Licensing DC has 'significant advantages' – Irish Pensions Board
IRELAND – Introducing licensing of defined contribution (DC) funds in Ireland would have "significant advantages", the head of the Pensions Board has said, but he ruled out its introduction, arguing that he preferred "as light a system as possible".
The regulator's chief executive Brendan Kennedy also said he would encourage the introduction of greater risk-sharing to avoid a shift from defined benefit (DB) to pure DC, but that such matters were best left to social partners.
Speaking with IPE in Dublin, Kennedy said a licensing system of DC funds – proposed by some in the UK as a potential way to create large-scale, high-quality super trusts – would have "significant advantages", but nonetheless struck a cautious note.
"A licensing system is by definition a much higher level of regulation, so that's a balance," he said. "We will look at licensing, as we will look at all sorts of solutions.
"At this point in time, licensing isn't on the table – and I don't want that to be interpreted as meaning 'But wait until tomorrow'. It is not on the table for DC schemes."
However, he acknowledged that, due to the large number of small DC funds, the Board was "actively considering" the issue of scale.
"We would prefer as light a system as possible," he said, "but obviously DC is where many people are going to be providing for their retirement in future, and we need to make sure DC funds are fit for purpose, that they give good outcomes and that members can understand them."
Kennedy, who is also chairman of the European Insurance and Occupational Pensions Authority's occupational pensions committee, said Ireland had seen "a lot of similar discussions" as the ones started by UK pensions minister Steve Webb and his proposals for greater risk-sharing through the introduction of defined ambition.
He stressed that the discussions had not been at the ministerial level and said that while the Pensions Board had a role to play on future scheme design, it was "fundamentally" an issue for the country's social partners.
"Primarily, we have to recognise that social partners have to decide by negotiation what shape the benefits are going to be," he said, adding that the Pensions Board would "certainly encourage" the consideration of greater risk-sharing.
"The traditional DB versus pure DC is much too polar view of retirement provision," he said, but once again stressed that it was a matter for those offering and funding pension provision.