The regulations closely follow the directive, establishing wide-ranging governance and prudential standards applicable to all occupational pension schemes. Further regulatory guidance will be issued by the Irish Pensions Authority (PA) to clarify certain details. More detailed codes of conduct will be subject to a public consultation process over the summer, with final publication planned for November 2021.
Pension scheme trustees should now consider the implications of the regulations and the required compliance steps.
- Although the regulations generally took effect on 22 Apr 2021, some requirements have actual or effective transitional arrangements.
- The regulations will not apply to one-member pension scheme arrangements until 22 Apr 2026. Certain regulatory exemptions for small schemes and small trust retirement annuity contracts no longer apply.
All schemes must have a minimum of two trustees (or a sole corporate trustee with a minimum of two directors who effectively run the scheme). Trustees will be subject to fitness and probity requirements, and one or more trustees must have a minimum of two years’ experience as a trustee during the previous three-year period. Any scheme with less than two trustees must appoint a new trustee/director by 31 Dec 2021.
- Schemes must have an “effective” governance system that includes an adequate and transparent organizational structure, clear allocation and appropriate segregation of responsibilities, an effective system for ensuring transmission of information, and consideration of environmental, social and governance factors that relate to investment decisions.
- Schemes must have written governance policies for risk management, internal audit, actuarial (defined benefit) and outsourcing. Policies must be reviewed every three years and adapted when there has been a significant change.
- Schemes must establish an internal controls system, business continuity and contingency plans, and must ensure that a remuneration policy is in place by 31 Dec 2021. Trustees will have to “regularly disclose publicly relevant information” about the remuneration policy, but the regulations do not provide further details.
- Trustees must ensure key function holders are of “good repute and integrity,” and meet certain criteria before they are appointed.
- Risk management and internal audit functions must be “proportionate” in terms of the scheme’s size, nature, scale, complexity, and activities. Schemes must conduct an “own risk” assessment every three years and without delay if there are significant changes in the risk profile. The regulations do not clarify when the scheme must conduct its first own risk assessment.
Trustees can outsource certain functions — such as key function holders or other management activity — but remain fully responsible for overall compliance and obligations. Outsourcing arrangements must be properly documented, monitored regularly and legally enforceable. The PA must be notified within four weeks of arrangements and prior to the start of outsourcing of key functions and has powers to request any information, document or material relating to the outsourcing arrangement.
Expanded mandatory reporting
A “relevant person,” such as an auditor, actuary, trustee, administrator or investment manager, must report to the trustees if they have reason to believe that there is a “substantial risk” of noncompliance with any part of the Pensions Act or other legislation affecting scheme members, or if a “significant material breach” occurs. If the trustee does not take remedial action within 21 days, the relevant person must inform the PA.
Issuance of pension benefit statements
The first statements must be issued by 31 Dec 2022, and they must be prepared by a registered administrator appointed by the scheme trustees and provided to trustees at least one month prior to the due date. The regulations list several requirements that must be included in the statements, and they must be freely available through electronic means, website, or paper on an annual basis. Penalties will apply for noncompliance.
Smaller schemes with fewer than 100 active or deferred members must establish and maintain a Statement of Investment Policy Principles. The investment rules remain broadly similar to existing rules in the Pensions Act, but some highlights are:
- Requirement to invest in the “best long term interests” of members
- Additional rules (previously covered in guidance), such as investment in regulated markets, derivatives and debt instruments have now become statutory obligations.
Monitoring and supervision by PA
- Expanded role for the PA, including decisions on the frequency and scope of supervisory reviews.
- The PA could require schemes to conduct stress tests (previously this was voluntary).
- Issuance of advisory notices where the PA believes trustees are not meeting the IORP II requirements, or there are weaknesses or deficiencies in the scheme. The PA can require trustees to take actions by a specified deadline. Trustees will be allowed to make written submissions within 21 days of receiving a PA notice, and could appeal notices in the High Court.
- The PA can order schemes to obtain an external report if it believes that insufficient information was supplied by the trustees as part of a supervisory process. The external report must be completed by an objective person the trustees appoint at the scheme’s expense (and approved by the PA).
- Schemes must publish an annual compliance statement by 31 January of each year in relation to compliance with the obligations to which the IORP II directive relates. The format will be decided by the PA, and statements must be certified by a minimum of two trustees. The first compliance statement, for 2021, is due by 31 Jan 2022.