The IORP II directive set down modernised rules for EU pension funds to better protect pension scheme members & their beneficiaries.
What is the significance for Irish Pension Schemes?
IORP II was transposed into Irish law in April 2021. The changes introduced have a significant impact on the role of trustees of occupational pension schemes in terms of compliance & governance i.e. are they considered fit for purpose for the role of trusteeship of a pension scheme?
What new tasks will a trustee be responsible for?
Too many to list but the main components of their role will include:
- Trustees must put in place effective governance and internal controls
- Trustees must have adequate qualifications, knowledge and experience & be able to evidence those qualifications
- Key function holders must be appointed to maintain effective risk management, internal audit and actuarial functions & the same person cannot carry out each role
- Trustees must have written policies for each of the key functions and these must be reviewed every 3 years
- A risk identification and assessment framework must be established and carried out every 3 years
- An annual compliance return must be submitted to the pensions authority each year
- Pension benefit statements and Annual Reports must be provided each year to members in line with the directive’s requirements
What does this directive look like in real terms?
The Pensions Authority has a clear consolidation objective—to move from roughly 75,000 defined contribution pension schemes to 150–200 by 2027.
What is the significance of this directive right now?
Any One Member Arrangement (OMA – Executive Pension) set up on or after 22 April 2021 must meet the full requirements of the Pensions Act, 1990, including the new requirements of the IORP II Directive, by 1 July 2022. These requirements impose significantly higher standards and requirements on Irish pension schemes
Why is this an issue?
Due to the fact that there has been increased uncertainty, changes in the market and additional regulatory updates in relation to the continued provision of one-member arrangements, Life Companies have suspended accepting OMA arrangements with immediate effect.
While there are alternative options available – none compare to what has now been suspended in terms of tax efficiency & effective pension planning for people.
What are the solutions?
The market has been working through the scale of activity required to meet the Pensions Authority’s / IORPs expectations. Many employers have concluded that, rather than continue to operate standalone defined contribution (company pension) schemes, they will transition to a ‘Master Trust’ arrangement if possible. This is consistent with most other markets globally. The challenge for the Irish market is managing the pace of the transition required.
What is a Master Trust?
One of the biggest benefits of a master trust is the ability to meet regulatory requirements centrally, rather than individual plans tackling this aspect, as standalone entities. Master trusts have qualified, professional trustees and governance is managed centrally, so moving to a master trust essentially removes this hefty responsibility from the employer as it’s managed and overseen by the master trust and its trustees. Master trusts also offer economies of scale, so the costs of compliance with IORP II and the additional governance requirements are more easily absorbed in a master trust than they might be in a traditional, standalone pension plan.
Source: Irish Life, Pensions Authority, Standard Life, PWC, eiopa.europa.ue, New Ireland Assurance