The Importance of a Retirement Policy

The period approaching retirement is a key time for members of pension schemes, with important decisions to make that can impact the rest of their lives.  The Workplace Relations Commission issued a code of practice on longer working in 2017 which sets out best practice regarding retirement arrangements.  This, together with the increased focus on governance in the implementation of the IORP II Directive into Irish law this year, means it is more important than ever to have a retirement policy in place – and to follow it!

The policy should include areas such as:

• Retirement at Normal Retirement Age (“NRA”)
  • Set out process, with steps such as issuing of retirement option statement, receipt of selected option form from member and processing of member’s options;
  • Consider what timeframe is recommended for each step;
  • What options are provided to member?  Usually members have the option to take some of their benefit as a tax-free lump sum.  Should they also be given the option to transfer out the value of their benefit to another pension vehicle?  If yes, should that option only be available if selected in time to process before NRA?

• Early retirement
  • Is consent needed from employer and/or trustees?
  • In a Defined Benefit scheme, do the trustees have a statutory veto on early retirements due to the scheme’s solvency level?

• Late retirement
  • Is consent needed from employer and/or trustees?
  • Does member have to remain in service to take benefits later than NRA?
  • Does member have option to take pension and/or lump sum at NRA while still working with employer?
  • If member is continuing in employment, is there continuation of:
    • Employer contributions
    • Employee contributions (compulsory and/or AVCs)
    • Life assurance cover? – there may be underwriting issues & medical requirements if the individual has passed NRA.

• Retiring from deferred member status
  • Can member take early/late retirement from deferred status? 
  • If so, is consent needed from eg trustees/employer?
  • Extra time may be needed to track down deferred members if contact has been lost.

You should ensure that every part of the policy is in line with the provisions of the Scheme’s trust deed and rules.  Where the individual is a member of more than one scheme of the same employer, ensure that the trustees/administrators of each scheme are working together so that benefits can be taken at the same time, in accordance with Revenue Commissioners’ requirements.  There is an exception to this Revenue rule where the member is taking early retirement from a Defined Contribution scheme and has accrued benefits in a Defined Benefit scheme, from which early retirements are not currently permitted.

When you’re considering your retirement policy, you may need to look at other issues in conjunction, eg:

• Is the existing NRA (under both the pension scheme and employment contracts) suitable for the current needs of the workforce and the employer?
• Is there anything in the policy that needs to be communicated to members?
• Are there any changes needed to the trust deed and rules arising from the implementation of the policy?  Such changes will need a deed of amendment to alter the provisions of the trust deed and rules.

The above focusses on retirement policy as it relates to your pension scheme.  There are other HR/workforce planning issues to consider alongside pension, e.g.

• Liaise with your employee in plenty of time about their retirement (WRC recommends 6 to 12 months beforehand);
• Ensure business continuity by arranging for duties to be transitioned to other colleagues;
• Legal issues around justification of terminating contract at NRA, especially if the employee wants to remain working;
• Should assistance be offered to the employee, e.g. access to financial planning to help decide on retirement fund options, or paid time off to attend retirement planning course?

We are happy to assist with developing your scheme’s retirement policy.   Please contact our Legal team or your usual Willis Towers Watson consultant.

Kirstie Flynn
Director/Trustee Representative
kirstie.flynn@WillisTowersWatson.com