In 2018, we saw interesting developments across many areas of pensions law. The publication of the Roadmap for Pension reform 2018-2023 detailed the Government’s plans to reform pensions in Ireland over the coming years. The coming into effect of the General Data Protection Regulation (EU) 2016/679 (“GDPR”) in May presented new challenges for pension schemes and their trustees to manage and these will continue into 2019. In this update, we look back on the main developments which took place during the year.
1. A Roadmap for Pensions Reform 2018 – 2023
The Government launched this five-year action plan for the reform of the Irish pension system in February 2018. This document identifies the key challenges facing supplementary or private pension provision in Ireland. These include the low level of pensions coverage, the disproportionately high number of schemes and the continuing trend of historically low interest rates, which has had the effect of increasing the cost of pension annuities and undermining the sustainability of defined benefit pension schemes.
The Roadmap identifies a number of key areas of the pension landscape that require focus and these are addressed in the Roadmap under six strategic “strands”. The six strands identified are: (i) reform of the State pension; (ii) introduction of an automatic enrolment savings system; (iii) improving governance and regulation; (iv) measures to support the operation of defined benefit schemes; (v) public service pensions reform; and (vi) supporting fuller working lives.
Various measures or action points are outlined under each strand and these are designed to overhaul and improve the approach taken to pension provision in Ireland.
2. Pensions Consultations Papers
Aside from the Roadmap, a number of pensions related consultation papers were published during the year.
Consultation on Supplementary Pensions Reform: Roadmap for Pensions Reform 2018-2023 This consultation paper added to the Roadmap discussed above and focused on three main areas; simplification and reform of the Irish pension system, costs to the Exchequer and approved retirement funds (“ARFs”). In terms of simplification and reform, the paper focused on inconsistencies within the current supplementary pension scheme and placed an emphasis on the harmonisation of the current rules. It also outlined the aim to reduce the number of available pensions vehicles in Ireland. The second part of the paper highlighted concerns around the cost of funded supplementary pension to the Exchequer and the need to review this area. It examined current tax incentives and raised the question of whether these are effective; especially as participation rates remain relatively low among low and middle income earners. The final part of the paper highlighted the need for a review of the utilisation of ARFs.
The Strawman Public Consultation: Process for an Automatic Enrolment Retirement Savings System for Ireland On 22 August 2018 the Government released a “strawman” proposal for an automatic enrolment retirement savings system for Ireland, intended to generate discussion and prompt suggestions. The discussion paper proposed that automatic enrolment would be introduced on a “soft mandatory” basis (ie, with opt-outs available) for those who are not currently covered by a pension scheme. Employees aged between 23 and 60, with earnings in excess of €20,000 per annum, could be automatically enrolled, with contributions commencing at the rate of 1% for the employees (matched by the employer) rising to 6% over 5 years. It is proposed that the Government would also contribute to the scheme. In January 2019, Minister for Social Protection, Regina Doherty, noted that the initial proposals were “ripped to bits” during the consultation process and it remains to be seen whether the submissions received during the process might change the shape of the proposals.
Regulation of Defined Contribution Master Trusts The Pensions Authority released a consultation document in July 2018 outlining its views on appropriate regulation for DC master trusts. The paper considered the potential risks of master trusts when compared with the traditional single employer occupational pension scheme. Highlighted in particular was that, as master trusts will be larger than most traditional pension schemes, any problems that arise in relation to their operation will affect a much larger amount of people. Also mentioned was that there may be a greater potential for conflicts of interest to arise when compared with traditional schemes.
3. The GDPR
The GDPR came into force on 25 May 2018 and imposed numerous new requirements on trustees and employers in relation to data privacy. Trustees, in their roles as data controllers, were required in most cases to carry out a gap analysis with their advisors with a view to identifying the actions required to bring their schemes into compliance with the requirements of the GDPR. For most schemes, this included actions such as organising training for the trustees, updating and re-issuing privacy notices, putting appropriate policies in place and reviewing agreements with service providers. As we move into 2019 we can expect the focus to move to data access requests and data breach notifications although trustees should keep in mind that data protection is an ongoing process, requiring regular consideration and review.
On 24 May 2018, the Pensions Authority published an information note to assist trustees in preparing for the GDPR and to assist with ongoing compliance. Action points for trustees include maintaining data registers and keeping detailed records of processing activities.
4. European Directive 2016/2341 on the activities and supervision of institutions for occupational retirement provision (the “IORP II Directive”)
The deadline for transposing the IORP II Directive into Irish law was 13 January 2019. No draft implementing legislation has been published in Ireland to date. This means that trustees are likely to have quite a short lead in time before they are required to comply with many new obligations. However, some guidance on the likely approach that may be taken in the legislation can be found in the Government’s Pensions Roadmap and in the paper on IORP II considerations for Trustees issued in October by the Pensions Authority.
Earlier this month, the Department of Employment Affairs and Social Protection released a brief update in relation to the transposition of the Directive and the approach being taken by the Department. The update included the following points of note: (i) regulations to manage the transposition of the IORP II Directive are being drafted, with publication planned for later in Q1 2019; (ii) no derogation from the application of the Directive is proposed for small schemes (this marks a significant change in approach; the Irish Government previously availed of a provision allowing small schemes to be exempted from the application of the majority of the provisions of the previous version of the Directive); and (iii) from the date of transposition forward, small schemes will no longer be permitted to enter into new borrowing arrangements, except for short term and liquidity purposes, and all future investments will have to comply with the IORP II Directive.
The decision not to exempt small schemes from the application of the bulk of the IORP II Directive will increase the governance requirements relating to these schemes significantly, making it more onerous for them to be operated into the future. It is likely that the decision will result in some small schemes being put into wind up (which would be in line with the Government's goal of reducing the number of small schemes in Ireland) and it may also accelerate the growth of master trusts in the Irish market.
5. EIOPA and ECB reporting requirements
New reporting requirements for pension schemes were issued during the year by the European Insurance and Occupational Pensions Authority (“EIOPA”) and the European Central Bank (“ECB”), with the objective of improving the quality of the data reported by pension schemes.
Most pension schemes will be required to produce reports on assets, liabilities, and members. This will need to be done on a quarterly and annual basis. The Central Bank of Ireland has indicated that the smallest schemes (by balance size) may be granted a derogation from detailed reporting. First reporting will be required by December 2019. The ECB has been working with EIOPA to find common reporting templates with a view to minimising the reporting burden on the industry.
The Central Bank has written to registered administrators (“RAs”) outlining that they expect that pension schemes will require RAs to provide the returns. This is unlikely to be welcomed by RAs as such reporting is unlikely to be included in any service agreements currently in place with scheme trustees. The reporting requirements will also have cost and administrative implications for RAs, although it can be expected that any costs involved will ultimately be passed onto schemes.