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Irish regulator urged to tackle risk of master-trust monopolies

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Master trust regulation must tackle the danger of monopolies or oligopolies emerging, Ireland’s pensions regulator has been told.

The Pensions Authority should also ensure trustee boards are independent from master trust providers, and that the potential dominance of a small number of providers does not result in “group think” within the market.

Responding to a wide-ranging consultation on the future of Irish pensions regulation, the Irish Association of Pension Funds (IAPF) backed the introduction of master trusts – which have proven successful in a number of markets, including Australia and the UK – but challenged the assumption their introduction alone would improve member outcomes.

The association called for lay trustees to have a place on the boards of master trusts and questioned whether the costs borne by members would be fully transparent within a master-trust system.

It also backed the introduction of a solvency framework to avoid members being required to meet the cost of a disorderly wind-up, and argued master trusts could see assets rise to an “excessive” level.

“There is a ‘too big to fail’ risk, but will this engender too cautious an approach?” the association questioned.

Its concerns about market dominance were shared by the Pensions Council, a statutory body offering government advice on pension reform while considering the impact on consumers.

It echoed the IAPF’s concern that the introduction of master trusts, “without strong pro-competitive flanking measures”, would not “automatically” result in savings for members.

“In the longer term, the number of substantial master trusts is likely to be small, with the consequent danger of the emergence of complex monopolies or oligopolies,” the Council’s submission to the Authority said.

It suggested master trusts be required to publish all fees and investment options in a way that is comparable, and that cost-free methods of transferring savings between providers be put in place.

Furthermore, it proposed the regulator learn from the UK’s approach to master-trust regulation, specifically the voluntary Master Trust Assurance framework, and that the collective approach to saving be replicated when it comes to decumulation by establishing group Approved Retirement Funds (ARFs).

The regulator has long backed the introduction of master trusts in Ireland and has also suggested it would be hard to justify the continued existence of more than 100 pension funds in the country in future. 

Its consultation on the future of pension regulation, which closed earlier this month, attracted more than 60 responses from industry, a spokesman for the regulator told IPE.

The Authority still plans to submit its final report to the Department of Social Protection by the end of the year, he added. 

Trustee qualifications

Overall, the Council and the IAPF were largely positive about the regulator’s reform proposals, and the pension association also backed the regulator’s proposals to improve levels of trustee education.

“We particularly welcome the acknowledgement that non-professional or lay trustees can bring a significant amount to their role as a trustee and to the administration of the scheme generally,” it said.

“The independence and strong sense of looking after their colleagues’ savings that lay trustees have needs to be preserved as much as possible in the system.”

The IAPF previously raised concerns about trustee qualification proposals unveiled by the regulator, questioning how lay trustees would be able to acquire the two years’ experience suggested as a minimum threshold. 

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