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Irish regulator reiterates support for 'economies of scale' in DC

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The Pensions Authority has reiterated its support for consolidation in the Irish defined contribution (DC) market, stressing the benefits of the economies of scale.

Brendan Kennedy, formerly chief executive of the Pensions Board and now the pensions regulator at the rebranded Authority, noted that there were “efficiencies in the economies of scale” that could be achieved by reducing the number of DC schemes to around one hundred.

Kennedy has previously said that small-scale schemes should be “discouraged” and said that it was “difficult to justify” the continued existence of any more than 100 funds.

“Clearly, there are efficiencies in economies of scale,” Kennedy told IPE, noting both the advantages of scale to administration of funds, but also the benefits of fewer schemes to the expertise available to funds.

“There are also efficiencies in terms of good communications, for instance, and in extracting good terms from investment managers and administrators

“And from a supervisory point of view, it is much easier for a regulator to oversee one hundred schemes than 100,000 schemes.”

The Authority has previously hinted the future shape of the DC landscape, last year launching a consultation focused on minimum quality standards.

It also said that it would like to ensure that trustees could not be barred, by the scheme’s trust deed, from tendering for asset management services – a likely attempt to prevent the launch of master trusts, backed by an asset manager as sole provider.

Despite the issue not being mentioned in a recent summary of consultation responses, the Authority still backed the proposal, Kennedy said.

“We would prefer a situation where the trustees of a pension scheme have freedom to choose an asset manager, to hire and fire an asset manager – just like they should have the freedom to hire and fire the administrator.”

He did not seem surprised that the recent summary of consultation responses had heavily focused on the role of trustees.

“I think people were right to recognise that we are putting the trustees, and the responsibility of the trustees and the ability of the trustees at the heart of what we want to achieve.”

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