IORP II and pension regulations

A consolidated pension landscape

The EU's IORP II Directive aims to improve the governance and communication standards of occupational pension schemes.

Transposing these new regulations will dramatically change the Irish pension landscape. It will lead to the consolidation of pension schemes and strengthening of their management frameworks. Employers need to ensure they have a suitable pension solution, which requires due diligence and understanding the options available.

Our independent pension experts can help you consider the potential impacts and solutions open to you.

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Deciding on the optimal pension structure

The pensions market contains many scheme structures and providers. Determining which model fits your organisation and your employees best can be a difficult undertaking.

Meeting governance requirements

New regulations will set a higher governance bar for pension schemes.

The Pensions Authority expects schemes to be run proactively. The expectation of the Authority is that a forward-looking and risk-based approach is adopted and is clearly demonstrated.

The regulations also require documented policies and procedures for both in-house and outsourced activities, and proof they are being followed. Key function holders need to be appointed for actuarial (for defined benefit schemes), risk management and internal audit activities.

Our team can help your organisation put the correct governance framework in place.

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Effective risk management

Risk awareness and management should be central to the running of a pension scheme, particularly in the context of a defined benefit scheme.

The Pensions Authority intend to scrutinise these schemes on the basis of which category they fit in:

  • Category 1: those likely to pay benefits as promised
  • Category 2: those unlikely to be able to pay benefits unless there is change
  • Category 3: those unlikely to be able to pay benefits no matter what

Our team can help employers consider the long-term strategy and objectives for their defined benefit schemes, and help them navigate the changing risk landscape.

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Increased compliance costs

The new requirements will make managing pension schemes more expensive. Costs will increase because of the need to appoint new Key Function Holders, the wider trustee responsibilities and additional administration requirements. Employers will be responsible for meeting the costs as the sponsor of the pension arrangement.

Employers need to understand the costs of their existing pension scheme. They need to understand the impact new regulations have on these costs, both one-off and ongoing. They must determine if their pension schemes remain value for money or could be structured more efficiently.

Our team can help support cost analysis, and share our perspective to ensure your pension schemes operate as effectively as possible.

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Making the right appointments

With new appointments needed in the area of risk management and internal audit, trustees might expect or request that employer representatives act in these roles.

However, finding internal resources with the right level of expertise and a strong understanding of the pension plan may be difficult. This could mean that the roles get outsourced.

Whilst the trustees are responsible for these appointments, employers should be aware of the options and the knock on impact. Employers need peace of mind that fit and proper individuals are looking after their employees' future retirement savings.

Our team can support employers in making sure they have the correct people in place to properly manage their pension scheme.

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Reviewing the operating model

It is key that the pension operating model adopted by organisations is fit for purpose. A pension arrangement must be valued by employees, have market leading investment and communication options, have a governance model that meets the requirements of IORP II, and that is efficient and effective for the employer.

Our team can bring their expertise and their market insights to ensure your operating model is fit for purpose.

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Our IORP II solutions

IORP II impact assessment

The objectives of the IORP II regulations are clear. They aim to improve governance, risk management, transparency and communication.

In light of the additional requirements, costs and risks, many employers will need to reassess their pension scheme structures.

Employers have a decision to make. Do they accept the status quo and the additional requirements to comply with IORP II? Or do they look to restructure their pension arrangements in a more efficient, effective manner in line with their objectives and pension philosophy?

Our team can help you understand the impact IORP II will have on your existing pension arrangements. They can assist with a new Trusteeship model, the appointment of Key Function Holders and the creation of new policies and procedures.

Developing a future pension strategy

The pension landscape is entering a period of change and consolidation as a result of IORP II. A thorough assessment of what these regulations mean in practice will help employers.

Pension schemes are long-term, and making sure you invest time upfront to have the right strategy in place will create real value. The development of a sustainable future pension strategy needs attention to be paid to a number of areas. These include: 

  • Merging defined benefit plans
  • Defined benefit funding and investment "journey plans"
  • Streamlining Trustee boards and Key Function Holders
  • Defined contribution value-for-money assessments

Our team helps employers to consider and develop their long-term pension strategy.

Master Trust feasibility

Ireland has almost 9,000 defined contribution pension arrangements. With the introduction of IORP II, pension schemes will be consolidated and the number of schemes may reduce to 150 or less.

One way for them to be consolidated is through the transition of existing defined contribution pension schemes into a Master Trust solution, a multi-employer pension vehicle. This shifts IORP II compliance obligations to the Trustees overseeing the Master Trust. It can also often achieve better pricing terms for the employer and members of the scheme.

Employers should consider Master Trusts as a possible solution for their defined contribution pension arrangements.

We have been carrying out extensive due diligence on all Master Trust providers over the past 18 months. Our Pensions Team can support employers in making this decision and assessing an appropriate Master Trust provider.

Internal Audit and Risk Management support

Under IORP II, Trustees must appoint new Key Function Holders in risk management and internal audit. These Key Function Holders must put in place effective frameworks that support the pension scheme.

For risk management this will involve:

  • Setting objectives and defining a suitable risk appetite
  • Creating pension risk management policy, risk monitoring and reporting
  • Completing an Own Risk Assessment every three years

For internal audit, this will involve:

  • An assessment of the risks and control environment, including those that are outsourced
  • Identifying gaps
  • Creating an internal audit plan to address gaps

Our team can help employers and Trustees source suitable candidates for the Key Function Holder roles. We can also support the development and maintenance of integrated risk and internal audit frameworks.

Contact us

Munro O'Dwyer

Partner, PwC Ireland (Republic of)

Tel: +353 86 053 6993

Anna Kinsella

Director, PwC Ireland (Republic of)

Tel: +353 87 967 0910

Ross Mitchell

Director, PwC Ireland (Republic of)

Tel: +353 87 235 4460

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