The transposition of the IORP II Directive will result in significant improvements to the regulation and governance of funded occupational pension schemes in Ireland. Officials in my Department, supported by the Pensions Authority, have conducted detailed analysis on the implementation of the Directive.
While the Directive provides for the possibility of derogation from specific Articles for smaller schemes, I believe that members of smaller schemes should get the same protections and oversight as members of large schemes.
The value of investments held in many schemes fell substantially during the financial crisis. This highlighted the need for stricter regulation and greater protections, especially for small schemes investing in riskier unregulated markets. Concerns in relation to this sector are particularly around the protection of the consumer and the money they have invested, the riskiness of investments, the charges that apply, and the standard of governance. Accordingly, the Government has decided that the provisions of the Directive should apply to all funded occupational pension schemes. Money saved for pension purposes should be properly protected to ensure that people have adequate income for their retirement years.
Under the Directive the underlying principle for capital investment is for schemes to invest in accordance with the 'prudent person' rule and other specific rules set out. It is recognised that there should be an appropriate level of investment freedom for schemes within prudent limits and this is reflected in the rules. Assets must be predominantly invested on regulated markets, i.e., at least 50%. This allows adequate scope for investment in instruments with a long-term economic profile and non-listed undertakings such as property and infrastructure. In this regard the application of the Directive is prospective, not retrospective. This means that existing investments and borrowings can remain in place. After transposition all single member schemes, including small self-administered schemes, who are the only schemes currently allowed to borrow, will not be allowed to enter into new borrowing arrangements, except for short term and liquidity purposes. All of their future investments will have to be made in accordance with the investment rules in the Directive. The Pension Authority advises that there are approx. 100,000 single member schemes and that c.98% of these schemes are already compliant with the investment rules of the IORP II Directive.
While small self-administered pension schemes may continue to invest in the Irish economy, including property and SMEs, the assets of the scheme must be properly diversified to avoid excessive reliance on any particular asset and thereby minimise risk in the portfolio as a whole. Such diversification has been proven to reduce investment risk.
According to the 2017 Report of the Association of Pension Trustees of Ireland (APTI) there are 7,756 small self-administered pension schemes with €3.38 billion in assets. The majority of these are already compliant with the provisions of the new Directive.
This approach will enhance consumer protection so that pension savers have adequate income for their retirement years.
I hope this clarifies the matter for the Deputy.