Irish regulator proposes minimum standards for DC
IRELAND – Defined contribution (DC) funds in Ireland may soon be forced to meet minimum quality standards before they can register with the regulator, according to guidelines proposed by the Pensions Board.
Trustees should also not be barred by scheme rules from switching investment managers and administrators, likely in an effort to prevent asset managers from launching master trusts to which they are the sole provider, according to regulation put out to consultation.
It further proposed that funds would be expected to demonstrate their ability to provide benefits on an economic basis, a measure that could be used to force consolidation of smaller schemes.
Discussing the consultation paper, Pensions Board chief executive Brendan Kennedy said its results would inform a planned review of DC regulation "which may ultimately lead to proposals for legislative change".
The Board identified the number of trustees required to support the Irish DC system as a problem, estimating that around 200,000 people were charged with oversight of pension funds.
"The Board does not believe it is realistic to expect all of these have enough knowledge and commitment and will fulfil their duties in a way that optimises the outcome for the members whose savings they are responsible for," the consultation document said.
"Furthermore, there are too many trustees for the Board to supervise to the standards beneficiaries and the public would expect."
The regulator said it thought members would benefit from small schemes being "discouraged", echoing comments by Kennedy at the Irish Association of Pension Funds conference in June.
At the time, he said the regulator was committed to the "principle" of seeing the number of DC funds reduced.
The Board's proposed objectives seek to ensure trustees possess "minimum standards of knowledge, training and experience" before being allowed to serve on the board.
"These would be considerably more demanding than the current training requirement, and trustees would have to demonstrate their suitability before appointment," it said.
The consultation also noted it would require trustees to show there are no conflicts of interest with the administrator or employer responsible for the scheme – the former likely again meant to safeguard against conflicts inherent in the master trust model with a captive asset manager.
In a departure from current procedure, the Board also said the regulator would no longer automatically register occupational funds, and that DC funds would be "required" to show how they were compliant with expected standards.
While not an outright licensing approach – something Kennedy had previously ruled out – the introduction of minimum standards is similar to the quality standards under consideration in the UK before funds can be used to accumulate dormant pots.
Additionally, funds would be expected to show that their structure allowed "an economic means of providing the intended benefits" and ensure that trustees would be able to opt for the asset manager of their choice.
"The rules of the scheme would not be allowed to restrict the freedom of the trustees to engage or remove administrators or investment managers or to negotiate charge," it said.
If such a restriction were introduced, funds backed by insurers or asset managers would not be able to mandate the use of an in-house team, with trustees instead allowed to tender for providers.
Stakeholders have until 30 October to respond to the Board's consultation.