application of preservation regime to db schemes sutherland ireland • calculated in line with part...
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Application of Preservation
Regime to DB Schemes
Ian Devlin
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The views expressed in this presentation are
those of the presenter(s) and not necessarily
of the Society of Actuaries in Ireland
Disclaimer
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Application of Preservation Regime to DB Schemes
Presentation to Society of Actuaries of Ireland
25 April 2017
Ian Devlin
Partner
4715320
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DB Preservation Regime
The Basics
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Eversheds Sutherland Ireland
Entitlement to a preserved benefit (“PB”)
When does it arise?
When does it
not arise?
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Eversheds Sutherland Ireland
• Calculated in line with Part A Second Schedule
• Payable based on rules in force at date of leaving
• Refund of member’s contributions prohibited
• Statutory revaluation
• Entitlement to transfer payment
• Forfeiture and employer liens disapplied, except on bankruptcy
Consequences of a PB being created?
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Eversheds Sutherland Ireland
How is PB calculated?
Part A – Second Schedule
• Basic PB –> Long service benefit x B/C (Phasing In)
• Additional long service benefit –> AVCs - X x Y/Z (Defined Benefit)
• Additional long service benefit –> Transfer Payments
• For post 1 June 2002 leavers –> Pre-1991 service
Part B – Second Schedule
• Revaluation applied annually
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Eversheds Sutherland Ireland
Revaluation – how it works
• Applies to PB created after 1 January 1996
• Member is at least one year from NPA
• PB revalued annually by the prescribed revaluation percentage
• Since 1 January 2013 - increase / decrease in CPI capped at 4%
• Minister can increase 4% cap to smooth effects of negative revaluation
• Ceases on payment, NPA or death
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Eversheds Sutherland Ireland
Transfer payments – how they work
• Transfer payments = actuarial value of PB (including revaluation and contingent death benefits)
• Calculated in line with PA and SAI guidance
• May be reduced to reflect MFS deficit
• Entitles members to direct trustee to effect transfer payment to
− Another OPS – funded/unfunded
− A PRB
− PRSA (15 year rule)
− Overseas Pension Vehicle
• Right lapses two years after leaving service but trustees can extend
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Eversheds Sutherland Ireland
PB– treatment on death
Actuarial value of PB payable to
legal personal
representative
If scheme provides spousal/
dependant’s death in service
pension, trustees may instead pay
such a pension
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Eversheds Sutherland Ireland
Enhancement – how it works
• Member leaves relevant employment with periods of reckonable service in more than one scheme of same employer
• Occurs once relevant employment terminates
• Calculated in same way as revaluation
• Covers period from when reckonable service in first scheme ceases to date relevant employment terminated
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Eversheds Sutherland Ireland
Phasing In – how it works
• Basis of calculating long service benefit is altered between commencing and terminating relevant employment
• Benefit changes phased in after date of change
• Only fully crystallises once member reach NPA – except where NPA changed
• If member leaves pre-NPA their PB will not reflect full impact of benefit change
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DB Preservation Regime
The Complex Stuff
Accrual Changes
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Eversheds Sutherland Ireland
Full Freeze
• Break link with FPS and cease accrual
• Revaluation issue
− Typically no break in relevant employment
− Revaluation not triggered
− Enhancement will apply on subsequent break in relevant employment but
− What if actives stay until NPA?
− Solution – contractual revaluation – floor 0%?
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Eversheds Sutherland Ireland
Full Freeze
• Phasing In issue
− Change in basis of calculating long service benefit
− Typically no break in relevant employment
− Risk contractual revaluation may be continuation of reckonable service
• Workarounds?
− Employer – why?
− Trustees – why?
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Eversheds Sutherland Ireland
Full Freeze
Phasing In – workarounds
Create break in relevant employment
− Gap between leaving DB and joining DC
− – death cover
− - employee comms
Make contractual revaluation discretionary
− Employer promises revaluation outside scheme
− Employer funds for revaluation
− Trustees notify members service post-freeze does not entitle them to long service benefit
Create break in reckonable service
A. Trustees notify members service post-freeze does not entitle them to long service benefit
− - PA aware of this approach
B. Two deeds
Apply revaluation as augmentation
− No contractual revaluation within rules
− Applied as augmentation on member retiring, leaving service or dying
− Employer funds for revaluation
Implement freeze via Section 50
− Section 50(2) overrides phasing in provisions of Second Schedule
− Section 50 application form needs to be framed accordingly
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Eversheds Sutherland Ireland
Pensionable Service Freeze
• Accrual frozen but link to final salary maintained
− No break in relevant employment
− Change in basis of calculating long service benefit
• Phasing In – workarounds?
− Implement via Section 50
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Eversheds Sutherland Ireland
Pensionable Salary Cap
• Pensionable Salary capped but accrual continues
− No break in relevant employment
− Change in basis of calculating long service benefit
• Phasing In – Workarounds?
− Implement via Section 50
− Implement via member / trustee notification – if possible
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Questions?
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eversheds-sutherland.ie© Eversheds Sutherland 2017
Ian Devlin
Partner | Pensions Eversheds Sutherland
T: +353 1 6644219M: +353 87 9685593
www.eversheds-sutherland.ie