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Pension schemes face regulatory clampdown if failing to engage on new rules

Final deadline for compliance with more rigid and costly rules on governance and risk management comes at year-end

New pension rules are designed to improve workers' outcome in retirement but they bring significant additional cost for companies that want to operate relatively small pension schemes. Photograph: iStock

Dominic Coyle
Wed Dec 20 2023 - 05:00

Workplace pension schemes that have failed to act on new industry rules by the end of this year will face strong action from the regulator, industry figures anticipate.

It comes as a new report from the Pensions Authority says that 20,882 employers across the State have now moved their pension schemes into one of 17 master trusts.

Master trusts manage multiple pension schemes in a way that spreads the cost of compliance, reducing the bill for individual schemes. They were established in response to the EU Iorp II directive — the second institutions for occupational retirement provision directive — which puts in place new, higher governance standards to maximise consumer protection.

The reforms are designed to improve consumer protection for pension scheme members and maximise retirement income by strengthening scheme governance and risk management but it will involve significantly stricter oversight. This will add to scheme costs and pensions advisers argue the likely bill — in time and money — will be too onerous for many companies running one of Ireland’s myriad pensions schemes.

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The Pensions Authority noted that the 17 trusts in place now have €17.7 billion in assets under management relating to 276,812 people still working with the sponsoring employers and 124,235 deferred members — people who have moved on from a particular job.

The move is part of a long-term ambition to reduce the number of pension schemes in Ireland to about 400 by 2027 — 250 older style defined benefit or final salary schemes and 150 defined contribution schemes.

Industry sources say the final tally may even come in under this figure as several large pension schemes — those with assets of more than €500 billion have opted to move into a master trust arrangement earlier than anticipated.

But, on the flip side, they say employers who have ignored calls to address their pension situation can expect to feel the wrath of the regulator in January.

“If you are on a plan and you are engaging with the regulator, I believe the regulator has been very practical,” said Oisín O’Shaughnessy, managing director of Irish Life Corporate Business, which operates the largest of the master trusts. “But if you have no plan or engagement, they will come after you. In January they will start baring their teeth.”

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PwC’s pensions partner Munro O’Dwyer agrees the regulator will adopt a more aggressive approach, but he added that the success of the trusts would be the catalyst for holdouts to decide to follow the master trust root “not because of a regulator’s stick”.

December is an extended deadline, a full 12 months after pension schemes were supposed to have ensured they were compliant with the new EU rules.

The Pensions Authority report says several master trusts are “under administrative pressure because of the ongoing consolidation of the DC [defined contribution] sector, which has led to the onboarding of a large number of transferring employers and members into master trusts”.

PwC’s Mr O’Dwyer expects 2024 will see many of those who have adopted a wait-and-see approach making the move into master trusts.

“I am fairly clear that being in a master trust creates more time and energy to spend on things that really matter to savers,” he said, adding that it appeared to offer a “much better user experience”.

Schemes that have to tender for services in 2024 will, he said, “be bid for very competitively” which would “offer phenomenal value for employees”.

Dominic Coyle

Dominic Coyle

Dominic Coyle is Deputy Business Editor of The Irish Times

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