The Pensions Authority pension reform

I have always thought that pensions are overly complicated in this country and need to be simplified. The Pensions Authority published their consultation paper during the summer on how they simplify pensions as well as plenty of plans for the pensions industry.

Why are they looking to reform private pensions?

The Pensions Authority gave a number of reasons that

  1. Low confidence and difficulty in understanding pensions
  2. More rigorous regulation expectation and supervisory approach
  3. The high cost borne by many members and contributors
  4. The need for compliance and governance standards in the existing system to reflect the current environment
  5. The need to rationalise the number of pension schemes
  6. EU legislation that is going to be put in place

What are they looking to do?

The Pensions Authority are looking to make a number of changes to the pension landscape in Ireland.


All company paid pension schemes are set up under trust. The trustees of the schemes have certain duties and it is fair to say that in most cases, especially for smaller schemes, those duties aren’t paid attention to. The Pensions Authority proposes the following mandatory requirements for trustees:

  1. Enhanced trustee qualifications
  2. Minimum trustee experience
  3. A minimum of two trustees per trustee board
  4. Mandatory continuous professional development

The Pensions Authority say they are not looking to professionalise trusteeship but with a requirement for qualifications, experience and continuous professional development, that is exactly what they are doing.

Scheme Authorisation

At present, company pension schemes have to register with the Pensions Authority and they have no power to reject the registration or to look for additional information. They want to change this to an authorisation system, with enhanced supervisory powers. To implement a pension, trustees will have to show the following:

  1. Scheme structure & formation – you have to submit scheme documentation and trustee details
  2. Governance and management – show administrative arrangements, trustee policies and governance policies.
  3. Investment – show proposed investment objectives and strategy, policies for oversight of investment strategies.
  4. Business plan – deals with the viability of the plan

The Pensions Authority believes there are too many pension schemes in place as it is and with the low barrier to entry, it is too easy for a company to set up a new scheme, especially one member arrangements. They want to stop this from happening by making it more difficult to set up a pension scheme. More importantly, they want to increase their powers from that of an a body that keeps a list of schemes and deals with problems to one that has the power to reject pension scheme proposals.

Reduce the different types of pensions

There are currently far too many different types of pension schemes in place, so the Pensions Authority plans on doing away with personal pensions and buy out bonds. That will leave occupational pension schemes and PRSA’s…both types of pensions that the Pensions Authority monitor.

The problem with PRSA’s is they are very heavily regulated. If a provider wants to change their charging structure or add a fund to their PRSA offering, they have to get prior authorisation from the Pensions Authority. This a burden and costly for providers.

There are also restrictions on transferring benefits from an old employer to a PRSA. If you were a member for over 15 years, you cannot transfer to a PRSA. The Pensions Authority are looking at changing this.

In most circumstances, when transferring benefits from an old employer scheme to a PRSA, you have to get a Certificate of Benefits Comparison completed by an actuary. This costs €1,000 plus VAT. Most people will not pay this fee to transfer their benefits. The Pensions Authority are going to look at this requirement too.

Master trusts

The Pensions Authority wants to reduce the number of schemes, especially one member schemes, of which there are almost 69,000. They suggest doing this by master trust. Under this structure, there is one legal trust and one trustee board. Pension schemes of different companies will then all participate under this one master trust.

The benefit for the Pensions Authority is they will have a small number of very large pension trusts to look after instead of tens of thousands of individual trusts as under the current system. From a practicality point of view, you will still have a number of different policy numbers for different benefits. I would suspect that each product provider would have its own master trust in place.

What it will mean to you

There is clearly going to be a lot more regulation of pension schemes, both by the requirements for trustees and all the additional powers that the Pensions Authority will give themselves. The Pensions Authority did not address how all their additional duties will be paid for but you can assume it will result in a higher Pensions Authority levy which will mean an increased cost to you. Trustees also need additional qualifications and training, which will come at a cost that will be passed onto policyholders. This drives in the face of one of their drivers for reforms “The high costs borne by many members and contributors”.

While I welcome the slimming down of pension products available, I would question their choice of Company Pensions and PRSA’s. The market itself has driven down the charges under pension contracts that the product providers can price themselves. The cost of PRSA’s, which need Pensions Authority approval for any contract changes, have largely stayed the same since their introduction.  Would it not be better to simply have a company pension and a personal pension?

To me, it is clear that the Pensions Authority want more regulation,  more power and it will increase costs to the consumer. What do you think?

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