The Pensions Authority has recently published a consultation document that proposes several reforms in relation to private pension schemes in Ireland. The stated aim of the Authority is to ensure that pension schemes are fit for purpose which, in the Authority’s view, means the schemes should be “well managed, cost efficient and understandable to their members”. As part of the consultation process the Authority will be hosting a question and answer session next Thursday, the 15th of September at which interested parties can ask questions and share their views regarding the proposed reforms. Note: bookings for the Forum must be submitted to the Authority before close of business on Friday 9th of September.
As at 1 June 2016, there were 167,987 funded pension schemes in Ireland. Not surprisingly, therefore, one of the stated drivers for the Authority’s proposals is to reduce the number of pension schemes which the Authority has to supervise. The other drivers include low public confidence in pensions and an expectation of more rigorous regulation and supervision. The Authority wishes to move to more active oversight of pension schemes as opposed to pursuing breaches after the fact. The two main external drivers of reform are noted as the IORP II Directive which will need to be implemented by 2018 and the OECD’s Report on the Irish pension system published in 2013.
A brief summary of the proposals being put forward by the Authority is set out below. Submissions have been invited by the Authority in relation to the proposals in the period up to 3rd October 2016. Further information together with information regarding the Consultation Forum is available from the Pension Authority’s website.
1. Trusteeship
The Authority has proposed several mandatory requirements for trustees including enhanced trustee qualifications, minimum experience requirements, continuous professional development requirements and additional eligibility restrictions. The Authority is also proposing that there be a minimum of two trustees for every scheme (other than in the case of a sole corporate trustee) and a minimum of two directors of a corporate trustee. The requirements in relation to qualifications and experience would apply to the trustee board collectively e.g. one trustee might satisfy the qualification requirement with another satisfying the experience.
2. Scheme authorisation
Currently, pension schemes are required to be registered with the Pensions Authority within one year of commencement. In lieu of this, the Pensions Authority is proposing that pension schemes receive prior authorisation from the Authority before they can be established. This would involve the submission to the Authority of a variety of information which the Authority would then evaluate before authorisation would be granted. Clearly this will need to be considered in light of the existing Revenue approval process and it is noted that discussions with Revenue are currently underway in this regard.
3. Supervisory and enforcement processes
In this regard, the Authority is seeking greater powers including the power to create binding codes of practice and the power to intervene in the management of a scheme, where necessary, to protect members.
4. Rationalisation of pensions vehicles
The Pensions Authority’s view is that a reduction in the types of pension vehicles will lead to a reduction in their complexity. With this in mind, the Authority is proposing that retirement annuity contracts (RACs) and buy-out bonds be phased out of the market with personal retirement savings accounts (PRSAs) being used in their place. It is acknowledged that a number of issues would need to be considered and addressed before this could occur including the restrictions on transfers from pension schemes to PRSAs.
5. Master trusts/multi-employer pension schemes
The Authority has also made a number of proposals in relation to master trusts or multi-employer arrangements. With the focus on reducing the number of pension schemes, it is likely that such arrangements will become more commonplace in the Irish market. The Authority acknowledges the role that master trusts could play and the potential advantages of same. However, the Authority has also raised a variety of potential issues with master trusts in light of which it is proposing that additional requirements should apply to such arrangements. The additional requirements include a requirement that the trustee be a designated activity company with a prescribed minimum capitalisation and a requirement to have independent trustee directors.
6. Transition
It is envisaged that the proposals would be implemented in stages with new schemes set up on or after September 2018 having to comply with all obligations from establishment. Existing schemes would have up 2021 to transition to the new requirements depending on their size with special provisions being considered for single member schemes.