New era dawns for Ireland’s pension landscape

This week marks an important milestone for the transformation of Ireland’s pension landscape. The entry into force of new regulations will fundamentally change how both Defined Benefit (DB) and Defined Contribution (DC) pension schemes are governed from now on.

As the most significant regulatory reform in over three decades, the transposition of the IORP II Pensions Directive into Irish law introduces important changes to how pension schemes are governed, how they manage risk and above all how the Pensions Authority supervises pension schemes across Ireland.

The changes come at a critical time for Irish businesses as they look to recover from COVID-19 and rebuild for a ‘new better’. From navigating ongoing volatility and building employee resilience through to preparing for the future of work, many companies have been unaware of the new regulatory obstacles they face.

Employers and trustees in Ireland will need to adapt or face the risk of non-compliance. An important step towards ensuring compliance is to determine the additional governance procedures, resources and costs that come with the new rules.

At Aon, we’ve been working with some of Ireland’s leading employers to help them to place greater emphasis on governance standards and monitoring in the months and years before IORP II became law. Our latest DC Survey revealed a significant increase in the number of trustee boards measuring their performance – currently 73%, up from 53% in 2016.

Despite the progress that we have witnessed, there is still a road to travel. Employers and trustees need to take a critical look at the structure of their current pension arrangements and consider whether they have the skills and financial capacity to navigate the changing pensions landscape. IORP II will without doubt create added costs for companies.

Some have decided that the burden is too great and are increasingly looking at ways to mitigate the new risks posed by the new piece of legislation.

Increasingly they are turning to DC Master Trusts or other collective DB arrangements. Our own research points towards this shift with 44% of all DC pension scheme trustees now delegating the investment of assets to professional providers.

Businesses who take this approach can reap many rewards. Employers not only retain their ability to decide their own benefit structure and contribution rates for their people, but they also transfer responsibility for matters such as investment and governance to the trustee of a Master Trust.

In considering Master Trusts, employers are assured that their employee pension schemes are fit for the future while structured in a way that builds a more resilient workforce.

Coming on the back of work already required to adhere to new rules governing regulatory investment requirements and sustainable finance under the EU (Shareholders Rights) Regulations and the EU Sustainable Finance Disclosure Regulations, the next 12/18 months will prove crucial to ensuring compliance in a radically transforming pensions landscape.

At Aon, we are committed to making sure that the changes which come into force this week bring about a positive new dawn for pensions in Ireland, enhancing the overall resilience and financial wellbeing of the Irish workforce.