Finance Focus

Preparing Employers for a New Era in Pensions

Irish pension arrangements are entering a period of significant change that should positively affect retirement savers across the country. A key development was the longawaited implementation of the EU’s IORP II Directive in April 2021, and other important reforms are on the horizon. How does IORP II affect my pension arrangement? IORP II introduces a new regulatory regime for all occupational pension schemes, including both defined benefit and defined contribution (DC) schemes, affecting nearly one million savers in Ireland and even more retirees. It aims to provide better outcomes for members by: • Requiring schemes to improve governance and risk management • Ensuring members receive clearer and more frequent scheme and benefit information Of particular note for SMEs is that the directive applies to smaller schemes, as confirmed in the Pensions Authority’s Code of Practice of November 2021. This means the minimum standards now apply to: • All occupational schemes irrespective of their size • Trust retirement annuity contracts • One-member arrangements (from 22nd April 2026) While IORP II should benefit individuals saving for retirement, the added regulatory compliance burden and likely related costs could be a challenge for some employers and schemes. What options should I consider for my employees’ pension provision? With the Pensions Authority expecting full compliance by schemes from the beginning of 2023, employers must consider the implications for their scheme in 2022. Many employers are retaining existing arrangements and ensuring their scheme implements the directive’s requirements over this period. However, many other employers who offer a DC plan are considering the benefits of using a master trust. Carol Leonard, DC Client Director, Mercer

At a high level, a master trust is a professionally run, fully outsourced DC scheme used by multiple unrelated employers. A master trust offers: • A board of professional trustees governing the master trust on behalf of all participating employers and members • Full control for employers over benefit design, such as setting contribution rates • Economies of scale by sharing the cost of compliance requirements Master trusts are not a new feature of the Irish market; however, they have seen increased interest as employers face the reality of implementing IORP II. The Pensions Authority has noted it expects this outsourced solution to play an important part of future pension provision in Ireland. What is next on the pensions reform agenda? The next important change is the long-awaited introduction of automatic pension enrolment, which could transform retirement readiness and retirement savings adequacy in Ireland. Although the design of this auto-enrolment system is not yet finalised, key features are likely to include auto-enrolment of every worker on a salary of over €20,000 (with the ability to opt out), matching employer contributions, a choice of investment funds, a cap on fund providers’ charges and an additional top-up by the State. Headed in the right direction Implementation of IORP II and the introduction of auto-enrolment mark an important moment for private pensions in Ireland. We are also seeing the gradual implementation of new proposals for simplification and flexibility in retirement benefit options, with more on the agenda. While retirement savings adequacy within a simplified system remains the goal for individual savers, employers will have important decisions to make about pension provision for their workers and their options when auto-enrolment arrives. Read more about master trusts here. You can contact Mercer to find out more here.