Consolidation of defined contribution (DC) schemes in Ireland is “fundamental” to improving the country’s pension system, the head of the pensions regulator has said.

Ireland, with its population of only five million, is unusual in Europe in terms of the large number of pension schemes (150,000), most of which are tiny.

“Proper supervision and value for money will not be achieved unless there is a much smaller number of larger, more efficient schemes,” said the Pensions Authority’s Brendan Kennedy in a statement about the supervisor’s annual report and accounts.

In April, two years behind schedule, the IORP II Directive was transposed into Irish law. Kennedy said the immediate priority for all of the country’s pension schemes, and for the regulator, was putting in place the additional structures and processes required by the transposition of the EU legislation.

However, he said that for many pension schemes doing so would not be “practical or cost efficient”, and that sponsoring employers and trustees would therefore be considering future pension provision via a master trust or through personal retirement savings accounts (PRSAs).

After a transitional phase of achieving compliance with IORP II, there was “both the opportunity and an obligation” for trustees to address major issues, Kennedy also said.

‘Major issues’ to address after transition phase

One of the issues he identified is the challenge posed to defined benefit (DB) schemes by low and negative yields.

“The transposition of IORP II does not create any new challenges for funded defined benefit schemes, but it does put the onus on trustees to address their responsibilities methodically and to make objective strategic decisions,” he said.

Some DB schemes would probably find that a better understanding of the finances and risks of the scheme would “call into question whether the scheme has any realistic chance of paying all the promised benefits to all members,” Kennedy said.

“Addressing these issues will in some instances involve difficult decisions for trustees,” he added.

Another major issue to address, according to Kennedy, is deciding about whether to take account of environmental, social and governance (ESG) factors in making their investment decisions.

Any decision had to take “proper account of the additional work involved and the need for reliable data,” the regulator said.

Kennedy also brought up the issue of charges at DC schemes. At some schemes these were high, which trustees needed to address, he said.

Providing additional information to members about charges may have a role to play, he said, but the information needed to be comprehensible and not overwhelm members.

“In any case, it is trustees who are best placed to address the matter,” said Kennedy.

It was “notable”, he added, that in some other jurisdictions trustees had to demonstrate their schemes were providing good value for money or not.

Kennedy also said that in future, his organisation’s pensions supervision would be “more intrusive, more qualitative and more demanding”.

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