Ireland’s pension landscape set to be transformed in 2021
According to the latest Aon DC survey, it is heartening to see that many trustees have begun to place a greater focus on governance and monitoring in advance of IORP II coming into force.
Ireland’s pension landscape is set to be transformed in 2021 with businesses facing new challenges in how they manage their pension schemes.
From staying resilient in the face of the economic challenges to COVID-19 and meeting the changing needs of today’s workforce, defined contribution (DC) pension schemes are becoming ever more complex.
That complexity is only set to increase with the new regulatory measures being introduced both at an EU level and at a national level which will impact upon every pension trustee board and employer in Ireland.
Not only are employers and trustees planning for the introduction of auto-enrolment, but they must also prepare for the implementation of the IORP II (Institutions for Occupational Retirement Provision) EU Directive.
IORP II will see new rules come into force that will affect how every pensions scheme is run and managed.
Although first due to be transposed into Irish law in January 2019, it is now expected to introduce the changes in the first half of this year. With the ongoing efforts to control the Covid-19 virus and to adapt to the increased administrative burden created by Brexit, businesses now also need to be aware, and prepare for, the regulatory changes that lie ahead.
That sentiment has been echoed by the CEO of the Pensions Authority, Brendan Kennedy, who in their latest annual report said that IORP II would lead to the “most significant changes in at least a generation”.
He added that “there can be no doubt that significant change is coming to Irish pensions and the nature and direction of that change is clear”.
At Aon, we have been working with some of Ireland’s largest employers to help them understand how regulatory change will impact the pensions provided to new and existing employees.
IORP II will fundamentally alter how pension schemes are governed, how they manage risk and above all how the Pensions Authority supervises pension schemes across Ireland.
The shift towards a risk-based and forward-looking approach to supervision by the Pensions Authority will require changes to how pension trustees undertake their work. The Authority will not only examine past breaches, but it will also now play a more active role in supervising the day-to-day management and governance of pension schemes.
Employers and trustees will need to place an ever-greater focus on high standards of governance. From the composition of the boards and the governance procedures in place, to internal controls, policies and risk management frameworks, trustees are faced with new responsibilities.
According to the latest Aon DC survey, it is heartening to see that many trustees have begun to place a greater focus on governance and monitoring in advance of IORP II coming into force. There has been a significant increase in the number of trustee boards measuring their performance – currently 73%, up from 53% in 2016.
However, there is still a road to travel. For example, more work needs to be undertaken to comply with new risk management rules. The Pensions Authority will require trustees to pinpoint the most significant risks to which their scheme is exposed as well as how the risk appetite is agreed.
Although we have yet to see the final details of how IORP II will be transposed into Irish law, one thing is clear. IORP II will result in new costs for trustees, employers and pension scheme members. That cost will be significant both in terms of time and money.
As showcased through the recent Aon DC survey, many well managed and well-funded schemes appear to be taking a “wait and see” approach and biding their time until the new national law is actually published.
On the other hand, a significant number of other employers and trustee boards have carefully assessed this issue and decided the expected burden of increased legislation is not for them. They are increasingly looking at other ways to mitigate the risks the new regulation poses to their future operation.
Our team of experts at Aon has been empowering trustees to navigate these changes while continuing to ensure they can provide benefits that meet the evolving needs of a workforce spanning four generations.
Increasingly, we are helping employers and trustees to turn to master trusts.
This alternative solution sees an employer switching from their “own trust” approach, where they operate a stand-alone scheme, and instead choose to participate in a “master trust” featuring several different employers.
Master trusts unlock a number of opportunities for employers and their employees. Employers retain their ability to decide their own benefit structure and contribution rates for their people, but they transfer responsibility for matters such as investment and governance to the trustee of a master trust.
Our own research points towards this shift and other structural changes within Ireland’s pension landscape with 44% of all DC pension scheme trustees now delegating the investment of assets to professional providers.
In turning to master trusts, employers can ensure that their pension schemes are prepared for the future while also ensuring they are best positioned to provide for the financial wellbeing of their people in older age.
As the Covid-19 pandemic continues to evolve, and its implications on savings and investments becomes clear, it will become increasingly important for pension schemes to find ways to provide robust governance structures that deliver results in 2021 and comply with upcoming regulatory change.
At Aon, we’re committed to helping employers and trustees to navigate the rapidly changing pensions landscape over the coming months so that they can deliver better outcomes for their people in a transformed world.
