How IORP II will change Ireland's pensions landscape
From backward to forward-looking
Historically, other than business as usual items such as submitting actuarial certification, trustees and their advisers often had limited contact with the PA unless an issue arose. This was a point in time and compliance-based approach.
The new regulations specify a markedly different supervisory approach – one that is forward-looking and risk-based. The PA have already taken some steps in this direction with more wide-ranging engagement from 2015, based on the Financial Management Guidelines, and in 2020 to assess preparedness for IORP II.
What does the framework look like?
- will collect an annual compliance statement with a broad scope. The first is required in early 2022 and will prove challenging for many schemes (it will be interesting to see if a benign approach will be taken to this first statement);
- will undertake supervisory reviews comprising assessments of schemes’ systems of governance, the risks faced, and the ability to assess and manage those risks;
- will have monitoring tools to both identify deteriorating financial conditions and monitor the progress of remedial actions, and it can require trustees to carry out stress tests to meet these aims;
- may serve Advisory Notices where trustees are deemed to be failing to act in a manner that would enable them to satisfy the requirements or where there are other weaknesses or deficiencies; and
- may require External Reports to be prepared where the information provided to it is insufficient or gives grounds for concern.
Where will the supervision focus?
We wait to see how the requirement that supervision should be proportionate to the size, nature, scale and complexity of the scheme will be applied. This will have cost consequences, which will be of particular interest for smaller schemes and sponsors.