Two years of working under pandemic conditions have seen many employers make significant changes to their businesses and re-evaluate their operations. This will, no doubt, filter through to the benefits packages they offer to staff, particularly under an intensified pensions regulatory regime. Affected employers will quantify the cost of compliance with that regime. They will then decide whether they are willing and able to meet the initial cost and related ongoing costs into the future to ensure their existing pension scheme is compliant. Cost will not be the only deciding factor but it’s a significant one. It is inevitable that some employers will switch to alternative pension arrangements like master trusts, where the burden of compliance will be met by others.

The IORP II European Pensions Directive of 2016 was transposed into Irish law by regulations which came into force on 22 April 2021 (Regulations). Additionally, the Pensions Authority (PA) published a Code of Practice for trustees of occupational pension schemes and trust retirement annuity contracts (Code). The Code sets out the minimum standards expected by the PA for all schemes in the areas covered by the Code. The combined obligations under the Regulations and the Code are complex and onerous, requiring much work to ensure full compliance. Such compliance comes with a price tag for employers.

Many of the requirements have been well flagged and anticipated for some time. However, the need for consequent action and changes have gained urgency as a result of the Regulations. The purpose of the Regulations and the Code is to improve scheme member outcomes by imposing certain requirements upon the administration and governance, and the fitness and probity, of certain office holders involved with those schemes.

Although some schemes have already worked on incorporating anticipated aspects of the Regulations, there is still a body of work to be completed by others to ensure full compliance. At the most basic level, for those who are only starting that journey, is the decision on how the employer wants to provide retirement benefits for staff into the future.

For those who are minded to retain their current scheme, the sponsoring employers and trustees will need to work together to identify what is required for compliance and make the workload manageable. An initial gap analysis will help identify the outstanding work and issues which need addressing. Obviously, every scheme is different so using a gap analysis as a starting point is helpful but specific input may be needed for each scheme to ensure its own particular needs are met.

Anyone who has worked in the pensions industry for a long time will, at some point, have been impressed and perhaps even humbled by the extent to which some employers have extended themselves over many years to continue providing valuable retirement benefits when the very considerable cost might dictate otherwise. This is not something which is often articulated. That said, the writing has been on the wall for some time in relation to certain schemes.

Irish pension schemes are certainly being steered in a particular direction by regulation and regulatory supervision. The intention is to improve outcomes for pension scheme members by ensuring proper procedures and policies are in place, schemes are well managed and operated by people who are well qualified and suitably experienced. All of this will be monitored and supervised by the PA under a forward-looking risk-based approach to supervision.

It is inevitable that the number of pension schemes in Ireland will reduce as a result of the combined new measures. However, they will be replaced by alternative pension arrangements. 2022 will be the year when we start to see the extent of this switch.

Affected employers should be taking steps now to identify which means of retirement benefit provision will best meet their needs and take the necessary action. This is not a time to wait and see, action really is required now to ensure there is enough time to take necessary advice and appropriate measures to either work towards full compliance with the new requirements or to transition to alternative arrangements.

What next?

Compliance or transition to alternative arrangements will involve quite a body of work and suitable professional help will be needed along the way. Given the possible number of schemes involved, the sooner employers make a start the better. Anyone leaving it until later in the year may run the risk of encountering difficulty securing timely professional assistance, given the potential volume of work involved. Compliance deadlines have been set and are unlikely to be altered by the PA. It is not an overstatement to say that 2022 may be a watershed moment in occupational pensions in Ireland.

For more information, contact a member of our Pensions team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.