The Irish Pensions Authority published a finalized Code of Practice on 18 Nov 2021 for trustees of occupational pension schemes and trust Retirement Annuity Contracts under legislation that gives effect to the European Union’s directive on the activities and supervision of institutions for the occupational retirement provision (IORP II directive). The Code follows publication of a draft Code for public consultation in July 2021 and outlines the minimum expected standards the Authority considers necessary for IORP II compliance. It will be updated where necessary to reflect the Authority’s supervisory activities and market developments.
- Several changes from the draft code take into account feedback submitted during the consultation process, including a new section on additional requirements for defined contribution (DC) master trusts.
- Included are benchmarks the Authority will use to supervise schemes’ compliance with IORP II, and expectations for the conduct and practice of trustees are outlined.
- Published with the Code were additional details on the financial risk measure to be used for defined benefit schemes (DB). The risk measure analyzes if a scheme continues to meet the funding standard following adverse stresses, such as a decline in equity values, lower interest rates, and increased longevity.
- A minimum of one trustee (or one director of a sole corporate trustee) in each scheme must complete a trustee qualification course approved by the Authority. The approved courses currently available are confirmed.
Next steps for trustees
The first priority for trustees is to prepare the first Annual Compliance Statement (ACS) by the end of January 2022. The ACS requires trustees to answer a series of questions relating to IORP II measures, primarily focusing on various governance, risk management and internal audit requirements. Trustees should consider the ACS process with their advisers and identify the associated actions to be taken by the end of 2021. Although trustees do not have to submit the first ACS, the Authority can request it as part of their ongoing supervisory activity.
Looking ahead, the Authority said it expects full compliance with all IORP II requirements by the beginning of 2023. Trustees should now update IORP II implementation plans to reflect the compliance steps confirmed in the Code.
Further legislation on IORP II is expected before the end of 2021 to supplement regulations published in April 2021, and will address certain gaps, such as the disclosure of information, trusteeship matters, investment, and scheme registration.
Next steps for employers
Now that the regulatory requirements are clearer, employers with standalone pension schemes are advised to engage with trustees on plans to implement appropriate governance and operational structures.
Some employers might have to consider if an alternative, fully outsourced retirement benefits solution — such as a master trust — would be more appropriate (and potentially cost effective) for them and for employees. The Authority plans to publish information on outsourcing notification and on master trust minimum standards for DB and DC schemes in December 2021.
- Code of practice for trustees (Pensions Authority, 18 Nov 2021)
- Directive on IORP II (EurLex, 23 Dec 2016)