Ireland’s The Pensions Authority has indicated that a large number of defined contribution (DC) pension funds are planning to wind up and transfer to alternative pension arrangements.
According to the Authority’s latest scheme survey – which surveyed a total of 300 pensions schemes, of which 150 were DC and 150 were defined benefit (DB) schemes – approximately 68% of the DC schemes plan to wind up and transfer to other pension arrangements, while only 6% of DB schemes plan to do the same.
The survey, which was voluntary and anonymous, had a 68.6% response rate, with 65 DC schemes and 126 DB schemes participating.
The survey also showed that 91% of the DC schemes that plan to wind up have assets of less than €10m. Similarly, most DB schemes that responded to the survey with intentions of winding up also had less than €10m worth of assets.
This suggests that the schemes more likely to wind up and transfer to alternative arrangements tend to have a smaller amount of assets.
This is understandable, the Authority said, especially because pension schemes in Ireland are expected to appoint key function holders in risk management by 2026 due to the implementation of the IORP II Directive, which is a legislation that was transposed in April 2021.
Brendan Kennedy, the pensions regulator, explained that many schemes decided that the implementation of IORP II is not practical or economic to make their schemes comply. Therefore, it makes sense that most DC schemes with smaller assets are deciding to wind up.
Kennedy stated that many schemes are moving their pensions into multi-employer mastertrusts or personal retirement savings accounts.
With such a high rate of DC schemes planning on winding up this means that Ireland’s pension industry is likely to decrease.
Kennedy told IPE that this is the first time Irish pensions are falling. Previously, an average of 1,000 new pension funds were being created per month and now this number has fallen close to zero.
Risk management
Looking at a different aspect of the survey results, risk-management policies seemed to have more attention from DB schemes.
Risk management policies were updated and approved by trustee boards at a higher rate compared with DC schemes. However, it is important to note that many DC schemes chose not to respond to questions about risk management, so the reality about risk management within DC schemes is not certain, the Authority said.
Nevertheless, when schemes were asked if they had appointed a risk management key function holder, 79% of DB schemes responded yes, while only 28% of DC schemes said yes.
Furthermore, a higher percentage of DB schemes (79%) compared with DC schemes (28%) responded to having measures in place to oversee the performance of the risk management function. This is important, the Authority noted, because having no measure in place to manage risk is reflected in the most significant risks schemes face.
It is possible that because DB schemes seem to have complied with the IORP II more frequently than DC schemes, they have less of an incentive to wind up.
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