How IORP II will change Ireland's pensions landscape

From backward to forward-looking

Historically, other than business as usual items such as submitting actuarial certification, trustees and their advisers often had limited contact with the PA unless an issue arose. This was a point in time and compliance-based approach.

The new regulations specify a markedly different supervisory approach – one that is forward-looking and risk-based. The PA have already taken some steps in this direction with more wide-ranging engagement from 2015, based on the Financial Management Guidelines, and in 2020 to assess preparedness for IORP II.

What does the framework look like?

The PA have broad new powers and can request detailed information in a variety of circumstances. Among the specific items set out are that Ireland's PA:

will collect an annual compliance statement with a broad scope. The first is required in early 2022 and will prove challenging for many schemes (it will be interesting to see if a benign approach will be taken to this first statement);
will undertake supervisory reviews comprising assessments of schemes’ systems of governance, the risks faced, and the ability to assess and manage those risks;
will have monitoring tools to both identify deteriorating financial conditions and monitor the progress of remedial actions, and it can require trustees to carry out stress tests to meet these aims;
may serve Advisory Notices where trustees are deemed to be failing to act in a manner that would enable them to satisfy the requirements or where there are other weaknesses or deficiencies; and
may require External Reports to be prepared where the information provided to it is insufficient or gives grounds for concern.

The PA previously noted that their oversight will focus on the culture of the trustees, meaning the set of attitudes, values, expectations, and practices that determine their activity.

Where will the supervision focus?

As expected, the government has chosen not to exclude smaller schemes from the new requirements, reflecting a view that all members are entitled to the same level of protection regardless of scheme size.

We wait to see how the requirement that supervision should be proportionate to the size, nature, scale and complexity of the scheme will be applied. This will have cost consequences, which will be of particular interest for smaller schemes and sponsors.

To determine where to focus its efforts, the PA has flagged that it is working on a new classification for DB schemes as follows:

The results are eagerly awaited as, in addition to its primary purpose, it will no doubt impact on how trustees, sponsors and members view their schemes and may give pause for thought about their sustainability.

As we move though 2021 the finer details will become clear, but we already know that the relationship between the regulator and trustees has entered a new era.

Paul Torsney is Head of Trustee Services in Ireland. Visit his profile here.