In the aftermath of the publication of the European Union (Occupational Pension Schemes) Regulations 2021 (Regulations) last April, the Pensions Authority (Authority) has been active in providing information and has committed to issuing guidance on a number of specific areas of concern by the end of August 2021. In July 2021, it also published a Draft Code of Practice (Draft Code) on the Regulations for trustees of occupational pension schemes and trust retirement annuity contracts. As the Draft Code is open to public consultation it is likely to undergo significant changes. However, it does provide insight and practical guidance on various aspects of the Regulations including the new fitness and probity regime for trustees and certain key function holders (KFHs).
The meaning of “fit” and of “proper”
For trustees, the Draft Code provides that “fit” is a collective obligation. This means that the trustee board or the directors of a sole corporate trustee must have, as a whole, the necessary qualifications, knowledge and experience to run a pension scheme. The meaning of “fit” for KFHs is the same and trustees must ensure that KFH’s continue to meet the fitness and probity requirements on an ongoing basis.
The Draft Code provides that “proper” means being of good repute and integrity, and this is stated as an individual requirement for trustees and KFHs in the Draft Code.
The Draft Code provides specific detail on how trustees must meet the “fit” part of the requirement. It provides that at least one member of a trustee board or one director of a sole corporate trustee, must have completed an appropriate course which is listed on the Authority’s website. As well as that, a trustee or director of a corporate must have worked for at least 2 of the previous 3 years as a trustee of a similar type of scheme so that they possess the required experience to contribute to the management of the scheme. When it comes to the three specific requirements of experience, knowledge and qualifications, the Draft Code provides that one trustee or one director of a sole corporate trustee may possess these requirements. However, the Authority’s stated preference is that one member of the trustee board (or director of a sole corporate trustee), meets the experience requirement with another trustee or director meeting the qualification and knowledge requirement.
For individual trustees, the Draft Code provides that “proper” must be determined by reference to a number of events which would have an adverse impact on a trustee’s suitability for the role. As well as being the subject of criminal convictions for money laundering or terrorist financing, some of the noteworthy events listed in the Draft Code are:
Being the subject of a bankruptcy petition, adjudicated bankrupt or being a director of a company, which has gone through an insolvency event
Being the subject of an undischarged judgement debt
Being investigated, disciplined, or suspended by a regulatory or professional body, a court, a tribunal or similar body
For corporate trustees, the events listed in the Draft Code relate mostly to insolvency events such as being the subject of a winding-up order, or having an insolvency officer such a receiver or examiner appointed to the company.
The Draft Code provides that all trustees must document their determinations on their own fit and proper status as well as annually documenting their ongoing compliance with the requirements.
Key Function Holders
For KFHs, the Draft Code provides a separate set of criteria for the risk management and internal audit functions on the “fit” part of the requirement.
Trustees must ensure that the holder of the scheme’s risk management function has a relevant qualification which is a minimum of level seven on the Irish National Framework of Qualifications. As well as that, the holder of the risk management function must have two years post-qualification experience in relevant employment and have the sufficient knowledge to support the trustees in carrying out the risk management role. That knowledge must include an advanced understanding in one of the following areas:
Actuarial advice for defined benefit schemes
Asset liability modelling
Stress tests or scenario analysis
As well as having a level seven qualification and two years PQE, the internal audit function holder must have appropriate knowledge to perform the role competently and a clear and comprehensive understanding of the governance and legal environment relating to their function. Both the risk management and internal audit function holders must also understand their obligations when it comes to reporting and identifying conflicts of interest.
For meeting the “proper” part of the requirement for KFHs, trustees must consider whether a KFH’s ability to perform their role is adversely impacted by certain events. While this list includes a standard set of criminal convictions and events relating to bankruptcy and insolvency, it also includes the following:
Being the subject of any upheld complaint made to the Financial Services and Pensions Ombudsman or equivalent body relating to activities regulated by the Authority or an equivalent authority
Dismissed or asked to resign from any profession, vocation, office or employment
Restricted as acting as a director in any jurisdiction
The Draft Code confirms that trustees must ensure that all determinations relating to the KFHs adherence to the fit and proper requirements are documented. Trustees must consider if a KFH has failed to maintain compliance with these requirements when the KFH’s performance is being reviewed as well as considering if they are fit for reappointment to the role.
The requirements of the Draft Code relating to fitness and probity are extensive and should be considered now by all trustee boards so that any concerns can be submitted to the Authority by the consultation period closing date.
If you would like to discuss the Draft Code or the Regulations, 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.