The Irish Government published a ‘Roadmap for Pensions Reform 2018-2023’ in February 2018, announcing major changes to pensions in Ireland. It is a five-year plan, which proposes reforms to a number of areas within Ireland’s pensions system. The headline item for employers is a proposal for the introduction of an Automatic Enrolment Scheme by 2022. This would require employers who do not have a private pension scheme in place to enrol employees automatically into a retirement savings scheme.
The first IORP Directive was implemented in the Ireland in September 2005, by way of amendments to the Pensions Act 1990 and related statutory instruments.
Unfortunately, while the Roadmap had also indicated that legislation to transpose IORP II would be published by the end of September, this did not materialise in time for the Irish Government to meet the 13 January 2019 deadline. That said, given the high levels of governance for IORPs already in place, most pensions practitioners anticipate that the enabling legislation will be minimal, with transposition mostly done through regulations.
Ireland’s pensions regulator, the Pensions Authority, published information to give trustees an understanding of the breadth of their responsibilities arising from the provisions of the IORP II Directive, and to assist them in preparing for what the potential impact might be, as well as what actions they should consider in advance.
The new rules include ‘fit and proper’ tests for trustees (similar to the ‘fitness and probity’ requirements of the Central Bank of Ireland for various functions within the finance sector), written policies on key areas of risk management and outsourced services, and minimum standards for communication with members.
As such, there will be a huge emphasis on governance processes adopted by trustees, particularly in the areas of risk management, internal processes, and scheme administration. Many bodies are advising trustees to examine their existing processes and procedures to determine what, if any, changes may need to be made once the Directive has been implemented.
Trustees will be required to ensure that ‘key function holders’ (those who hold functions in relation to risk management, actuarial and internal audit) have the resources and authority to carry out their duties in an objective, fair and independent manner. Insofar as any of these functions are outsourced (which is the case for many schemes), trustees will be required to develop policies governing such arrangements. The Pensions Authority will also need to be notified in advance where the outsourced activities relate to key functions or the management of the scheme.
Ireland’s relatively small population means that pension schemes tend to be smaller and do not have the resources for the overhaul of policies and procedures that compliance with the new framework will require. The Pensions Authority recognises that, while trustees in such schemes may have a broad understanding of governance, they could now be subjected to a much more onerous and challenging regulatory framework. There is some speculation that very small schemes (those with fewer than 100 members) may be exempt from the full rigour of the new requirements (this was the approach taken when Ireland implemented IORP I).
The Pensions Authority has also recognised that these changes mean that its role in overseeing the extent and quality of a scheme’s governance will present its own challenges. While previously it had adopted a more reactive approach, the enhanced expectations on trustees will mean that expectations on its own role will also increase. It has stated that it will adopt a more forward looking and risk based approach to supervision, a key trigger for which will be an assessment of the overall governance culture within a scheme.
The Pensions Authority has also said that, when legislation is finally published, it intends to issue further guidance to assist trustees. However, it is also hoped that a ‘grace’ period will be afforded to trustees to give them an opportunity to reorganise, or to retrain, to ensure that they can comply with the new requirements.