BY JOHN ELLIS, FINANCIAL ADVISOR
Over the latter part of this year, I have been discussing the changes in the pensions landscape due to alterations implemented by the Pensions Authority. This is due to the new IORP II Directive, a comprehensive and wide-ranging European legislation that seeks to enhance and harmonise governance, risk management and transparency of pension schemes across the European Union.
The directive represents the biggest change in the pensions regulatory landscape in Ireland for many years.
Even though we are in Christmas week there are many pension schemes holders who do not yet realise what needs to be done with what we would call “old group pension schemes” in spite of the fact that, in the last number of months, pension providers have been making contact regarding progress in developing solutions that support their customers and are keeping them informed as the way ahead becomes clear.
The problem is there are several complex issues to be dealt with at a very busy time of year. To date the trustees of the affected schemes are being asked at this stage simply to reply saying that the wish to wind up the scheme. ‘Winding up the scheme’ is a technical term meaning the affected plans will still sit on the providers system and will eventually be moved to an appropriate investment vehicle in line with the IORP 11 rules.
Why has this happened? We have covered this in the last few months but to recap; in June the Pensions Authority extended the requirement to produce an Annual Report and Audited Accounts to all Pension Schemes even to what we call ‘one-man schemes’ ie. a pension set up for one employee or director only.
The production of annual reports and audited accounts were to date complied and issued by the insurance provider, Now the responsibility lies with the trustees of the scheme and will be a significant additional cost, up to €7,000 in some cases have been mooted, which will have to be borne by the member/employer who are usually trustees.
Then in September the Pensions Authority confirmed that the trustees will not be expected to prepare an annual report and audited accounts provided that the transfer of scheme assets, and the scheme wind up be completed by the end of December 2023 for Group schemes and by end of June 2023 for one-member pensions. To start this process trustees need to deliver to their pension provider a written form, acommitment to wind up a scheme by December 31.
What has come to light is that there are several contracts that are in what is called a ‘with profit fund’. This is a contract that has valuable guarantees in place and any changes could or would significantly impact the current and maturity values of the plan should they make changes before the retirement date. One way to overcome this is a policy can be assigned, as is, to the member if the trust is wound up.
Also, some providers are actively engaging with a third-party master trust provider to facilitate the assignment of interested schemes to their master trust. This option will be available to group schemes with more than one member, either active or not paying premiums, and to group schemes with one member that are actively paying premiums. If this route is taken then there would be no change to the underlying contract and the policy will continue to be administered by their current provider. The use of Buy Out Bonds or Personal Retirement Savings Accounts can also be considered but you will need to talk with your financial advisor to decide how to proceed.
To reiterate, letter have been sent out to affected schemes in the last few months and action must be taken before December 31 confirming to the scheme’s Registered Administrator the intention to wind up the scheme who will in due course update the Pensions Authority.
Finally thanks to all our readers and those who have contacted me over the year to say they have found my articles a help and I would like to wish all the readers of The Kilkenny Observer a very happy Christmas and a prosperous New Year.