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New rights for mobile workers under Irish pension schemes

  • Ireland
  • General

18-11-2019

On 3 September 2019, the Minister for Employment Affairs and Social Protection made the EU (Supplementary Pension Rights) Regulations 2019.  These Regulations bring the provisions of Directive 2014/50/EU into force in Ireland with effect from 13 September 2019.

The purpose of the Directive is to enhance worker mobility between Member States by improving the acquisition and preservation of supplementary pension rights.  The Directive does so, however, in a questionable way, as it in effect grants preferred status to mobile workers over non mobile workers within EU pension schemes.

The Directive also has a number of drafting uncertainties or ambiguities and these have fed through to the Regulations.  It is to be hoped that further guidance will issue from either the Department or the Pensions Authority to assist pension trustees in interpreting how the Regulations will apply to their schemes.

The Regulations amend the Pensions Act, pursuant to the power to do so under Section 3 of the European Communities Act 1972, to introduce certain minimum rights for “outgoing workers”.

“Outgoing workers” are defined to mean an active scheme member whose employment terminates for reasons other than becoming eligible for a pension and who moves between Member States.

Short server rights

The Regulations provide that where the service of an outgoing worker is terminated before the worker becomes entitled to a preserved benefit, the outgoing worker is entitled to a refund of:

  • the pension contributions paid by or on behalf of the outgoing worker, in the case of a defined benefit scheme or,
  • a refund of either (i) the sum of the contributions paid by, on behalf of, and in respect of the outgoing worker by both the worker and the employer; or (ii) the value of the investments arising from those contributions, in the case of a defined contribution scheme.


While schemes will generally allow a refund of member contributions for short servers, the concept of also paying the member the value of the employer contributions is a new development, and appears to contradict Revenue restrictions on the payment out of employer contributions made to a scheme, though presumably this will be clarified by the Revenue.

Given that most defined benefit schemes are closed to new entrants, the number of future short servers under defined benefit schemes will probably be very small, but there is a need to clarify exactly what is payable if a refund scenario were to arise under the Regulations.

For a defined contribution scheme, it appears to be the trustees who decide which refund option is applied.  The inclusion by the Regulations of employer contributions is not specified under the Directive.  If it is a “gold-plating” of the Directive requirements by the Department, there is no obvious rationale for it.  Why should mobile workers be given a preferred status over workers who choose to stay in Ireland?

Longer server rights

For longer serving outgoing workers with preserved benefits, the Regulations prohibit trustees from making a transfer payment out of the scheme in respect of that outgoing worker without their written consent. This therefore cuts across the current entitlement of scheme trustees to make transfers out without consent in respect of preserved benefits with a value of less than €10,000.

Waiting periods

Finally, the Regulations provide that an outgoing worker must not be subject to a waiting period of longer than twelve months before they are admitted to a pension scheme for which they would otherwise be eligible.

This provision, which is taken directly from the Directive, seems to indicate that there can be such a thing as an “incoming” outgoing worker as well as an “outgoing” outgoing worker.  In other words, the trustees may have to assess whether an employee who has joined the workforce is in fact an outgoing worker as defined under the Regulations, and therefore must be granted entry to the pension scheme within twelve months of joining service, assuming they comply with other eligibility conditions.

In practice, most open pension schemes have a waiting period of twelve months or less from joining service.  However, if a scheme requires a service period of more than twelve months, it may prove difficult to operate this going forward, unless “incoming” outgoing workers are actively identified.

A final area in which the Regulations deviate from the Directive is that schemes which are closed to new entrants are not specifically excluded from the Regulations.  In practice, this may be a marginal issue, but the Directive makes clear that it does not apply to closed schemes, so it would be helpful if the Department would clarify that the same position applies to the Regulations.

The intended operation of the Regulations requires further clarification and guidance, which hopefully the Department will provide soon.

Disclaimer

This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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