The Pensions Authority expects all schemes to be fully compliant with IORP II requirements by 1 January 2023. We speak to three members about their experience with the changing pensions landscape
Barry Prendiville
Director
Nolan & Partners
We are currently setting up a Master Trust arrangement for all employees, including those who are not currently in an existing pension arrangement. We were prompted to accelerate this process due to IORP II and, to a lesser extent, auto-enrolment. It has been a slower process than we would have liked, but it offers a suitable long-term solution.
At a high level, there are benefits to IORP II. However, I do believe that one-member arrangements should have been exempt from the requirement to comply with IORP II.
Trustee responsibilities have become much more onerous. Where possible and practical, it makes sense to outsource this risk to suitably qualified pensioneer trustees.
I am concerned that transferring pension benefits accrued by employees to a new Master Trust may be a tedious process. Given prevailing volatility in financial markets, any transfers need to be efficiently managed.
Pensions remain a mystery to a large cohort of the population. The myriad of pension arrangements in place and the technical jargon used by most in the industry confounds and confuses people. Education is key, and I think that retirement planning should be taught at school and university level.
While a positive step overall, I have some concerns that auto-enrolment, once introduced, may lull scheme members into a false sense of security. It is debatable if the proposed contribution level will be adequate to meet long-term income requirements in retirement. It will also put an additional cost burden on businesses in particular sectors that were most particularly exposed to COVID-19.
Overall, auto-enrolment should be seen as a positive development, but it must be clearly communicated and explained in jargon-free language.
Damian Cooper
Head of Private Clients and Investments
Acuvest
The burden of increasing regulation is unlikely to reverse any time soon. For the last two years, my organisation has been helping clients understand, develop, and implement updates to their policies and procedures to ensure their pension and investment governance complies with the new regulatory requirements.
It is important to remember that, while Master Trust solutions offered in the marketplace are being strongly promoted based on their ability to help companies and trustees overcome a short-term regulatory hurdle, they are a relatively new development in the Irish market and, as such, are largely unproven in many respects.
While the Pensions Authority is pushing for Master Trusts to retain the ability to independently select its key service providers in the interests of its members, it remains to be seen how easy it will be for a Master Trust to decide that the interests of members are best served by retaining a key competitor to provide scheme investment or administrative services.
I think that IORP II will likely lead to a higher level of governance across the pensions industry, which is definitely to be welcomed. The transitionary period into a new regulatory regime is always challenging, and participants, regulators, professional service providers and advisors will all need time to adapt and find a new status quo that works effectively and efficiently.
I think it would have been preferable to see if the regulations could have been implemented in a phased manner, starting with the largest schemes and well-resourced entities such as Master Trusts, which would then have allowed industry providers to develop best-practice models that the Pensions Authority could have assessed and then implemented, potentially in a scale-adjusted manner across the rest of the industry.
It is important for people not to get too distracted by the industry focus on regulation and vehicles, as these will get sorted over time. The key thing to remember is that making pension contributions early and often is a valuable, tax-efficient way for people to save for retirement. Employees should take maximum advantage of any contributions available from their employer, remember that tax relief on contributions cannot generally be backdated, and start saving as early as possible.
Bernard Barron
Pensions Audit Partner
Mazars
Due to the recent legal enactment of the IORP II Directive in Ireland, there are very substantial additional pension administration and governance obligations and costs being incurred by pension schemes. Based on these expected additional costs, several smaller defined contribution pension schemes have already decided to wind-up and transfer their pension scheme arrangements into a Master Trust.
The Irish Pensions Authority has set out strict criteria for establishing Master Trusts in Ireland, which is to be welcomed. There will be relatively few Master Trusts set up, and organisations expect to gain the advantage of lower administration costs through the economies of scale that these large Master Trusts will have compared to the smaller pension schemes.
In addition, the Pensions Authority has set out stricter requirements for pension scheme trustees, and Master Trusts will have the benefit of pension specialists acting as trustees, which is not necessarily the case at present.
Due to the increased size and importance of pension scheme arrangements for employees and employers, the increased governance and accountability requirements under this Directive are welcome.
However, the currently proposed Pensions Authority requirements is imposing very significant obligations and costs on smaller and one-member pension schemes, which are not being allowed to implement on a proportionate basis or with a viable alternative.
The IORP II Directive has substantial additional pension administration, governance obligations and costs. This may cause organisations to re-consider the pension benefits that they incur or plan to incur.
In the context of the growth in the ageing of the Irish population, the Government’s plans for implementing pension auto-enrolment in the short- to medium-term are welcome. However, much more clarity and detail are needed about how this is going to work, particularly in relation to cost and funding by employees and employers.
At a national level, the future increased costs and funding of pensions for those pensioners who are reliant on state pensions and for the public sector is a continuing concern.
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