Virus will knock pension-age restoration off agenda, legal expert predicts

“Pension trustees and employers can’t act like an ostrich and bury their heads in the sand where they see potential or current issues,” MH&C pensions partner Stephen Gillick said in a webinar this morning (31 March).

He said that Ireland was entering a highly volatile period, but that the previous recession should have taught us to avoid changing the whole investment portfolio.

The Pensions Authority has also cautioned against ‘kneejerk’ investment decisions on funds, but has told employers to remember their legal obligations.

The body says trustees should not make immediate investment decisions, unless absolutely necessary.

Gillick pointed out that Irish COVID-19 legislation has no mention of pensions, unlike similar British laws, which stipulate maintaining pension payments at 3%.

Gillick said: “Not to be morbid at this time, but trustees need to be aware of members’ letters of wishes. Are they up to date, and held on the system?” Letter of wishes should be retained in a physical form, and not simply scanned and shredded, he insisted.

Catastrophe pay-out limit

Gillick also said that there was also a major question as to whether there was a catastrophe pay-out limit for insurers in relation to COVID-19.

“Contact any insurer who provides insured benefits under the scheme, and ask are there any implications for COVID-19 at the moment?” he advised.

Gillick also gave his opinion that political moves to restore the State pension age to 65 would be parked.

“That all gone for the moment, with the economic impact of this,” he said.

He also cast doubt on whether auto-enrolment for pension cover would go ahead as planned in 2022.

“I would suggest 2022 will not happen now, and we won’t hear very much on auto-enrolment.

Impact

“We are in the middle of an economic crisis, and that crisis is going to have an impact for years and years.

“As predicted by many commentators, all it would take is one bump in the road to knock auto-enrolment off its timeline,” said Gillick.

He urged that, if an individual changed their employment status under a defined benefit (DB) scheme, they should check whether they were still accruing pensionable service under the terms of the scheme.

Suspend contributions

Temporary absences may be defined under a DB scheme, and trustees may also get requests from members to suspend contributions.

However, a key question when an employee changes their status is how this affects benefits, such as death-in-service.

“This really needs careful investigation -- dealing with a pandemic -- if they are losing a valuable death-in-service benefit, whether a lump sum or spousal payments,” he warned.

Criminal liability

The Pensions Authority has also issued a warning on criminal liability for the non-remittance of contributions.

The body’s advice is to keep pension schemes running in line with legal requirements under the Pensions Act and other legislation.

The Pensions Authority will take into account current circumstances; however, it remains to be teased out over coming months whether cash-strapped employers are in contravention of regulations, if they cease remittances.

Efforts

The Pensions Authority expectation is that trustees and employers will make reasonable efforts, and be proactive.

This is not definitely business as usual, Jerry Moriarty of the Irish Association of Pension Funds told the webinar. He also agreed that the pensions roadmap for a 2022 auto-enrolment of all workers was looking optimistic at this point.

“You are talking 2033 or 2034 before it’s fully implemented,” he said, pointing out that it would require ten years of contributions to lead into the new system.

“Most companies are well down on their typical workforce, but most people would agree that the priority is paying pensions, making sure the contributions get paid, get allocated and get invested,” he said.

Second-order issues

The regulatory requirements are second-order issues in the current circumstances, he said.

Jerry Moriarty pointed out that trustees would be dealing with employers who are trying to keep their businesses alive.

Trustees might be approached with changes to funding proposals, and needed to be fully aware of the impact of this and the strength of the employer to continue to fund the pension.

Moriarty said that liability measurements and bond yields had been “bouncing around”.

Priority

Paying pensions and making contributions are taking priority, with regulatory issues taking second place, but employers must comply with Pensions Authority exhortations to make their “best efforts” on remittances.

MH&C pensions partner Stephen Gillick said that the Pensions Regulator for Britain and Northern Ireland had published five useful announcements, and five different sets of actions for employers and trustees on its website, though Irish readers should bear in mind that these are “UK advices”.

“A lot of these announcement were ready to go in the event of a hard Brexit,” he said.

While this material is British-based, much of the content is useful, particularly in relation to deficit repair contributions, where an employer can’t pay towards a defined benefit scheme deficit.

Conflicts of interest

Stephen Gillick said that lawyers continued to hammer home to trustees ‘ad nauseam’ that conflicts of interests arose where the employer might have a desire to save cash or reduce pension contributions, but the trustees needed them to be maintained to look after member benefits.

Conflicts of interest should be a standing point at all trustee meetings over the next few months, he advised, given the current crisis situation.