With the Second Pensions Directive soon to be transposed into Irish Law, Peter Fahy, Irish Association of Pensions Funds takes a look at the pension issues employers need to be aware of in 2019.
Increased regulation of occupational pension schemes
Both smaller and larger employers need to be aware that much more onerous oversight and governance requirements are going to be imposed on pension schemes during the course of 2019. Some of this is driven by European legal requirements, under what is known as IORPs II or the Second Pensions Directive. This has been in force in Ireland since 13 January 2019, but has not yet been transposed into Irish law by the State.
However, other parts of these requirements will be imposed on a discretionary basis by the Irish Government, which has indicated that it will not utilise the powers available to it under European law to exempt smaller pension schemes from the new requirements, and by the Pensions Authority, which will layer additional requirements onto the bones of the Directive.
Employers will need to determine what the cost impact of these new governance requirements will be, and whether the current trustees appointed by them to their schemes will be able to satisfy the new fitness and probity requirements which will be imposed on pension trustees.
It has been indicated that the new regime will be introduced on a phased basis, with a lead-in period for smaller schemes. Employers will need to use any phasing-in period to assess the feasibility of maintaining their schemes under the new regime, and what alternative structures might be available to them to provide pension benefits to their workers. Alternatives might include adherence to a master trust, or for the employer to use a contract-based structure such as a group PRSA to deliver pension benefits.
The IAPF has been lobbying strongly for measures to support schemes in either meeting the new requirements, or in transitioning to replacement arrangements. This includes the need for the tax treatment of PRSAs to be brought into line with occupational schemes, and measures to reduce the costs of transferring an existing pension scheme into an umbrella structure such as a master trust.
Protection for Defined Benefit Scheme
Draft legislation is still in process which would impose certain minimum funding obligations on employers in connection with their defined benefit schemes. While the overarching need to address Brexit has delayed all non-essential legislation, it is anticipated that this legislation will still move forward at some point in 2019.
For those employers that do not currently provide pension benefits, the Government is due to finalise the structure of the proposed new auto enrolment pension scheme in 2019. This will apply to all workers earning over €20,000 per annum, who are not already in an employer pension scheme.
The Government’s aim in its proposal so far, has been to minimise the administrative burden on smaller employers, whose employees will be participating in the new auto enrolment scheme. However, the IAPF has expressed a number of concerns with the current proposals, including the fact that employer contributions to the scheme may, in certain circumstances, be forfeited to pay the costs of the system. When the final shape of the Government’s proposals is made clear, employers who do not currently provide pension benefits should decide whether they wish to set up their own pension arrangements at this point, or whether to wait for the introduction of auto enrolment. In either case, employers will need to plan for the costs of making pension contributions on behalf of their employees with effect from 2022 onwards.