New EU directive will protect pension-holders

With most of Europe having already implemented the Institutions for Occupational Retirement Provision (IORP II) EU directive, it is due to come into Irish law soon and is set to have far-reaching impacts on Irish pensions. It will bring in stricter rules for the management of pension schemes and have quite far-reaching implications for pension holders in Ireland.

David Boylan, pensions technical specialist at Davy, says the directive is welcome and is ultimately designed to improve the management and governance of pension schemes. “There will be more responsibility on trustees to look after people’s money and to act in an approved manner going forward,” he says. “The directive will offer Irish pension-scheme members assurances that their schemes are being run properly.”

Among some of the benefits which the directive is designed to offer include better, clearer communications about pension schemes and enhanced protection through improved governance. Improvement in risk management frameworks and trustee practices are also covered by the directive.

“The IORP II directive is a comprehensive and wide-ranging piece of European legislation that seeks to enhance and harmonise the governance and management of pension schemes across the European Union,” says James Campbell, head of legal consulting at Mercer. “In doing so, it introduces a number of new requirements for Irish pension schemes, covering governance, scheme management and member communications requirements. It represents the biggest change in the pensions regulatory landscape in Ireland for many years.”

The Government's Roadmap For Pension Reform, a five-year plan for reform covering both State and private provision, launched in early 2018 and due to come into effect from January 2020, states: "In terms of internal scheme governance, schemes will be required to take steps to satisfy the Pensions Authority that they are fit for purpose, have the capacity to provide better member outcomes and protect members' rights and interests."

Fierce criticism

However, the Government has come under fierce criticism for failing to deliver on many of the deadlines it set out in the roadmap. And while the IORP II directive waits to be transposed into Irish law, who can expect to be affected by its implementation?

Bernard Walsh, head of pensions and investments at Bank of Ireland, says that within the IORP II legislation we will see restrictions on unregulated markets such as property. "If you have a self-administered pension scheme, say two city centre apartments, the legislation will stop you from doing that."

He advises that this legislation will not be retroactive and that people who have existing arrangements in place are unlikely to be impacted.

“At present, all occupational pension schemes in Ireland will be impacted regardless of their size or type,” says James Campbell of Mercer. “The Irish Government has the option in the directive as to whether it extends the requirements of IORP II to all schemes, regardless of their size, although there has been some resistance in the pensions industry to the application of the directive to small and one-member schemes, given the breadth of the new governance requirements.”

He adds: “At an individual member level, the implementation of IORP II should be positive. The benefits of improved governance have been widely shown to lead to enhanced outcomes and experience for members and beneficiaries, through providing better awareness of risks and how to manage them, more effective decision-making, and greater ownership of key tasks.”