Update: On Dec. 15, Lockton Global Benefits hosted a webcast featuring Lockton Ireland. The webcast covered pension reform and benefits trends. Click here to view the replay of this event.

On 22 April 2021, the Irish government signed into law The European Union (EU) Occupational Pension Schemes Regulations, 2021 (the “Regulations”), amending the Irish Pensions Act 1990 and transposing the EU Directive on the activities and supervision of institutions for occupational retirement provision (the IORP II Directive) into Irish legislation.

On 18 November 2021, the Irish Pensions Authority finally published the final version of the code of practice providing more clarity on the application of the Regulations and detailing how schemes should operate to ensure compliance. Pension schemes need to be fully compliant with the directive by 1 January 2023.

Key details

The directive will significantly impact how occupational pension benefits are managed in Ireland with the Pension Regulator Brendan Kennedy describing the changes as “the most significant changes in at least a generation.”

Who is affected by IORP II

Any organization that has an occupational pension plan is affected. Employers who provide retirement benefits solely through PRSA plans are not affected as they are individual plans. The Regulations apply to all occupational pension schemes regardless of scheme size (one-member pension schemes have until 22 April 2026, to comply). As the sponsor of the pension scheme, the employer is going to be affected by the cost of complying with the Regulations (costs may vary based on the scheme size).

What do the IORPS II regulations mean?

The regulations require stricter governance and risk control measures that are incumbent on the employer to implement and maintain. Currently, most occupational pension schemes are run through a single trust with the employer fulfilling at least some of the trustee roles and participating in other compliance requirements. With the stringent enhancement of transparency, professional qualifications and governance requirements, there will need to be significant changes to how the vast majority of occupational pension schemes operate. It was originally expected that there may be some level of proportionality applied to smaller schemes, however, the Authority has clearly stated that, “no exemption from any obligations of the act” will apply irrespective of the employer’s size, nature, scale and complexity. The Pension Authority has stated that compliance with the regulation is now the minimum standard any pension scheme should be applying in their governance process. This can be seen as a positive for pension scheme members but does come at a potential price to sponsoring employers for what are ultimately voluntary employer benefits.

In order to meet the deadline of 1 January 2023, employers should begin reviewing the pension scheme immediately. Almost all schemes will require changes to ensure compliance with the new regulations.

What should companies and trustees be doing?

Companies will have the option to implement the IORP II regulations or move to a different pension provision model. Before implementing any changes, many employers will want to explore the options they have available to them, including the provision of benefits through Personal Retirement Savings Accounts (PRSAs) and master trusts. Both options will provide a streamlined way to provide benefits, but it might be necessary to wind up your current arrangement should the employer choose an alternative model going forward.

As PRSA’s are individual accounts, master trusts are likely to be the more popular option for employers who feel that the burden of the new regulations will be either too costly or time-consuming. Moving to a master trust is a major decision for any organization and employers need to exercise caution in advance of any move.

What will we see in the market?

After reviewing the Final Codes of Practice and statements from the Pension Authority, it is clear that most employers will not continue to run their own, single trust, pension schemes. Instead, it is likely that there will be a shift towards the master trust alternative throughout 2022 which will provide clarity on the regulatory expectation.

The Final Codes of Practice provides additional guidance on how master trusts should operate, increasing the level of compliance within the market and highlighting the key role the Authority will play in the future. It is likely that many existing pension scheme advisors are also providers of master trusts, which could lead to potential conflicts of interest. As a result, employers should carefully document decisions taken to avoid any future issues.

Any decision taken will impact employees’ options at retirement and it is, therefore, crucial that the right advice is taken at this important crossroads.

Next steps

As the entire Irish pensions market will need to come into compliance by January 1, 2023, employers should look to engage an advisor to assist as soon as practical. Failure to comply in a timely fashion could lead to reputational liability for the scheme sponsor, loss of tax benefits and potential lawsuits by scheme members for resulting losses.

Employers have two clear options at this point:

  • Comply with IORP II within the client’s current pension structure, or,
  • Review alternative pension provision models

As a matter of good governance, employers should be able to demonstrate and document a diligent unbiased review of the current and alternative pension structures available.

Initial steps to comply with the regulations should start with a gap analysis review of the current plan. A step plan of actions should then be developed to draft the required policies and procedures. In addition, a number of positions will need to be appointed to meet the requirements of the legislation, including:

  • Risk Management Key Function holder
  • Internal Audit Key Function Holder
  • Auctorial Key Function Holder (DB schemes only)
  • Secretary and Chairperson
  • Professional or suitably qualified Trustees – As a practical matter, if a scheme does not currently have a “professional” Trustee, they should consider appointing one

Additional resource

The European Union (EU) Occupational Pension Schemes Regulations, 2021

For more information, please contact:

Mark Ruddy

Head of Client Management – Employee Benefits

Lockton Insurance Brokers Ireland

00 353 (0) 18585247

Ray McKenna

Partner – Employee Benefits

Lockton Insurance Brokers Ireland

00 353 (0) 863888875