Reducing costs and improving efficiency

The EU Institutions for Occupational Retirement Provision (IORP II) directive, currently awaiting transposition into Irish law, will bring a range of new requirements and guidelines to the Irish pensions sector, requiring significant reform. More common in markets outside of Ireland, wider implementation of master trusts to deal with stricter governance is seen as the way forward. But what will this mean for pension schemes?

Bernard Walsh, head of pensions and investment at Bank of Ireland, explains: "Regulators both here and across Europe are of the view that single-person pension schemes are inefficient and that they're expensive and that they don't have the level of risk-management that you would have on a bigger scheme or with a master trust."

In fact, costs and risk-management appear to be the two biggest driving forces behind companies in Ireland embracing master trusts to manage pension schemes of all sizes. And with these new regulatory frameworks being introduced with the eventual transposing of IORP II into law, master trusts are now more popular than ever. It is estimated the 50 per cent to 60 per cent of direct-contribution schemes are set to embrace the master-trust model, with many benefits for both companies and members.

Tony Doyle, head of retirement planning at AIB, says: "Ireland holds 50 per cent of the pension schemes right across Europe, so we have to contract all of those schemes down to a manageable position for our regulators over a period of time and the meaningful way of doing that would be to introduce master trusts.

“Master trusts bring with them some cost efficiencies. So, you’ve got one trust with multiple individual or group schemes behind it, so they are getting the benefit of the governance structures going with a master trust also. Theoretically, it should about a reduction in cost.”

“In the past, when master trusts were set up in Ireland over a decade ago, it was typically smaller schemes that availed of it because they couldn’t really afford to pay all of the compliance costs that went with the traditional arrangements, essentially the new registry requirements are just becoming too onerous from a cost and time perspective and even the larger schemes are looking towards master trusts as well,” says Anita Butler, senior investment consultant at Mercer.

‘Compliant arrangement’

“What schemes are finding is that we have the ECB report and IORP II coming up and all these regulations bring a lot of cost and time commitment and they really don’t have that so there comes a tipping point where they’re saying why don’t we go into a master trust, it’s a good compliant arrangement and we will get a quality pension scheme.”

Bernard Walsh agrees, adding that moving forward, members of pension schemes will benefit from greater governance as a result of being part of a master trust. “It will mean that trustees must have certain financial qualifications and that they undergo a certain amount of continuous professional development. You will have much tighter controls and risk management for your pension pot.”

So as more and more companies look towards master trusts as a way of improving the security and efficiency of Irish pensions, what should members and companies be on the lookout for?

“Because they share the cost of compliance, trustees can make savings of 50 per cent or potentially more and you can then use that cost saving to either put back into your business or indeed maybe supplement the contributions that you are paying for your members going in to the pension scheme,” says Butler.

“Time is a big one for companies themselves,” she adds. “It allows employers to get on with their own business by reassuring them that they have a quality pension scheme that they can trust is being looked after.”