The Pensions Board is the regulator of Irish occupational pension schemes and Personal Retirement Savings Account, and at the beginning of 2007 finds itself in the middle of a number of changes.
The background to current pension regulation in Ireland is outlined below.
The financial situation of defined benefit (DB) continues to improve. This is a consequence of good investment returns in the last three years, some increase in long-term interest rates and the considerably higher contribution rates implemented by almost all schemes since 2000.
There is growing interest in the use of liability driven investment and structured assets by the larger defined benefit schemes.
2007 will see the fourth anniversary of the introduction of personal retirement savings accounts (PRSAs). This period has seen providers and the board become increasingly familiar and comfortable with the regulatory framework, leading to increased efficiency on both sides.
In common with other countries, defined contribution (DC) schemes represent an increasing proportion of occupational schemes. What is unique about Ireland in the last 15 years is the growth in the size of the workforce, which has doubled in that period. This growth combined with a modest increase in the percentage of the workforce with supplementary pension provision means that the number of people in DC schemes has grown considerably and is continuing to do so.
Regulation and regulatory activity impose costs on PRSA holders, pension scheme members and on sponsoring employers. Ultimately, in a voluntary environment these costs may act as a deterrent to pension provision. There is a balance to be achieved between the benefits of supervision and the costs that they impose.
Given this background, the board's regulatory approach in 2007 will be as follows.
The board is currently reviewing how well we align our resources with the risks we are regulating. This review has not been triggered by any particular issue, but reflects our commitment to efficiency and focus. The aim is to make sure that we are paying most attention to those issues which are most likely to result in pension savers not achieving their retirement objectives.
Because of the strong growth in DC membership, and also the lower regulatory demands of DB schemes as their funding positions improve, the board will be paying more attention to the management of DC schemes. We will be paying particular attention to the information they provide to scheme members, and to their administrative procedures.
The board is developing guidelines governing the use of structured assets and derivatives by DB schemes in their funding standard calculations.
We are undertaking a review of the compliance burden for DB schemes in consultation with the Irish Association of Pension Funds and the Society of Actuaries in Ireland. The purpose of this is to examine whether there are ways of achieving the same regulatory objectives while reducing the obligations and costs for schemes and sponsoring employers.
The board has a statutory responsibility to ensure and enforce compliance with the Pensions Act. The board's ultimate sanction for non-compliance is to prosecute those that the board believes have committed some breach of the act and associated regulations. However, like any regulator, we must decide criteria for taking prosecutions: not every suspected breach will necessarily result in a prosecution. This policy is being reviewed in 2007.
Providing information for pension scheme members and PRSA holders is a central part of Irish pension regulatory policy. This information has become even more important with the increasing prevalence of DC schemes where the members may need to use the information in order to make decisions about their contributions or the investment of their funds. The board is aware that more information is not the same as better information. We have begun examining the information requirements, in consultation with the Department of Social and Family Affairs and other bodies to ensure that the information that members receive is as useful as possible.
Brendan Kennedy is chief executive of the Pensions Board in Dublin