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Ireland toughens capitalisation rules for DC master trusts

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Irish defined contribution (DC) master trusts must have reserves of at least €100,000 to fund wind-up costs, according to new rules being finalised by the country’s pensions regulator.

The Pensions Authority yesterday published requirements for multi-employer DC schemes following a consultation period last year. According to the new requirements, each master trust must hold reserves equal to €70 per member – and at least €100,000. The draft rules, published in July 2018, did not provide a specific figure for capital requirements.

The regulator stated: “The trustee company must have access to sufficient capital to meet the costs of wind-up and running costs until the latest period that the continuity plan projections indicate the trust will be self-sustaining or, where the scheme is already self-sustaining, for a period of two years. The reserve must be held as cash on deposit.”

Trustees must also ensure the master trust remains compliant with the capitalisation rules and report annually to the Pensions Authority.

Funds must develop a “detailed and comprehensive” continuity plan, the regulator said, including projections of income and expenditure and covering at least three years inot the future, or until the master trust is expected to be self-sustaining – whichever is greater. The plan must be reviewed annually by the trustees and submitted to the regulator.

The Pensions Authority said it would “pay particular attention” to differences between forecasts and outcomes over time.

In accordance with governance rules expected to be introduced as part of IORP II regulations, the regulator said master trusts should prepare a risk assessment every three years, covering all risks associated with operating “a potentially large multi-employer scheme”.

Other requirements on DC funds and their trustees introduced this week included:

  • The trustee board of any DC master trust must be registered as a “designated activity company”, and can only oversee one master trust;
  • Each master trust should have at least two directors, of which one must be independent, and all of which must be suitably qualified;
  • The chair of trustees must be independent of the shareholders of the master trust;
  • The scheme rules must not bind it to specific service providers, to ensure no conflicts of interest; and
  • Every master trust must have written policies on member communication and cost transparency.

Ireland’s regulator has previously expressed a desire for more consolidation among the country’s pension schemes, many of which are too small or “delivering poor outcomes for members”.

Ireland has missed the deadline for transposing IORP II regulation into local law. According to the Pensions Authority, draft rules for this are “at an advanced stage and the Department of Employment Affairs and Social Protection is working towards transposing the [IORP II] directive as early as possible”.

In its guidance for UK DC master trusts seeking authorisation, the Pensions Regulator (TPR) said providers should hold reserves of at least £75 (€84) a member. TPR is currently assessing more than 30 master trusts to ensure compliance with rules that came into force in October.

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