Earlier this month, the Pensions Authority stood by its pledge that no new one-person occupational pension schemes, which are normally set up by business owners, will be allowed to be set up after July 1.
Life insurers stopped setting up new systems on July 8 after a stark warning. The Pensions Authority was expected to allow a stay of enforcement because the Department of Social Protection had failed to submit the amendments for the Personal Retirement Account (PRSA) needed to replace the one-person occupational pension for entrepreneurs.
Unlike regular employees, these business owners have typically put the majority of their contributions towards their retirement in the last 10-15 years, having spent the previous few years building their business. However, the new PRSA amendments are not expected to take effect before the January 2023 Finance Act.
This has given the pension sector an interesting insight into the Authority’s thinking on compliance with the various aspects of EU pension legislation, IORP II.
If the agency takes the same approach to employer-funded pension schemes, hundreds of pension administrators are likely to be prosecuted by the agency in early 2023 because they only have until the end of the year to fully comply with the new legislation.
Given the significant new regulatory requirements to remain a standalone employer-funded pension scheme, most employers plan to move to a master trust.
However, switching to a parent foundation involves processing the current pension and transferring the members and their benefits to a newly established parent foundation. This is a significant process, both operationally and legally, that must be carried out with care, attention and no small amount of care.
While the pensions sector has the resources and expertise to make this possible, the problem is that all employers have to move at the same time to meet
The volume of pension schemes looking to move is such that most of the major pension providers (a combination of insurers and employee benefit consultants) are still unable to start migrating their own employee pension plans into a master trust due to the workload to start.
In addition, the Pensions Authority has made it very clear to employers and existing trustees that they expect them to demonstrate that they have secured the best value for money for members before moving to a master trust. This means that most employers will need to conduct an independent market review, which will take time.
Encouraging employers to move their scheme into Master Trusts should make the scheme safer for members and generate economies of scale that reduce costs and lead to better member outcomes. However, there is a real risk that the tight schedule has inadvertently created the wrong environment to ensure value for money, product quality and ultimately ensure that members of these pension schemes achieve the best outcomes.
Some of the Master Trusts offered by incumbent providers actually have higher costs, which is not in the interest of members and is unlikely to please the regulator. As with any other product, employers need to shop around for the best deal and have the time to do so.
Simply put, there simply aren’t enough resources or technological capacity in the system to accommodate this massive migration by the end of the year.
It is simply not possible and many employers are very concerned that pension administrators could be prosecuted for failing to meet the deadline or for failing to provide their members with a quality and cost-effective Master Trust, or possibly both.
The Authority needs to speak up as soon as possible and accept that, despite everyone’s best efforts, it is simply not possible to meet the 1 January 2023 deadline and that continuing to push for this unattainable deadline will result in poor results for Members of pension schemes (faults, poor value for money, poor choice) in Ireland.
Instead, we would encourage the agency to create a new timeline with major milestones to be achieved by January 1, 2023, further milestones by July 1, 2023, and final completion by January 1, 2024.
This ensures that employers and the pensions sector have time to get their Master Trust offerings in the best possible shape and ensures that the transfer processes used are efficient and have strong risk controls in place to deliver good results for members. It must be emphasized that large amounts of money are being moved and this creates even more risk in a volatile market environment.
We firmly believe that no system should simply lapse into the master trust of its existing provider without testing the market and delivering the best value for members. Based on current timelines, this could be happening right now and it will not be good for Irish pension savers.
Employers of these schemes should take immediate action to put in place a plan to make their scheme IORP II compliant if they have not already done so.
Completion by year-end will be more than a challenge, but those who have a plan and have completed important initial actions will be in a better position to defend their case if the agency ultimately fails to meet the year-end deadline.
We also urge all employers to seek impartial advice to ensure the best outcome for their employees in this “once-in-a-lifetime” change.
Niall O’Callaghan is a partner in Lockton Ireland, a company that advises on pensions, benefits and insurance.
https://www.independent.ie/business/personal-finance/pensions/pension-trustees-risking-prosecution-if-regulator-wont-budge-on-deadlines-41846856.html Pension administrators risk prosecution if the regulator fails to meet deadlines