Section 50/50A guidelines

1. Introduction
2. Scheme review
3. Member communication
4. Application
5. The Board’s decision
6. Completing the application process

1. Introduction

1.1 These guidelines provide information to scheme trustees and their advisers about the approach that the Pensions Board (“the Board”) adopts in deciding whether to issue a direction under section 50 of the Act and/or grant consent for the purposes of section 50A of the Act.

1.2 This document is for guidance only. It does not constitute legal or actuarial advice. Trustees should obtain legal and actuarial advice before preparing any application for the purposes of section 50/50A.

1.3 Each application received by the Board will be considered on a case by case basis. The Board may request further information from scheme trustees to assist its consideration of any application.

1.4 These guidelines will be kept under review by the Board.

1.5 A reduction of benefits under section 50/50A is a serious loss for scheme members. Therefore, the Board will consent to an application only where it is satisfied that the proposed future operation of the scheme is robust enough to make any further application unlikely. Before making any application, trustees must engage in a comprehensive review of the scheme.

1.6 The nature and amount of the reduction in benefits is a matter for the trustees. The aggregate reduction in benefits must, on its own or in conjunction with a funding proposal, be sufficient that the scheme will satisfy the funding standard.

1.7 The Board will monitor closely those schemes which have amended their rules pursuant to section 50/50A. Trustees will be required to provide ongoing detailed information to the Board.

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2. Scheme review

2.1 Before making an application, trustees will be expected to undertake a comprehensive review of the structure and management of the pension scheme with the objective of long-term stability and sustainability. The trustees must consider all options to address the scheme deficit. This review must be in consultation with the employer as appropriate.

2.2 The objective of the review is to ensure that an application under section 50/50A is appropriate and, if granted, that the trustees are satisfied that the scheme will provide a sustainable level of benefits and will be funded and invested appropriately. The review must include:

(a) Benefits – this must include both accrued benefits and the rate and type of future accrual.

(b) Investment – the long-term investment strategy must be agreed, including transition from the current position, where relevant.

(c) Contributions – as well as the contribution rate for future accruals, and, where relevant, past service deficits, this review must consider the extent to which contributions can be increased should the need arise.

(d) Risk management – trustees must carefully consider the possibility of the scheme proving more expensive than anticipated, whether through investment shortfalls, improving longevity or other causes, and identify what steps will be taken in those circumstances, through contribution increases, changes to discretionary benefits or other steps.

2.3 As indicated at 1.2, the trustees should obtain legal advice before preparing any application for the purposes of section 50/50A. This should include advice as to the duties and powers of the trustees and the obligations of the employer to make contributions to the scheme. The Board may require copies of such advice.

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3. Member communication

3.1 The application for an amendment of a scheme in accordance with section 50/50A of the Act will, if granted, have a significant impact on scheme members’ benefits. Accordingly, the Board requires that, prior to any application being made, the trustees must provide information to scheme members on the implications of and rationale for the reduction in benefits. This communication should use clear and concise language that the member will understand and should set out, as a minimum:

  • why the trustees believe such an application is necessary/appropriate;
  • the proposed benefit reductions in each benefit category/membership category;
  • the trustees’ reasons for treating some categories of benefits differently to others; and
  • a statement that observations on the proposed reduction may be submitted in writing by or on behalf of any member for consideration by the trustees or employer as appropriate within one month of the date of the written notice and the name and address of the person to whom observations should be sent.

3.2 It is important to note that applications under section 50/50A do not require member consent and, therefore, it is for the trustees to decide whether an application should be made and the specific benefit reductions that are to be applied for. The Board expects that the trustees will give due consideration to any comments arising from the communication process. The communication process should remain open for one month to allow adequate time for member response.

3.3 As part of the application process, the trustees must confirm to the Board that all members of the scheme have been issued with a communication at their last known address. The trustees should enclose a copy of this communication with their application.

3.4 The trustees must also comply with the requirements of section 50(3)(a)(ii) of the Act where a section 50/50A amendment is effected.

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4. Application

4.1 The Board has published an application form which is available below. This form must be used for all applications under section 50 or 50A.

4.2 The application form must be signed by the trustees and, where appropriate, by the sponsoring employer.

4.3 The application form will set out the detailed information to be provided to the Board. This will include:

(a) the current benefits under the scheme;

(b) the different categories of members entitled to benefits or in receipt of benefits under the scheme;

(c) the proposed changes to accrued benefits, indicating which category of members at (b) are affected and how they are affected;

(d) any changes to future benefits, indicating which category of members at (b) are affected and how they are affected;

(e) the funding policy to be adopted by the scheme, including the level of member and employer contributions;

(f) the investment policy to be adopted by the scheme;

(g) the main short and long-term risks to which the scheme is exposed;

(h) the responses that the scheme trustees will adopt in the event of the main short or long-term risks occurring;

(i) details of the member communication process; and

(j) in the case of an application pursuant to section 50A, satisfactory evidence for the purposes of section 50A(1)(a).

4.4 The trustees must provide details of the long-term cost of the scheme, calculated on the basis of assumed average long-term Irish gilt yields and the most recent mortality projections of the Society of Actuaries in Ireland. Where the proposed contribution rate differs from this cost, a detailed explanation of how this affects the sustainability of the scheme must be provided.

4.5 The trustees must confirm that they have considered all options to address the scheme deficit and that they are of the view that the application is in the best interests of the members.

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5. The Board’s decision

5.1 The Board’s power to issue a direction under section 50 and/or grant consent under section 50A is discretionary. The Board is not obliged to issue a direction or grant consent to a section 50/50A amendment in any case.

5.2 If the Board decides to issue a direction under section 50 and/or grant consent under section 50A, it may do so on such terms as it considers appropriate. Any such terms will be specified with the Board’s decision.

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6. Completing the application process

6.1 The Board will inform the trustees of its decision as regards an application for the purposes of regarding a section 50/50A. Where the Board issues a direction under section 50 and/or grants consent for the purposes of section 50A the trustees should inform the Board when the section 50/50A amendment has been effected in accordance with the requirements detailed in section 50(3)(b) of the Act.

6.2 The trustees shall, if requested by the Board, furnish copies of the deed by which the amendment has been effected, and confirmation from the trustees’ legal and actuarial advisers that the deed of amendment correctly implements the direction and/or consent issued by the Board.

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May 2009

 
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