It was sort of fitting that Ireland’s biggest pension regulatory reform was announced without fanfare. Just a press release issued without notice at the end of the working day – after 5:30 p.m.
Pensions are a tough sell and, at first glance, this latest landmark reform is an indicator of why. Called IORP II, the acronym is even more impenetrable than its current title – the European directive on the activities and supervision of institutions for occupational retirement provision. Essentially, it aims to improve pension plan governance and communications with pension plan members.
Few will say these are not reasonable ambitions, but they will cause turmoil in the Irish market.
Ireland accounts for almost 50 percent of all pension systems in the EU, even though we only have 1 percent of its population. Thousands of employers have small programs for a small number of employees overseen by trustees who are often enthusiastic amateurs.
The people who lose in the event of a problem are the members who rely on the funds for their retirement income. And while there are no issues, the higher cost base eats away at their returns.
IORP II will further increase these costs. For many projects, probably most, it just won’t make sense to continue running stand-alone systems. It is likely that the new directive – finally transposed into Irish law after all other EU states and more than two years after a final deadline – will stimulate the growth of master trusts.
Managed by professional managers and trustees, and ideally covering tens of thousands of workers at different companies, these outsourced retreats are designed to benefit from economies of scale and provide more professional management of what is, for most, people, their most valuable assets.
It remains to be seen if this is how it goes. But, anyway, a change is coming in the Irish pension landscape – and further reforms. A higher retirement age and self-enrollment seem almost certain to be included.
And, as the earliest members of a defined contribution pension plan approach retirement, some home truths are likely to emerge about how much people actually need to save for retirement and how much people perform. sector in terms of the reasonable performance of these funds.