IORP II, a European Directive was transposed into Irish law in April 2021. Ireland, like other EU Member States, had the option to exempt schemes with under 100 members but decided not to.
While 100 member schemes would be significant to remove from the regulations, the fact that one member pension arrangements or OMAs were not exempted came as something of a surprise to say the least.
Ireland has a high number of OMAs that operate under a trust system that fall under IORP II, unlike other countries where there isn’t a requirement for a trust for OMAs. In terms of policy implementation and forward planning, the last four weeks can be politely described as a complete shambles.
At the eleventh hour the providers of executive pension plans received a rude awakening when the Pensions Authority stated that consumer protections such as standardised trustee services and policies, key function holder appointments and audited accounts across a large portfolio of one member arrangements are unlikely to be compliant with IORP II requirements.
Standardised trustee services had been seen by the industry as a way to ensure one member arrangements could still exist while under the new IORP II regime and for over 12 months these products have been advised and put in place on this basis.
The Pensions Authority’s one and only ‘concession’ indicating previously that schemes could take account of the size, nature and complexity of the scheme when meeting the new requirements, doesn’t seem to account for much judging by its current actions.
As it stands, providers of executive pensions are already heavily regulated by the Central Bank of Ireland, so it seems absurd that such stringent requirements as apply to 500+ member arrangements are being put on one member arrangements. It is evident that someone has fallen asleep at the wheel here.
If the standardised trustee services and policies, key function holder appointments and audited accounts across a large portfolio that the providers had put in place to ensure compliance with the regulations were not considered compliant, why did it take the Pensions Authority over 12 months and 12,500 executive pension plans later to realise that this was an issue?
The one week’s notice the industry received on the Authority’s position was unacceptable and didn’t give providers, advisors, or consumers the time to process transactions that were already in the pipeline, leaving many high and dry!
For many years business owners and executives have had the option to save for retirement using trust-based one member pension arrangements.
These gave flexibility in saving for retirement, recognising the exigencies of, and peaks and troughs, in business. Pensions’ season was borne out of the concept of the flexibility of the one member arrangement that allowed these individuals flexibility on pensions saving based on how well or otherwise their businesses were performing.
The regulations thankfully do provide a derogation from most of the new requirements, for a 5-year term until 2026, for existing OMAs, except for investment rules and borrowing restrictions. Any new one-member arrangement post 22nd April 2021 must comply with all of the new regulations.
The question is what will happen to those 12,500 pension plans? Surely any move to displace these arrangements would be to the detriment of these pension savers as there would be costs involved in winding down the plan with no viable alternative product available to them. So, one week prior to the compliance deadline, while issuing clarification in relation to one member arrangements, the Pensions Authority threatened trustees of such arrangements with prosecution.
Unsurprisingly within the weeks that followed the five life office providers pulled their executive pension plans from the market. This leaves a gaping product need for a lot of people. At the moment there are a number of differences between the executive pension plans and any available alternative on the market such as a PRSA.
Employer contributions to OMAs are technically unlimited, subject only to an overall fund cap of €2m. A particular advantage of OMAs is that once off single contributions can be paid to make up for previous years when no pension funding was possible.
PRSAs do not allow for this type of backdating other than making a contribution for the previous year. When you are only starting your pension funding in later life, to be able to avail of maximum contributions as you can with OMAs is extremely important to ensure adequate pension funding.
There is also the issue of the type of investments OMAs can make as opposed to a standard PRSA, with fund options for the latter being limited, whereas with an OMA an individual can invest in whatever is permitted by the Revenue Commissioners.
Following the report of the Interdepartmental Pension Reform and Taxation Group (IDPRTG) in 2020, it was understood that the PRSA would be adapted to replace OMAs by increasing the allowable contributions that could be paid into a PRSA.
A reasonable solution would be for the Pensions Authority to provide an extension of the compliance date by six months to January 2023, to allow time for the trustees of OMAs to address any concerns the authority may have and also to ensure the changes to the PRSA proposed by the IDPRTG are made in the forthcoming Finance Bill.
Unfortunately, the Pensions Authority seems to be unmovable from the position it has adopted.