I have feared having to write an article with this title for a long time, sadly I’ve got the opportunity now.
Heather Humphreys, the Minister for Social Protection, signed a Statutory Instrument (S.I. No. 128 of 2021 European Union (Occupational Pension Schemes) Regulations 2021) into law on the 22nd April 2021.
This instrument imports the terms of the long debated IORP II Directive (EU Directive 2016/2341 on the activities and supervision of institutions for occupational retirement provision (IORPs) into Irish Law.
This is being hailed as a ‘once in a generation’ change, a ‘substantial directive’ ‘supporting positive reform’, ‘enhanced governance standards’.
Is IORP II any of these things? Nah…….nah, it really isn’t, it’s a rehash of the 1st IORP Directive, if it was a ‘once in a generation’ change it’d hardy have II after its name!
Before I go on I’ll say that if anyone has read anything I’ve written on The FM Report to date they will know I am for simplicity and good governance however…………………. the IORP II Directive is aimed at multi-member pension schemes, not single member pension schemes, in both words and intent.
There is significantly more governance required when someone invests funds on behalf of a group of unrelated people – that makes perfect and obvious sense. There should not be such onerous requirements when someone invests for themselves, as in a single member pension scheme. The Superannuation legislation actually defines a single member pension scheme as ‘a scheme which is established solely for one person and for that person permanently to be the sole member and that member has discretion in respect of the manner in which the resources of that scheme are invested’ and inserts this definition in to the Pensions Act. So why impose onerous multi-member rules on single member schemes? This is the first of many reasons why I’m angry with this triumph of bureaucracy.
Here are a few other reasons, while we’re at it:
- The ‘derogation’ for single member pension schemes is limited to existing schemes and only lasts for 5 years – so a 2 tier system will be in place going forward for these types of scheme, that should add a welcome layer of simplicity to the system
- The ‘derogation’ is limited to existing schemes and existing investments, so if funds roll off an investment then its new investment rules that apply to the proceeds, and thus matured funds must invested ‘predominantly’ in regulated markets as will new contributions to a scheme
- The ‘prudent person’ rule around investment doesn’t apply to your own money
- I’m still convinced a single member pension scheme cannot fall into the definition of an IRP anyway
But mainly I’m annoyed because we tried on multiple occasions to highlight to the then Minister Doherty and subsequent Minister Humphreys that limiting investment by single member pension schemes will impact the pension saver and Ireland’s economy as a whole.
We are in a period of economic uncertainty, for many individuals and also for the economy as a whole. Deposit interest rates are turning negative, unemployment is high, taxes will inevitably rise, national debt is the highest its ever been, traditional bank credit will become tighter and more expensive and this move by Government will hurt.
Cast your minds back to the financial crash of 2008 the Irish single member pension scheme regime stepped in when banks wouldn’t, they invested in Ireland in massive numbers in the likes of hotels, old folks homes, primary care centres, social and affordable housing schemes, indigenous Irish start-ups, commercial and residential property. Single member pension schemes currently have over €4B invested in Ireland.
These funds won’t be coming back into the Irish economy.
Currently our pension schemes hold over residential 8,000 residential properties in Ireland, over 20% of these are let to local housing authorities on long lets. Savers want certainty around returns, they want a balance between risk and reward – buying a property and renting it to the local authority for 5/10/25 years provided that certainty and the right balance of risk and reward. That certainty provided a pension saver a solid base on which they could build a portfolio around – while also providing a vital source of housing for the Irish State.
Will this increase pension coverage in Ireland………………I’m wagering no it won’t.
So where is the turd in all of this? The Directive isn’t the turd, it is drafted and worded to provide for proportionality and the derogation (exemption for smaller schemes) and aims to provide protection for pension scheme members. The turd is the decision making process, the lack of engagement and the determination, it would appear, not to listen to the voice of an industry who highlighted its negative impact.
The IORP II Directive is being used to kill off single member pension schemes for regulatory convenience and avoid accountability. When it goes wrong they’ll just blame the EU……..sure they told us to do it.
I made a mistake, it’s not actually a turd, its a bag of turds.
Author: Paul Murray is a Director at Quest Capital Trustees, www.qct.ie, 9 Fitzwilliam Square, Dublin 2