Great change sets the stage for improved pension landscape

The year has been an eventful one for the Irish pensions industry. As well as implementing the Institutions for Occupational Retirement Provision (IORP) II directive, many are preparing for auto-enrolment, expected to arrive in the second half of 2024.

The Irish Institute of Pensions Management (IIPM), which promotes professional standards among those working in pensions via education, is in a strong position to help and advise those going through IORP II and preparing for auto-enrolment, which will lead to more than 750,000 workers nationwide receiving improved pension coverage.

While it expects to have a better sense of what auto-enrolment brings over the coming months, the positive side is that there are many jurisdictions to refer to, like the UK, which has a similar scheme.

“Education is going to be key at all levels,” said Davin Spollen, president of IIPM. “There’s a number of things we can take from various jurisdictions like the UK. It used staging, where it started with the biggest employers first. It looked at things like postponement, where they gave employers flexibility in cases where it wouldn’t make sense to put someone into a scheme.”

While IORP II was a massive undertaking for the entire industry, auto-enrolment raises several logistical questions, such as how businesses cover those short-term or seasonal employees.

Spollen mentioned that the vast majority of businesses that will be implementing this are smaller ones without any existing pension arrangement, so ensuring they have straightforward and easy-to-understand information ahead of the rollout is crucial.

While there are challenges to tackle and details to work out, Spollen said that the IIPM’s view on auto-enrolment is an “utter good”. The IIPM is developing a course for employers around auto-enrolment as there’s much to think about, and the deadline will be fast approaching.

“We very much welcome it,” he said. “There are challenges to how it’s implemented, so once there’s a clear message of education and assistance, and employers know where to get their answers, it will be a really good thing for the country.”

Much of this is reflected by the Pensions Authority, which regulates occupational pension schemes, trust retirement annuity contracts (RACs) and personal retirement savings accounts (PRSAs). In total, these combined represent more than €135 billion of retirement savings.

Brendan Kennedy, pensions regulator for the Pensions Authority, described the activation of the IORP II directive as a “fundamental and unprecedented change” to Irish pensions.

While some schemes are now compliant, others have decided it wasn’t practical to do this, instead moving their pension into multi-employer master trusts or PRSAs.

“As a result, the number of Irish pension schemes has begun to fall for the first time,” explained Kennedy. “The number of new pension schemes being created has fallen from a typical average of over 1,000 schemes per month almost to zero, and existing schemes are closing in increasing numbers as their benefits and contributions are moved elsewhere.”

Spreading out the net

Implementing IORP II has driven much of the structural change in the industry.

While many trustees are grappling with IORP II, further changes will come down the line with the European Insurance and Occupational Pensions Authority publishing its advice to the European Commission on revisions to IORP II.

While this won’t be coming for a while, not until 2025 at the earliest, it does bring up some necessary adjustments, said Jerry Moriarty, chief executive of the Irish Association of Pension Funds (IAPF).

The IAPF – which represents Irish pension savers through education, representation and information to achieve secure, fair and simple retirement provision – keeps an eye on what areas members need to stay abreast of.

Among the new adjustments are diversity and inclusion, and Moriarty highlights both the gender pay gap and the subsequent pensions pay gap, which pensions schemes can help alleviate.

“It’s looking at areas like women returning to work after childcare, or if someone had to care for elderly parents,” he said.

“Some employers will increase the contributions for the first six months or encourage people to pay more to fill any gaps when they were out of the workforce; these are issues that are on the horizon, and they’re important.”

The other area that will be critical for trustees is cyber security. There is no shortage of breaches and attacks succeeding due to absent or shortsighted measures, and the combination of personal data and financial data makes targeting pension schemes an attractive proposition for bad actors.

“Schemes generally outsource their services, so it’s about making sure they have service providers who have secure systems as you’re dealing with a lot of personal data and money as well,” he said.

While the rate of change increases, pensions in the long term are resilient even to shocks in the stock market due to the pandemic, the war in Ukraine or stock market crashes as schemes are well diversified.

Overall, positivity is being emulated throughout the industry, with all parties knowing that while significant work is ahead of them, it will benefit everyone. As time progresses and schemes are defined, the result will lead to tweaks instead of wide-scale adjustments.

“Perfect can be the enemy of good,” said Moriarty. “It can feel like it’s never the right time to introduce something, or there’s something else to deal with. Sometimes you have to get up and go; you’ll be tweaking it as you go, and there’s nothing wrong with that.”