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What you need to know about IORP II

What is IORP II?

IORP II is an EU directive that sets new pensions standards to be passed into law by each EU member state. In the Republic of Ireland, IORP II legislation was introduced on April 27, 2021.           

On July 22, 2021 the Pensions Authority published a draft code of practice, which outlines the minimum standards required for trustees of occupational pension plans and trust RACs to meet the new regulations. The draft code will be open for public consultation for 8 weeks until September 16, 2021 and the Authority has invited any relevant stakeholders to submit their views on it in the interim. The final code will be published in the week of November 15, 2021.  

The changes that Trustees, plan sponsors and pension schemes can expect to see as a result of the IORP II regulations are laid out below.

 

What changes can trustees expect from the IORP II legislation?

Trustees must be 'fit and proper'. Fitness relates to the qualifications, skills and experience of each trustee, while proper dictates that each trustee is honest and diligent.

Trustees will need to appoint Key Function Holders (KFH) including a Risk Manager, Actuary and an Internal Auditor.

Trustees will be required to have Policies for pension scheme governance, including Conflicts of Interest, Administration, Confidentiality, Communications, Outsourcing of tasks and Remuneration.

A Trustee Manual must be drawn up for the trustee board with policies, a governance plan, documentation associated with the plan, details of risk management/internal audit and minutes from the quarterly trustee meetings.

Trustees will need to develop a Communications Plan aimed at prospective, active, and deferred members and members approaching retirement. 

For further information see the trustee section on the Pensions Authority website

What changes can pension schemes expect from the IORP II legislation?

In addition to the new trustee responsibilities, IORP II is expected to bring about additional requirements for pension schemes including: 

A governance system and accompanying documentation.
A risk management system to identify, measure, monitor and report issues.
A digital communications system for engaging with members about their pensions. 
At least one fully qualified trustee on the board, with all board members subject to new minimum qualification and experience requirements.
Appropriate outsourcing agreements where applicable, with monitoring systems in operation.
 

There will be significant cost and resource implications for schemes associated with these new requirements, so it will be important to understand and review the different options available.

What does this mean for plan sponsors and trustees?

The IORP II legislation is expected to transform the pension landscape. 

Plan sponsors and trustees will need to review their pension arrangements and speak to their pension provider or advisor to decide the best way to prepare for these increased governance requirements. 

One alternative to consider is moving to a master trust.

Under a master trust, multiple non associated employers can subscribe to participate in one plan operating under a single trust, and all governance requirements are met centrally by the master trust and it's trustees.

Irish Life have a master trust solution, which will evolve to meet both the IORP II requirements and any subsequent Pensions Authority guidelines.

 

Now that the Pensions Authority has published the draft code of practice, it will be open for public consultation for 8 weeks until September 16, 2021 and the Authority has invited any relevant stakeholders to submit their views on it in the interim. As Ireland's leading DC pension provider, Irish Life recognises that we have a crucial role in shaping the final code. To this end our team will be drafting a detailed submission for the Authority in the coming weeks and we strongly encourage others to do the same. It's essential for all key stakeholders to play their part by submitting their views while the opportunity to help shape the road ahead is there. 

We also encourage plan sponsors, trustees and providers to start actively familiarising themselves with the key themes of the code, if they have not already done so. The time to start preparing for the changes ahead is now.  

Other key milestone dates to be aware of:

  • Week of August 30, 2021: Information on the annual compliance statement provided for under the Regulations and information for new one-member arrangements will be issued by the Authority.
  • Week of November 15, 2021: The final code is expected to be published by the Authority.
  • Week of December 13, 2021: Guidance for the public and employers in relation to master trust vehicles is expected to be published by the Authority.

It's pretty clear that IORP II will add complexity to plan governance, and that ultimately there’s a lot of work ahead for everyone in meeting these new regulations.

With that in mind we’ve outlined some initial actions to help you start preparing:  

Get comfortable with the legislation and what it means for you and your scheme. Speak to your advisor or Irish Life contact to understand the likely implications.
Review your current governance structure and assess how it measures up to the new legislation and where the gaps might be in meeting the new regulations. Key areas to consider include Trusteeship, governance materials and scheme structure.
Speak to your advisor about setting a plan to fill the gaps you identify and the likely changes required to do so. Consideration should be given to the resources needed from a time, cost and people perspective.

Stay Informed about IORP II

In the meantime Irish Life will keep you informed on all things related to IORP II, sharing email updates and social content as things develop. You can also contact your account manager for information at any point. 

To subscribe to these updates email us at askusaboutIORPII@irishlife.ie and keep checking in with us on LinkedIn and Twitter for the latest IORP II news.

 

The Pensions Authority have also invited Trustees and their advisors to contact them regarding queries that are not addressed by the planned information via email using the subject line commencing ‘IORP II: [title of enquiry]’.

The full Pensions Authority release is available here