There is a lot of pension legislation coming from Europe that is having a big impact on pensions in Ireland. It is important to have an idea of where this has come from first. The first directive, known as IORPS I was introduced in 2004/2005. The government at the time availed of an option not to apply all of the rules to smaller schemes, so most members of company pension schemes were not aware of any changes.
IORPS II was transposed in Irish law in 2019 and unlike with IORPS I, the Department of Employment Affairs and Social Protection decided not to give an exemption to schemes with less than 100 members. So the same regulations impacted all company pensions whether there was just one member or 500.
The new regulations had an immediate impact on self administered pensions schemes. Under the ‘Investment rules’ part of the Directive, it stated:
Self administered pension schemes have been used for years by company directors to buy property (unregulated) through their pensions, using borrowing a lot of the time. This is now effectively banned through IORPS II. But as small self administered pensions are not the main company pensions used, its impact was only felt by a few.
IORPS II also introduced a lot of regulatory requirements that was going on in the background. As such, it wasn’t noticed by those outside of the pensions industry. One such requirement was the need for a professional trustee. Previously a company would typically be the trustee of a one person pension scheme, now a professional trustee was used. All this meant to the investor was they didn’t sign as trustee anymore and filled in an extra form. They didn’t even notice; after all, there are already loads of forms to sign to set up pension plans.
But on July 4, The Pensions Authority issued a press release on their website. In it they deleted the exemption for one person pensions to produce annual reports and audited accounts.
To out this into context, life companies have tens of thousands of one member company pension schemes on their books. They are also the administrators of these schemes meaning that they are responsible for producing these annual reports and audited accounts. It is simply not feasible for them to do this.
So life companies have simply stopped offering one member pensions. They are no longer available in the Irish market. Without warning, The Pensions Authority has taken away a very popular option for people to fund for their retirement.
While the insurance companies figure out a solution to this problem, there are a few solutions:
1. Self administered pension plan – The aforementioned self administered pension schemes are still available…at the moment. The company I use are reviewing this at present, so this may all change.
2. PRSAs – Company contributions can be made to PRSA pension plans but the limits on the amounts that can be paid into them are a fraction of the amounts that can be paid into a company paid pension. Maybe the limits will be removed and the PRSA will replace the executive pension? They can also be more expensive.
3. Wait – The insurance industry will be looking for solutions to this issue. Executive pension plans are a big part of the pension industry with company directors able to put hundreds of thousands of euro into these plans. If there is a solution, it will be found. Of course, if your company year end is coming up, you may not have time on your side.
25 July 2022