Five key pensions developments to look out for in 2024
Five key pensions developments to look out for in 2024
In this briefing we examine some of the key pensions developments to watch out for in 2024 including a summary of some important pensions cases before the High Court, an update on the introduction of Ireland’s first auto-enrolment system, details on the recently announced review of the standard fund threshold regime, a reminder of the upcoming Pensions Authority supervisory review process and an outline of some changes to the State pension.
1. High Court Judgements
A number of pensions related judgements are due in 2024, each of which raise important questions of interpretation of defined benefit pension scheme documentation:
Masterson & Ors v Coras Iompair Eireann 2021/158 SP
This case, which was heard over four days in May 2022, focuses on the legal interpretation of rule 20 of CIÉ’s main staff defined benefit pension scheme, which relates to the employer’s obligations “to support and maintain the solvency of the fund”. Judgement is currently expected on 24 January of this year.
Members of the scheme previously voted to approve a Labour Court recommendation to reduce member benefits in order to address the funding difficulties facing the scheme. However, the position of the committee responsible for the scheme’s management is that the proposal to reduce benefits is incompatible with the employer’s obligations under rule 20 to contribute the amounts required to support the scheme and enable the scheme to maintain its solvency. The High Court has been asked to determine the scope of the employer’s obligations to make contributions to the scheme. Of particular interest will be how the court interprets the employer’s obligation to support the scheme and maintain its solvency and whether this requires funding to be provided based on the statutory minimum funding standard or some other actuarial funding basis.
Amcor Pension Trust (Ireland) Company Limited by Guarantee v Amcor Holding No 1 Limited 2022/200 SP
This case involves a challenge by the trustees of the Amcor Pension Scheme Ireland against the company’s decision to end contributions to the plan. The case was heard in December 2023 and judgement is anticipated during 2024.
The Company maintains that it was entitled to terminate paying contributions to the scheme by serving a notice that that effect that took effect immediately on service. The trustees argue that the company breached its duty to act in good faith by terminating contributions without providing any prior notice and is therefore required to pay additional deficit contributions to the scheme on termination.
Vodafone Ireland Ltd v Kavanagh & Ors 2022/215 SP
Vodafone is asking the Commercial Court to determine the correct interpretation of a rule of the Vodafone Ireland Pension Plan related to the award of increases to member pensions. There has been no hearing in this case yet, but this is currently scheduled for April 2024 with judgment possible later in the year.
A question has arisen as to whether pension increases for a certain category of plan members should be awarded automatically or may only be awarded where Vodafone exercises a discretion to award them. Vodafone argues the proper interpretation of the rule is that the increases are and remain subject to the discretion of the company while the trustees are requesting clarification from the court as to the correct interpretation of the rule.
2. Auto Enrolment (AE)
Ireland’s auto-enrolment pension system is due to be launched in the second half of 2024 and the Department of Social Protection have recently reiterated that the system is on track to be ready for this date. However, there are growing concerns in the Irish pensions industry about the feasibility of this timeline due to a number of recently missed deadlines. The Government had previously indicated that draft AE legislation would be published by the end of 2023 and that a request for tenders for the AE systems’ contract would be launched by the end of November 2023. Neither of these deadlines have been met.
It's still a little early to fully understand the implications of AE for individual business, but employers should start thinking about the following:
All private sector employers will be required to comply with AE.
While employees can opt out of AE at staged intervals, they will also be required to be automatically opted back in at future intervals.
Employers should not incentivise employees to opt out of pension provision.
Most employees will be AE eligible, but the exact age range and salary range is still to be decided.
Employees as well as employers will be required to make contributions.
If you have an existing pension arrangement, when the final shape of AE becomes clear you should review it to understand if it needs to be updated in order to avoid having to enrol employees in the Government’s AE arrangement.
The original AE proposal remains unchanged, but we may see some updates once the AE Bill is published and as it makes its way through the legislative process. Under the original proposal:
Employees earning €20,000 or more and aged between 23 and 60 who are not currently enrolled in a workplace pension scheme will automatically become a member of the auto-enrolment scheme.
The introduction of auto-enrolment will be very gradually phased in over a decade, with both employer and employee contributions starting at 1.5%, and increasing every three years by 1.5% until they eventually reach 6% by Year 10 (up to a maximum of €80,000 of earnings).
The state will also top up contributions by €1 for every €3 saved by the employee, up to a maximum of €80,000 of earnings.
3. Review of the Standard Fund Threshold
The Irish Government has announced a targeted review of the standard fund threshold (SFT) regime. It has been stated that the review will be completed by summer 2024, with any resulting changes likely to be part of budget 2024. The first stage of the review is a public consultation which is currently open and which runs until 26 January 2024.
The SFT regime, introduced in 2005, was designed to restrict pension funding over a certain amount, after which a 40 per cent income tax charge would apply. The current threshold is set at €2 million.
The outcome of the review will be closely watched by practitioners, employers and high earners in both the public and private sectors and may result in a change to the threshold amount or possibly even an abolition of the SFT regime. A similar review undertaken by the UK Government of the UK lifetime allowance resulted in a UK decision to abolish the lifetime allowance, and the necessary UK measures to complete the abolition will take effect on 6 April 2024. Many high earning employees who may have previously opted out of pension accrual in the past to avoid penal tax charges may be eligible to opt back in depending on the outcome of the review.
4. Pensions Authority supervisory review process
In December 2023 the Pensions Authority announced on its website that it will commence its supervisory review process (SRP) programme in 2024. Initially the focus of the programme will be on master trusts and large defined contribution and defined benefit schemes. Schemes selected for SRP in 2024 will be formally notified early in 2024 and will be provided with information on the process in advance of commencement.
The Pensions Authority is required by the Pensions Act to conduct SRPs in relation to the strategies, processes and reporting procedures established by the trustees of pension schemes. The SRP will likely consist of an assessment by the Pensions Authority of a scheme’s system of governance, the risks that the scheme faces and the ability of the scheme to manage those risks. We can expect this to involve a deep dive by the Pensions Authority into how a scheme works and the sorts of processes and supports it has in place to protect members’ interests and comply with legal requirements. We await further details on the SRP with interest.
5. State Pension changes
New flexible pension arrangements for people applying for the State Pension (Contributory) are in place as of January 2024. Under the terms of the Social Welfare (Miscellaneous Provisions) Act 2023 (the 2023 Act):
a person reaching age 66 will have the option to take payment of the State pension (contributory) at age 66 in the usual way (assuming they have made the requisite PRSI contributions); or
defer taking payment until any age between 67 and 70 in return for an actuarially increased rate of pension.
Employers should note that this change to the State pension (contributory) may create an additional difficulty when it comes to enforcing mandatory retirement ages (MRAs) as more employees may wish to work for longer. The Employment Equality Acts 1998 to 2021 permit employers to implement a MRA, however, any such MRA will be considered discriminatory unless it can be objectively and reasonably justified by a legitimate aim and the means of achieving that aim are appropriate and necessary. According to the 2022 Workplace Relations Commission’s Annual Report, of the nine protected grounds for discrimination, age-related discrimination complaints showed the highest increase – 176% – when compared with 2021 figures.