In the Pension Authority’s recently published annual report and accounts (Report)¹, Chairman Mr David Begg emphasised the significance of transposition of the IORP II Directive (IORP II) into Irish law in April 2021 and the effect that IORP II has had on the supervisory activities of the Pensions Authority (Authority).

INCREASED SUPERVISORY RESPONSIBILITIES

According to the Report, the Authority’s supervisory functions have increased significantly in 2021. The transposition of IORP II resulted in a significant change for the Irish pensions industry generally and for the Authority. The increased obligations and responsibilities on pension trustees as a result of IORP II has also resulted in the increase of the supervisory responsibilities of the Authority. The Report states that the transposition of IORP II requires a new and “more comprehensive, challenging, judgement-based, and intrusive oversight” by the Authority.

The Report also highlighted that, following the transposition of IORP II, the Authority has issued several important information updated and guidance including:

• a Code of Practice for trustees of occupational pension schemes and trust RAC;
• an employer guide to defined contribution Master Trusts;
• FAQs on investment and borrowing for one-member arrangements; and
• Information on: 
  • the annual compliance statement;
  • trustees’ outsourcing notification obligations and how to advise the Authority of the appointment of key function holders;
  • the timing of the own-risk assessment;
  • the DB financial risk measure; and
  • the courses that meet the Authority’s requirements for trustee qualifications.

In addition to the IORP II related supervisory work, the Authority has also continued its normal supervisory activities, including oversight of PRSAs, monitoring of defined benefit (DB) solvency obligations and investigating instances of non-compliance with the Pensions Act.

Mr Begg highlighted that the increased supervisory responsibilities have led to considerable increase in the Authority’s costs (mainly because of increased staffing and IT costs). The Report acknowledged that Minister for Social Protection approved an increase in the Authority’s fees for occupational pension scheme with effect from 1 January 2022² .

PENSIONS REGULATOR’S STATEMENT³

Much of the statement from the Pensions Regulator, Mr Brendan Kennedy, concerned the challenges faced by scheme trustees in ensuring that their standards of management and governance meet that required by IORPS II. The Regulator also noted that schemes (other than newly established one member schemes) are expected to be compliant by the beginning of 2023.

The Regulator states that significant consolidation of Irish pension schemes is the only practical means of achieving high standards of management, good value for money and effective supervision. Further, the Regulator said trustees of all pension schemes should be assessing whether to continue their current pensions arrangements or to take steps to transfer members’ benefits to compliant pension arrangements (such as master trusts).

PROSECUTIONS

In 2021, six cases were concluded and secured three convictions. Two convictions related to the failure of an employer to the deduct pension contributions from employees’ wages and remit them to the pension scheme trustees and one conviction related to the failure of an employer to remit the employer contributions to the pension scheme trustees.

ON-SITE INSPECTIONS

The Authority carried out 7 on-site inspections, all of which were on PRSA providers to establish if they were using third party / parallel contracts which are prohibited by the Pensions Act.

INVESTIGATIONS

In 2021, the Authority commenced 15 new investigations of alleged breaches of the Pensions Act. The alleged breaches ranged from issues surrounding the non-remittance of pension contributions to failures to reply to statutory requests for information. During 2021, 24 investigations were finalised and closed by the Authority.

ENGAGEMENT MEETINGS

20 engagement meetings took place between the Authority and the trustee boards of master trusts, defined contribution and defined benefit schemes The focus of these meetings was to examine how well equipped schemes are to meet the enhanced governance and risk management requirements under IORP II.

DEFINED BENEFIT SCHEMES

The Report states that, at the end of 2021, there were 553 DB schemes subject to the funding standard and almost 90% of these DB schemes met the funding standard. Only four of the remaining schemes did not have a funding proposal in place or are in the process of submitting a funding proposal. The Authority approved five funding proposals from DB schemes in 2021.

CONCLUSION

Both the Report and the Regulator’s Statement highlighted the significant change for Irish pensions as a result of the transposition into Irish law of IORP II and the resultant increased obligations on pension scheme trustees. The Authority has set a deadline for trustees of all relevant schemes to be complaint with their new obligations by the end of 2022. 

Trustee boards should be well underway in ensuring that their schemes are compliant. The Regulator emphasised that compliance is not just a matter of putting in place new processes and governance practices but rather the objective is to make sure that the management of the scheme is informed, thoughtful and thorough.