Supplementary, My Dear Watson: The New European Union (Supplementary Pension Rights) Regulations 2019

Pension Rights Regulations

The European Union (Supplementary Pension Rights) Regulations 2019 became effective on 13 September 2019 and have made various changes to the Pensions Act 1990. The Regulations give further effect to Directive 2014/50 which aims to enhance worker mobility between Member States.

While the Directive explicitly excludes certain types of schemes from its application, the Regulations conversely cater for all scheme types. This has led to confusion in the pensions industry as to whether the Regulations cover schemes already closed for membership and single member arrangements.

Regulation 4 – cause and effect

Regulation 4 amends the Pensions Act with the addition of a new section. Section 32A states that in the case where an outgoing worker has had their relevant employment terminated, and at the time of termination they are not entitled to receive a preserved benefit under the relevant pension scheme, this worker shall be entitled to a refund of the contributions paid by them or on their behalf to the scheme.

Industry participants are likely to seek clarification on the effect that this new provision is likely to have on a scheme’s vesting rules and on those members that have left service and moved to another EU Member State before 13 September 2019. As the Regulations do not provide any criteria for classifying a member leaving service as an “outgoing worker”, it is likely that guidance will be sought on this aspect also.

Section 32A for defined contribution and defined benefit schemes

In addressing the refund entitlement according to scheme type, section 32A provides that where the relevant scheme is a defined benefit scheme, the outgoing worker shall receive a refund of all contributions paid by or on behalf of the outgoing worker.

This new section then provides that where the relevant scheme is a defined contribution scheme:

• The outgoing worker shall receive the sum of the contributions paid by, on behalf of or in respect of the outgoing worker whether the contributions were paid by the employer or the outgoing worker or both, or
• The outgoing worker shall be paid the value of the investments arising from the contributions paid by or on behalf or in respect of the outgoing worker whether the contributions were paid by that outgoing worker or the employer, or by both of them.

This new section also confirms that where the rules of the scheme provide for a refund to the outgoing worker that is greater than the amounts provided for under s32A, then nothing in that section shall prevent this greater amount being paid to the outgoing worker.

Regulation 5

Regulation 5 amends the Pensions Act by inserting section 35(1A). This new provision states that the trustees of a scheme may carry out a transfer payment from the scheme by making one or more payments where an outgoing worker has provided the necessary consent in writing for the trustees to do so.

There is some confusion in the industry about this provision, particularly around the requirement to obtain the written consent of the outgoing worker and whether the trustees of the scheme will need to satisfy themselves that the person leaving service is actually moving to another EU Member State.

Regulation 6

This regulation inserts section 39A into the Act, which provides that the waiting period for admission to membership of a scheme for outgoing workers shall be no greater than:

• 12 months from the date of commencement of service in the relevant employment of that person, or
• In the case of a person whose service commenced before 13 September 2019, that person shall be admitted to the scheme 12 months from the date on which their service commenced, and
• Where more than 12 months has elapsed from the day on which service commenced and the relevant scheme has a waiting period of more than 12 months, then they are to be admitted on 13 September 2019.

Conclusion

While clarification on a number of points will have to be sought from the Pensions Authority, trustees and employers will need to consider how these Regulations are likely to affect a scheme’s vesting rules and its liabilities going forward.

Employers and trustees should also consider the impact of regulation 6 on current employees that could be classified as “outgoing workers” under the Regulations. While employees that fall into this class may not have completed the necessary period of service to gain admission to a pension scheme, regulation 6 seems to have created an overriding statutory right of admission.

For expert advice on your organisation’s pensions queries, please contact a member of our Pensions team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.