Final guidance and regulations for the Individual Accountability Framework

1. Pensions in the news

September saw the Pensions Authority publish its Annual report and accounts for 2022. So, what can we glean from the report and the Pensions Authority’s statement? Several trends are emerging in the market:

1. New one-member arrangements (OMAs) are no longer. Any established after 21 April 2021 are being wound up and typically put into a Master Trust. Any established before 21 April 2021 have until 21 April 2026 to wind up. The feasibility of a master trust or PRSA should be considered instead of these options.

2. There has been a reduction of 940 in group (i.e. more than one member) defined contribution schemes as a result of moving to a master trust or PRSA during 2022. By the middle of 2023, we estimate that roughly 4,000 employers will participate in master trusts for group pension schemes. Consolidation is happening across the market and at the end of 2022, there were 14 active master trusts registered with the Pensions Authority.

3. Given the shift in interest rates, coupled with the additional requirements under IORP II, we see a larger number of defined benefit pension scheme sponsors consider the end game and potential for settlement of liabilities. Nineteen defined benefit schemes were wound up in 2022, and we expect this trend to increase further in 2023.

4. The UK’s liability-driven investment (LDI) crisis did not have serious knock-on effects in Ireland. However, the Pensions Authority is keen to ensure that any LDI strategies schemes have in place are well-considered. Coupled with the significant volatility in 2022, it reinforces the need for a robust investment governance process.

5. During 2022, the Pensions Authority took a ‘light touch’ approach to regulatory compliance with 21 spot-checks on schemes’ annual compliance statements. We expect this to change in 2023, as all schemes will be required to submit their 2022 annual compliance statement to the Pensions Authority, and there is an expectation that defined contribution schemes that are winding up will complete this before 31 December 2023.

2. Key economic statistics

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3. Spotlight on retirement

The Irish pension fund sector had total assets worth €128bn at the end of June 2023. This represents an average of circa €75,000 for workers with pension benefits.

The low pension coverage among private sector workers has been widely publicised, and auto-enrolment in 2024 aims to address this. While coverage is one piece of the puzzle, retirement security is another.

Natixis investment managers recently published a 2023 Global Retirement Index, which incorporates 18 performance indicators across four themes—health, finances in retirement, quality of life and material wellbeing. It is encouraging to see Ireland placed fourth in the index behind Iceland, Switzerland and Norway. This is due to low unemployment, a strong economic outlook and rising interest rates. In 2013, by comparison, Ireland was in 25th place.

Retirement is not solely finance-driven, but it is important. We expect the Irish pensions landscape to shift over the years to come—particularly as the cohort of retirees becomes entirely dependent on defined contribution pension savings. With interest rates rising, pension scheme members may be more likely to consider annuities, which had been out of favour. There is also likely to be a trend to ‘whole of life’ products and ‘in scheme’ drawdown compared to the existing dual pre- and post-retirement regime. With the current wide range of products and providers in the market, retirement decision-making can be challenging and we see more organisations looking to implement a suitable retirement support framework for their employees.

4. Auto-enrolment update

During the summer, the Government launched a pre-qualification questionnaire for interested parties to manage the operation of the auto-enrolment scheme. The intention is to have a selected technology provider in place by the end of 2023 to begin auto-enrolment in Q3 2024. With 12 months (or thereabouts) to go to the introduction of auto-enrolment, many organisations are considering how they would deal with its introduction, including the financial impacts. With this in mind, we have developed a tool to help employers analyse the additional costs of auto-enrolment.

5. Budget 2024 and Finance Act 2023

Budget 2024 saw an increase to the maximum rate of the State pension (non-contributory) of €12 per week from January 2024. The Finance Bill may bring more changes for private pensions with particular reference to the recommendations from the Interdepartmental Pensions Reform & Taxation Group in 2020.

6. Administration and investment critical reviews

Trustees of defined benefit and defined contribution pension schemes must conduct an in-depth review of administrator and investment manager performance by April 2024. We can support trustees and employers as they look to carry out this critical assessment of service delivery and performance by providing impartial insight and relevant market benchmarking comparisons.

7. Pensions Authority Risk Management Conference

On 11 October 2023, the Pensions Authority held its Risk Conference and published its guidance for trustees on carrying out an own risk assessment, which must be completed by 22 April 2024. This will form part of the Pensions Authority’s supervisory reviews in 2024, and they expect trustees to conduct a comprehensive, objective assessment.

In the period to April 2024, trustees will also oversee the delivery of both a critical administration review and a critical investment review.