BY JOHN ELLIS, FINANCIAL ADVISOR
THE earth did not move, there were no signs in the night sky when IORP II was put into Irish law in April this year. IORP II stands for Institutions for Occupational Retirement Provision. This legislation is going to have a very significant impact on you if you are a trustee of an occupational pension scheme.
A trustee, usually a director of the company, is someone who had agreed to ‘be in charge’ of a pension scheme. Up until now many people who are trustees of a scheme when asked had no idea what their exact obligations were.
Most Direectors/trustees are hardworking, trustworthy and capable people trying to keep their business on the road. They are interested in their employees and want to help them by setting up and in many cases contributing to a pension on their behalf.
IORP II was brought in to make sure that all trustees of all schemes regardless of size know and prove they fulfilling the obligations of a trustee.
IORP II is designed to provide better protection through enhanced governance and risk management. Provide clear, relevant, and more consistent communication about the pension scheme and ensure that trustees have the necessary powers and credentials to supervise schemes.
Article 19 of the law states that trustees must make sure “all new scheme’s assets are predominantly invested in regulated markets. Direct property investments will be restricted, and borrowing can only be used for liquidity purposes and only on a temporary basis (this will affect some scheme’s ability to borrow for direct property)”. Environmental, Social and Governance (ESG) issues must be considered when making investments and Trustees have a duty of care to manage the scheme’s assets prudently.
Trustees must establish and maintain effective risk management, internal audit and, appoint a key function holder for each.
This person must not carry out any other key function within the company, but depending on the size, nature, scale and complexity of the scheme trustees can allow the person carrying out a key function for the employer to also carry out that function for the trustees, once appropriate conflict of interest protocols are in place.
Now Trustees must collectively have adequate qualifications, knowledge, and experience with at least one trustee having trustee experience in two of the previous three years. Similar requirements apply to directors of a sole corporate trustee.
Trustees must now put in place effective governance and internal controls. Trustees must have adequate qualifications, knowledge, and experience and provide evidence of how they satisfy this requirement. They are appointed to maintain effective risk management, internal audit and actuarial functions and must provide evidence that they have adequate qualifications, knowledge, and experience. The same person cannot carry out each role.
Trustees must have written policies for each of the key functions, and these must be reviewed every three years with a risk identification and assessment framework being established and carried out every three years. An annual compliance return must be submitted to the pensions authority each year and pension benefit statements and annual reports must be provided each year to members in line with the directive’s requirements
Many Directors currently have neither the time, inclination nor skills set to meet these onerous requirements. So, what can be done to become compliant?
All new schemes are no longer set up appointing the principal employer as trustee but the provider use in-house companies or partner with other trustee service companies offering this to new and existing clients.
Other trustees of schemes are transferring trusteeship to Professional Trustee Companies who for an annual fee will ensure the laws are met.
This must be made a priority by all current trustees, even the one-man schemes. Your first port of call is your Financial Advisor who will advise you on the way forward and arrange the appropriate means to make you and your scheme compliant.
John@ellisfinancial.ie
086 826263
