We see the making of these regulations as representing a key milestone in the transposition of IORP II into Irish law. It is not a first step – the process began with the EU’s adoption of the directive itself – and nor will it be the last. For that we will still have to await codes of conduct from the Pensions Authority.
However, the regulations do represent a key step forward:
The new “Part VIB compliance statement” requires self-certification of compliance with all of the main Governance and Risk Management provisions that are being inserted into the Act. Those provisions extend to 18 pages of new material covering matters such as:
The 31 January 2022 deadline for preparing the first such compliance statement means there is a short deadline for compliance with these and other governance items. Schemes that have not already taken steps to identify and remedy gaps could struggle to achieve that timing.
Perhaps the biggest news relates to a volume of new details that clarify the new regulatory regime that the Authority has been openly discussing since 2020.
The Pensions Authority now has a prudential supervision role that is forward-looking and risk-based. Accordingly, the regulation moves on from the past approaches which emphasised retrospective reporting and compliance.
The scope of prudential supervision is very broad, and it is clear that the Authority will have a very significant role in determining the future direction of pension regulation in Ireland. Amongst its powers, the Authority can:
The Authority’s new role aims at improving protections for members and beneficiaries. The changes to the Act require that the Authority’s prudential oversight must be proportionate to the size, nature, scale and complexity of the scheme being supervised. We would anticipate that resource limitations might mean there is a focus on schemes that are considered most at risk. This would be in keeping with the Authority’s stated intention to classify defined benefit schemes as Category 1, 2 and 3.
The IORP II directive doesn’t provide for derogations for smaller schemes. Instead, the Act now includes many references to proportionate application and, other than in relation to regulatory oversight, the decision on what is proportionate is effectively left to trustees. No doubt the code of practice will provide appropriate guidance.
Whatever about one-off implementation efforts, this could leave some schemes facing relatively significant additional governance and compliance costs into the future.
For DC schemes, particularly where members will be affected by rising costs, there are other alternatives. These include outsourced single and master trust solutions such as those under our LifeSight platform. These solutions are already available and can help trustees and sponsoring employers to address the regulatory needs flowing from IORP II in a cost effective way, while still supporting better outcomes for members.
In many areas, particularly the new Part VIB, the changes largely adopt the language from the EU directive. This is broad and principle based, leaving room for interpretation – a problem that still remains.
That said, the Pensions Authority issued a news release on Wednesday 28 April 2021 in which it sets out how it will provide support:
Taken at face value the compliance timelines are unquestionably tight and may, realistically, be difficult if not impossible for some schemes to achieve.
While the Regulator’s comments in recent months might imply they could adopt a firm stance on compliance, the timings for development of a final code of practice lead us to anticipate there will be reasonable flexibility, at least in cases where trustees can show that they are taking clear actions. We hope to see more on this when the Authority publishes its guidance on the path to compliance.
Assuming the draft code of practice to be published in July looks sensible, we would think that this should lead to emergence of the main details about how to comply, even if the codes are still in consultation at that point.
In the meantime, there are still steps that can be taken sooner. In particular, with additional detail from the regulation, trustee boards and, where relevant, sponsors should:
Willis Towers Watson has been helping trustees of defined benefit and defined contribution schemes on their journeys to IORP II readiness over the past couple of years. With the regulations in place and a clear line of sight to the code of practice, we can continue that process to enable trustees to reach full compliance.
The regulations run to 70 pages and include many details not covered here, where we have focused on what we see as the most significant news items, covering them only very briefly.
For any further information, please contact your Willis Towers Watson consultant or the colleague below who will be pleased to support you with getting to grips with the details.