Earlier this month, the Pension Authority reaffirmed its commitment that no new one-person company pension scheme, usually set up by business owners, can be set up after July 1.
After a stern warning, life insurers stopped setting up new plans on July 8. It was expected that the Pension Authority would put the execution on hold in view of the Social Security Department’s failure to provide changes to the Individual Retirement Savings Account (PRSA). ) It is necessary for business owners to convert to one person company pension plans.
Unlike regular employees, these business owners usually put the majority of their contributions into their pension over the past 10-15 years, spending the previous years building their business. However, the new PRSA changes are no longer expected to be implemented until the Finance Bill in January 2023.
This has given the pension sector an interesting insight into the authority’s mindset on compliance with various aspects of EU pension law, IORP II.
If the authority takes a similar approach with employer-sponsored pension plans, we are likely to see hundreds of pension trustees sued by the authority as early as 2023, given that they only have years to fully comply with the new law. It’s time till the end.
Faced with significant new regulatory obligations while remaining as a standalone employer-sponsored pension plan, most employers plan to move to a master trust.
However, moving to a master trust involves liquidating their current pension and transferring the members and their benefits to a newly established master trust. This is an important process, both operationally and legally, and must be done with care, attention and no due diligence.
While the pension sector has the resources and expertise to facilitate this, the point is that each employer needs to move at the same time to meet.
There is a volume of pension plans that want to move forward, with most major pension providers (a combination of insurers and employee benefits advisors) still not in a position to transfer their own employee pension plans to the master trust due to the workload.
Furthermore, the Pension Authority made it very clear to employers and existing trustees that it expects them to demonstrate that they have achieved the best value for money for the members prior to any move into the master trust. This means that most employers are required to conduct an independent market review, which will take time.
Encouraging employers to transfer their plan to the master trust should make the plan safer for members and generate economies of scale, reduce costs and lead to better outcomes for members. But there is a real danger that tight timelines have inadvertently created the wrong environment to ensure value for money, product quality and ultimately the best results for the members of these pension plans.
Some of the master trusts being offered by existing providers actually have high costs, which is something that is not in the interest of the members and is unlikely to please the regulator. Like any other product, employers should shop around for the best deal and be given the time to do so.
In simple words, the system does not have enough resources or technical capability to enable this mass migration to happen by the end of the year.
This is not possible and many employers are extremely concerned that pension trustees may be prosecuted for not meeting deadlines or for having quality and low-cost master trusts for their members, or possibly both.
The authority needs to come out at the earliest and acknowledge that despite the best efforts of all involved, it is not possible to meet the deadline of 1 January 2023 and it is bad for the members to extend this unattainable deadline. There will be results. Pension plans in Ireland (errors, poor value for money, poor choice).
Instead, we would encourage the Authority to come up with a new timeline with key milestones that need to be achieved by 1 January 2023, further milestones by 1 July 2023 and final by 1 January 2024 will have to be completed.
Doing so will ensure that employers and the pension sector have time to get their Master Trust offerings in the best possible shape and ensures that the transfer processes being used are efficient and to deliver good results for members. There are strong risk controls. It is worth emphasizing that large amounts of money will be moving in and in a volatile market environment, this creates even more risk.
It is our firm belief that no plan should lapse in the Master Trust of its existing provider without testing the market and driving the best value to the members. At the present time, this may be the case on a current time-frame basis, and it would not serve Irish pension savers well.
Employers of these plans should take immediate action to make their plans IORP II compliant, if they have not already done so.
Completion by the end of the year will be more than daunting, but those who have a plan in place and complete major preparatory work will be in a better position to defend their case if, ultimately, the authority doesn’t go ahead with the year-end deadline. Is.
We would also strongly urge all employers to seek unbiased advice to deliver the best results for their employees in this “once in a lifetime” change.
Niall O’Callaghan is a partner with Lockton Ireland, a company that advises on pensions, employee benefits and insurance.