment of any outsourced Key Function Holder ("KFH") 'at least four weeks before the appointment is due to take effect' has been removed from the Code. However, the trustees must still comply with the statutory notification requirement under s.64AM(8) in the new Part VIB of the Pensions Act which requires the appointment of KFH's to be notified to the Pensions Authority "before the agreement enters into force" (albeit not 4 weeks before the agreement comes into force);
- reference is made to the fact that the trustees should be mindful of the requirements of the Electronic Commerce Act 2000 in respect of the electronic provision of information, which includes that at the time the information was given it was reasonable to expect that the information would be readily accessible to the person to whom it was directed, for subsequent reference; and the person consents to the receipt of the information in that form; and
- the requirement for "detail" of trustee discussions to be included in meeting minutes and evidence of and the "underlying reasons" for those decisions have been removed having been replaced with the minutes to include a "summary" of discussions held and evidence of decisions taken and the "factors considered".
Administration
The requirements for quarterly, annual and triennial monitoring and review of the scheme administrator's performance have been clarified. In particular the requirement for a triennial "critical review" and the scope of such reviews is set out in more detail.
Internal control system and risk
The revised Code contains a new expectation at paragraph 50 that the Authority expects the implementation of the risk management function to be "objective, thorough and comprehensive".
The requirement to review internal controls has been extended from an annual process to at least once every three years.
Investment
The Authority has clarified that the new statement introduced by Chapter 4 of the Code is to be referred to as the "statement of investment governance" (the "SIG") and clarifies that it is intended primarily to be a governance document for trustees.
Trustees should take the SIG into account when appointing or reviewing any investment service provider or when making decisions in relation to the investment of pension scheme assets.
A new paragraph 80 has been included in relation to conflicts of interest and the appointment of investment managers. It provides that trustees should consider the potential conflicts of interest of investment advisers and that they should "whenever possible" obtain investment advice from parties who do not have a direct conflict of interest in advising the trustees.
Defined benefit financial management
Under the Code, trustees must conduct specific studies and evaluations in respect of their management of defined benefit schemes (i.e. funding reviews, sustainability reviews and assessment of financial risks). A new paragraph confirms that the frequency of such studies is that they are conducted "often enough to ensure their understanding of funding issues is up to date".
Fit and Proper
The Authority has now specified two courses on its website which trustees can take in order to comply with the trustee qualification requirement set out in the Code. Under the Code at least one member of the trustee board must have completed one of the Authority's recommended courses in order to be compliant. When considering whether a KFH satisfies the fit and proper requirements of the Code, trustees are entitled to rely on the veracity of the information provided by a person.
The Code also clarifies that where the trustees determine that a person or body corporate does not meet the fit and proper requirements they must object to their appointment or seek their removal.
Where the power to appoint or remove is vested in another party, the trustees must inform that party and ask them to take the necessary actions. Where the other party declines to take those actions, the Authority must be informed.
Master Trusts
A new Chapter 7 has been included in the Code in relation to defined contribution master trusts and the additional actions trustees of master trusts are expected by the Authority to undertake to ensure satisfactory governance. The key areas include but are not limited to: conflicts of interests in respect of any connections master trusts might have with for-profit entities; capitalisation expectations relating to running costs and wind-up costs; the trustee being incorporated as a Designated Activity Company; quarterly trustee meetings; continuity plans; charges and marketing; and a communications and engagement policy for employers and members.
Other Pensions Authority Updates
Outsourcing Requirements
The Authority recently published information for trustees regarding their outsourcing notification obligations provided for under the Pensions Act 1990, as amended (the "Act").
The information indicates that from 1 December 2021, trustees must notify the Authority "when they enter an outsourcing arrangement for the provision of the internal audit and risk management key functions". In fact as noted above the statutory obligation is to notify the Pensions Authority "before" entering into such an agreement. Trustees who have entered an outsourcing arrangements in respect of internal audit and risk management key functions since 22 April 2021 must also notify the Authority.
The Authority has indicated that trustees should familiarise themselves with the outsourcing requirements under the Act. The Code sets out a number of matters that must be addressed in those agreements including: a detailed description of the obligations of the key function holders, a description of the trustees' obligations, procedures in respect of data protection and reporting breaches, sub-contracting, disputes, pricing and fee structures and term and termination. The Authority may request sight of relevant outsourcing documentation and records from trustees as part of its ongoing supervisory activity.
On 1 December 2021, the Authority published instructions for trustees on how to make a notification when they enter an outsourcing arrangement for the provision of the internal audit and risk management key functions. The instructions on how to make key function holder outsourcing notifications is available on the Pensions Data Register ("PDR") which is also where all notifications will be made.
Information for educational providers of trustee qualification courses
There are currently two courses listed on the Authority's website as being suitable in order to satisfy the "fit" aspects of the Code. Educational providers who are interested in having their course included on the Authority's list of trustee qualification courses are required to submit information outlining how the course covers the Authority's list of topics for trustee qualification curriculum. Proof that the course is QQI/NFQ certification at level 7 or above is also required.
One-member arrangements
On 16 November 2021, the Authority published FAQs on investment and borrowing for one-member arrangements under the Act. The FAQs available on the Authority website, are intended to provide assistance to trustees of one-member arrangements in understanding their obligations under the Act in relation to investment and borrowing rules and the derogations available to them in respect of those obligations.
Annual Compliance Statement ("ACS")
The ACS is a new requirement introduced by the IORP II Regulations which requires trustees to prepare an ACS not later than 31 January each year for the preceding year with the first ACS due on 31 January 2022. The ACS due on 31 January 2022 does not have to be submitted to the Authority. All subsequent ACSs must be submitted to the Authority within one month after it has been prepared and must be certified for accuracy and completeness by at least two trustees, or in the case of a corporate trustee, at least two directors. The Authority published the form the statement should take along with the governance obligations that trustees are required to address under the ACS.
Own-risk assessment
Section 64 AL of the Act prescribes the requirements placed on trustees when carrying out the own-risk assessment ("ORA"). Under the Act, trustees are required to carry out and document an ORA at least once every three years and without delay following any significant change to the risk profile of the scheme or trust RAC. The latest date by which a scheme's initial ORA takes place is 22 April 2024, with the exception of one member arrangements established before 22 April 2021.
IORP Christmas Checklist
In advance of year end, there are a number of IORP II related matters that we recommend that trustees of occupational pension schemes should endeavour to, at a minimum, have in place to ensure the trustee board is appropriately constituted to meet the statutory deadline of 31 December 2021 to have a minimum of 2 trustees who may effectively run the scheme. They are:
- a trustee board that meets the knowledge, experience, fitness and probity standards set out in the IORP II regulations;
- drafting and approving a remuneration policy for trustees;
- drafting and approving a conflict of interests policy for trustees (or updating same where one is already in place); and
- progress written policies such as risk management and internal audit policies to the extent
The ACS also seeks information on whether the trustees have approved a written risk management policy and a written internal audit policy. In practice most schemes are unlikely to have completed the risk management and internal audit policy approval processes before the year end given the timing of the final Code.
Beneficial Ownership - Trusts for Minors
The Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021 excludes occupational pension schemes (where established as an approved scheme pursuant to Part 30 of the Taxes Consolidation Act 1997), among other arrangements (including approved retirement funds), from the requirement to establish and maintain a beneficial ownership register. In addition, they are not included in the new requirement to file a return of beneficial ownership information to the State's central register of beneficial ownership established for trusts.
However, one area where the 2021 Act and the related regulations (the EU (Anti- Money Laundering: Beneficial Ownership of Trusts) Regulations 2021) may impact on occupational pension scheme related benefits is to any trusts for minors established by trustees of occupational pension schemes. These tend to be established on the death of a member (often death in service) in circumstances where the family situation of the member results in no one individual having sole financial responsibility for any surviving minor children of the member. In those circumstances, the provisions of the occupational pension scheme will usually give the trustees the power to establish a trust for the minor child or children and appoint separate trustees to that trust.
It is these trustees (as distinct from the pension scheme trustees) who will have to comply with the requirements of the 2021 Act and associated regulations which require trustees of trusts to identify, register and file beneficial ownership information with the Central Register of Beneficial Ownership of Trusts (the "CRBOT"). The deadline for filing such information was 23 October 2021.
A designated person entering into an occasional transaction or business relationship with the trustee of an in- scope trust (in its capacity as trustee of that trust) or who is otherwise carrying out due diligence on that trust will have a right of access to more limited information in respect of the trust's beneficial owners. Any other person who can demonstrate that they have a legitimate interest in accessing CRBOT may also request access. However, in respect of minors, there will be further restrictions on when information can be accessed in that the person seeking access must be able to demonstrate a public interest ground for its request to the Revenue. The protections afforded by the Data Protection Act 2018 will also apply.
Financial Services and Pensions Ombudsman Strategic Plan
On 26 November 2021, the FSPO launched its second strategic plan covering the period 2021-2024. The plan, 'Connecting and Innovating', "builds on the FSPO's delivery in its first three years of operation, during which time, the FSPO concluded more than 15,200 complaints." The priorities outlined in the new strategic plan reflect both the FSPO's statutory role and the organisation's values and reflect the FSPO's ambition to evolve and innovate its services and focus on its customers, external stakeholders and audiences.
The FSPO also launched its public consultation on its draft customer charter and customer action plan on the 26 November 2021. The FSPO Customer Charter and Customer Action Plan will be open for comments and feedback by the public until 7 January 2022.
European Insurance and Occupational Pensions Authority ("EIOPA") and Climate Change
At the United Nations Climate Change Conference (COP26), EIOPA highlighted its commitment to support the insurance and pensions sectors in tackling climate change. Along with other activities in the area of sustainable finance, in 2022 EIOPA will finalize the first European-wide dashboard on the natural catastrophe insurance protection gap. The dashboard seeks to raise the awareness of climate related perils and identify the material risks that climate change poses to the assets and liabilities of insurers and pension providers. In response, EIOPA expects the insurance and pensions industry to assess climate-related risks, for example as part of insurers' own risk and solvency assessment (ORSA) and undertakings will need to disclose how their activities contribute to the transition to an environmentally sustainable economy.
Upcoming Legislation
The Finance Bill 2021
The Finance Bill 2021 (the "Bill") contains some of the reforms proposed by Interdepartmental Pension Reform and Taxation Group last year.
The Bill seeks to amend the rules in relation to the pension entitlements of a spouse or a dependent of a deceased member who dies in service. Occupational pension scheme rules will be amended so that the aggregate pension can be taken as either a pension or the benefits transferred to an Approved Retirement Fund ("ARF"). The requirement for an Approved Minimum Retirement Fund ("AMRF") for those who cannot demonstrate a guaranteed income of more than ?12,700 per annum is to be abolished under the Bill.
The Bill also seeks to remove the prohibition on transfers from an occupational pension scheme to a Personal Retirement Savings Account ("PRSAs") for members with more than 15 years' service.
Further, employers will also be granted tax relief on employer pension contributions to occupational pensions set up for the employees of another company.
Social Welfare (Surviving Co-habitants Pension) Bill 2021
On 19 October 2021, the Labour Party published a new Seanad bill that would change the law so that a surviving cohabitant is eligible for a widow/ widower's contributory pension. The proposed Bill has been proposed to address the change in the perception of the family unit in Ireland. It seeks to ensure that surviving co-habitants are not left without pension entitlements following the death of a partner that they had been residing with.
Currently, there is automatic qualification for a widow, widower or surviving spouse under Chapter 18 of Part 2 of the Social Welfare (Consolidation) Act, 2005 as amended, and in Chapter 10 of Part II of the Social Welfare (Consolidated Claims, Payments and Control) Regulations, 2007, (Statutory Instrument 142 of 2007), as amended. This legislative amendment will come as welcome change recognising diversification of families, if implemented.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.
