Employers face annual bills up to €50,000 for inaction on pensions, says Irish Life

Employers face annual bills of between €30,000 and €50,000 as they run out of time for complying with new pensions rules, according to one senior industry insider.

Oisín O’Shaughnessy is managing director of Irish Life Corporate Business. Irish Life is the largest player in the pension fund management market, with €5 billion in assets under management, which he says accounts for about a third of the Irish occupational pensions market.

He understands that companies are “struggling for head space for pensions” as they cope with the aftermath of Brexit and Covid, the war in Ukraine and now rapidly rising company costs, especially for energy. But new requirements on governance and risk management around pensions have the potential to prove expensive if ignored.

He says the new European Union rules — called IORP II — are “very well motivated” to protect the retirement income of workers. “Some people prickle at EU legislation but it is a good thing and it is a while coming.”

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Mr O’Shaughnessy says companies relying on traditional structures where many trustees are current or former staff, possibly alongside some professional trustees, face costs of €30,000 a year per scheme — rising as high as €50,000 in some cases.

“This is coming and it is not trivial,” he says. “It takes time, planning and engagement. And schemes that do not [act on it] will have issues with governance.”

With just four months to go before all companies must be compliant, Mr O’Shaughnessy says just 45 per cent of Irish Life’s clients have moved across to master trusts — a new pensions structure that will see many different companies’ pension funds managed in the one fund by professional trustees.

Another 20 per cent of its 2,000 or so pension fund management customers are engaging with the process but have yet to move.

However, more than a third — 35 per cent — have yet to decide. It now seems inevitable that these businesses will not be compliant by January 1st as the pensions industry does not have the capacity to process that number of companies through what is a time-consuming technical and legal process.

Of Irish Life’s 2,000 customers, Mr O’Shaughnessy says just 50 are big enough to manage the work involved under the new restrictions on a standalone basis outside the master trust structure. These account for just 2.5 per cent of the group pension customers though they account for about a third of the assets it oversees. That means more than 97 per cent of its clients are having to re-evaluate their pension arrangements, in his view.

There are 10 master trust operators licensed in the Irish market. Most of these will arrange to close companies’ existing funds, winding up the schemes and arranging a transfer value of assets into a new master trust scheme, he says. This, Mr O’Shaughnessy adds, is a process that can take up to six months to complete.

Irish Life says it is “dragging and dropping” clients’ pension schemes into its master trusts, a process that it says can be completed in two months and allows the companies to retain their current individual fund arrangements, charging structure and features such as lifestyling for asset investment. Even at that, he says Irish Life’s capacity will allow it to move 125 schemes across each month.

“That would be an unusually high amount,” he said. “We are well ahead of the market”

He says the big winners on costs will be employers rather than members, with Irish Life covering the cost of the higher oversight, he says, as it can dilute its costs over the larger number of members and assets.

“We are not charging a fee for transition and we will do all the technical stuff; it won’t fall to the employers,” he says.