The EU Directive on the activities and supervision of institutions for occupational retirement provision ((EU) 2016/2341) (IORP II) was adopted in 2016 and sets out the new pension standards to be passed into law by each EU member state.
IORP II was initially meant to be incorporated into Irish law by 13 January 2019 but this timeline met with significant delays due to Brexit, a high court challenge and other complexities.
On 22 April 2021, the Irish government eventually issued the European Union (Occupational Pension Scheme) Regulations 2021 (SI 128/2021) (the Regulations) which transposed the directive into Irish law almost two years after the intended deadline.
Objectives
IORP II is comprehensive and wide ranging. It seeks to enhance and harmonise the governance and management of pension schemes across the EU. It contains the most significant changes to the Irish pensions legislative landscape in 15 years and introduces many new requirements for Irish occupational pension plans, covering governance and risk management, plan management and member communication and disclosure requirements.
Some key impacts of the Directive
The responsibility for implementing IORP II will fall mainly on pension scheme trustees, and it will be important that all trustees understand what will be required and what the scheme will need to do. It will be equally important that the sponsoring employers also understand the implications of the Directives and what potential actions they might need to take.
Some key impacts of the Directive are as follows:
- new minimum qualifications & experience requirements for fit & proper trustees
- a requirement to implement an effective system of governance
- new key functions – in particular - risk and audit; and minimum requirements for fit & proper key function holders
- the requirement for written policies
- new investment regulations, and the requirement for ESG (environment, social, governance) considerations for investment decisions
- obligation on trustees to conduct their own risk assessments and to put risk management processes in place
- new requirements for communications and disclosure of information
- new regulatory role for the PA.
Application, Derogation & Transition
The Regulations impact on all occupational pension schemes, trust retirement annuity contracts (RACs), including small schemes, one member arrangements, AVCs and SSAPs. They do not apply to personal pensions, personal retirement bonds, PRSAs, or ARF/AMARFs.
The Regulations remove provisions which previously exempted small schemes, small trust RACs and one member arrangements from various provisions of the Pensions Act, 1990 (as amended). This is in contrast to the UK where they have dis-applied the UK-equivalent requirements to schemes with less than 10 members.
The Regulations provide for some transitional measures, such as for one member schemes that were already established, there is a derogation that defers some aspects of the Regulations for 5 years and for small trust RACs the Regulations apply from 31 December 2021.
Implementation
Most of the governance provisions in IORP II as implemented by the Regulations have immediate effect for all group pension schemes.
The Pensions Authority (PA) has recognised that schemes must be given sufficient time to be compliant with the complex IORP II regulations in an orderly manner. They have indicated that they will be reviewing the detail of the transposition and will be providing further information via a series of guidance notes to be published over the period May to December 2021.
It is anticipated that a Code of Practice on what the Authority expects from schemes and other regulated entities to meet their obligations under the Regulations will not be published in final form until November 2021.
While the additional clarification and guidance from the PA will certainly be welcome it is likely to be somewhat frustrating for trustees and pension scheme sponsors that the publication of such guidance will come some time after the legislation is in force.