The move has been described as the most significant regulatory reform in a generation.
It will introduce stricter rules on governance, including risk assessment and internal audit of schemes, as well as improved communications with members of pension schemes – including deferred members who have moved on to other jobs but retain rights to preserved benefits in a scheme.
However, they will also significantly limit the current freedom of smaller schemes to invest in unregulated investments and to borrow within funds for investment.
And costs will rise, especially for smaller pension schemes that will now be obliged to show that they are more tightly supervised. Schemes that fail to comply with the new rules after a transition period face the loss of tax relief.
The move is expected to lead to a significant consolidation in Irish pension schemes, a move that will be welcomed by the regulator, the Pensions Authority.
PwC pension partner Munro O’Dwyer says Ireland’s pension system is something of an outlier. With just 1 per cent of EU population, we account for 50 per cent of all pension schemes in the EU.
As many as 66,000 of the 75,000 registered occupational schemes in Ireland have only one member.
“It is going to fundamentally change the nature of pensions in Ireland,” Mr O’Dwyer said.
“This is a really big step. We have been slow to implement it and it is going to have a far bigger impact in Ireland than it did in any other EU country because of the shape of our pension arrangements today.”
Even leaving aside the one-person schemes, Mr O’Dwyer said there were around 8,000 company schemes with fewer than 500 members and average membership among these schemes was less than 20.
“When you think about the pressure there is from a financial services perspective to have proper governance, low cost, best in class technology, investment choices, you don’t do it with 12 or 20 members, you do it with thousands and thousands of people in schemes.”
The transposition of the new pension rules into Irish law comes five years after the was agreed by EU members and over two years after the final deadline for their introduction into national law.
Ireland was one of 17 states against whom infringement proceedings had been taken over failure to implement the rules back in January 2019. By this year, it was the only state yet to comply.
“The IORP II directive is a substantial directive with many of the provisions supporting positive reform of the Irish occupational pension sector,” Minister for Social Protection Heather Humphreys said.
“The regulations I have signed today will provide for a number of improvements within the area of occupational pensions in Ireland.”