The Pensions Regulator, Brendan Kennedy, in his statement published on Wednesday, August 25, 2021, with the Pensions Authority Annual Report for 2020 set out at a high level the changing landscape for pension supervision in Ireland. Report by Ed Burke
The full statement and Annual Report are available on www.pensionsauthority.ie. Occupational pensions in Ireland are changing in an unprecedented way. Triggered by the Institutions for Occupational Retirement Provision (the IORP II Directive) and the Government’s Roadmap for Pensions Reform, these changes will see a significant improvement in consumer protection for pension savers and beneficiaries.
2020 was a particular challenge given the effects of the Covid-19 pandemic and one of the most important activities of the Pensions Authority in 2020 was the programme of engagement with a number of master trusts and larger defined benefit (DB) and defined contribution (DC) schemes, said Pension Regulator, Brendan Kennedy.
“The objective of this programme was to assess the state of preparedness for IORP II, and the results were mixed, with some areas of concern identified. It was a valuable exercise, and we have seen good progress in our follow-up engagements.”
When the Minister for Social Protection, signed the IORP II into Irish Law in April 2021, few if any occupational pension schemes were wholly compliant. The shift to compliance currently underway imposes significant additional obligations on occupational pension schemes and commits the Pensions Authority, which is responsible for the supervision of Irish pensions, to implementing forward-looking, risk-based supervision.
“The implementation of IORP II will also have implications for how the Authority supervises in the future with a greater emphasis on forward-looking risk-based supervision. The purpose of these changes is to strengthen consumer protection.
"Compared to the rest of Europe, we in Ireland are an outlier as there are over 150,000 Irish pension schemes, most of which are very small. Proper supervision and value for money will not be achieved unless there is a much smaller number of larger, more efficient schemes. Consolidation of the number of DC schemes is fundamental to improving the Irish pension system and is a goal of the Authority.”
Even with a five-year derogation for pre-existing single-member arrangements, there are considerable obstacles ahead for the pensions sector:
- IORP II obligations are onerous and costly, particularly for small pension schemes;
- There is a shortage of trustees with the required experience and qualifications;
- to manage the existing number of pension schemes;
- Such a large number of schemes results in duplication of administration and governance, making efficiency and value for money hard to achieve;
- Applying forward-looking, risk-based supervision to such a large number of schemes would be extremely difficult.
With these challenges in mind, consolidating pension schemes is a top priority for the Pensions Authority. Multi-employer master trusts are expected to be an important part of future pension provision. As such, an immediate focus is on ensuring that master trusts are compliant with all their obligations.
Scheme trustees, along with their sponsoring employers, need to decide quickly whether to take the necessary steps to achieve compliance or whether consolidation into a larger scheme is a more appropriate response. In any case, implementation of reforms needs to happen sooner rather than later. The long-term multi-generational investment of retirement savings has always been a profound and often underestimated challenge, and the environment for those managing pensions savings is as complex as it has ever been.
The ongoing transfer of risk from schemes or employers to individual savers, the investment dilemmas presented by climate change, the need to ensure value for money, and the role of advice and information for savers are all issues that need to be addressed as quickly as possible.
In future, our supervision will be more intrusive, more qualitative, and more demanding. It is not the Authority’s job to dictate to trustees how they should run their pension schemes. It is our job to assess how well they are doing it.