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IPE special report May 2018

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Small-scale DC pension funds should be 'discouraged', Irish watchdog says

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  • Small-scale DC pension funds should be 'discouraged', Irish watchdog says

IRELAND – Small-scale defined contribution (DC) funds should be "discouraged", according to Ireland's Pensions Board – with the regulator's chief executive considering recommendations to address the number of funds in the market.

In his foreword for the Board's 2012 annual report, Brendan Kennedy argued that small schemes resulted in "poor value for money" and lower standards of governance and said the regulator believed smaller funds should not be encouraged.

Kennedy's comments follow a presentation at the Irish Association of Pension Funds (IAPF) DC conference last month, during which he said the current DC landscape had "far too many schemes for the Pensions Board to adequately oversee".

At the time, he said the regulator was committed to the "principle" of achieving a smaller number of funds.

"We do not have a specific target in mind, but, in the very long term, it has to be difficult to justify more than 100 DC schemes in a country of our size," he told attendees.

He added that such changes would potentially require legislation and hinted at new schemes needing to meet minimum Board standards before they could be launched – effectively a licensing system, which he previously told IPE had "significant advantages".

In the report foreword, Kennedy noted that the cost-efficiency concerns were spurred by the Department of Social Protection's (DSP) report on DC charges, which the IAPF previously argued presented a "misleading" view of costs.
 
Kennedy said of the charges report: "One of the most important findings is the differences in outcomes between small and large schemes.

"Ireland has more small and especially single-member schemes than any other country in Europe, and too often this results in poorer value for money and lower standards of governance.

"The Board's view is that members would benefit if smaller schemes were discouraged, and it is considering a number of initiatives in this area."

He added that the Board would therefore consider making legislative recommendations to DSP on how best to address the matter, as well as on how to best raise awareness of, and transparency surrounding, fees.

His comments come after Michel O'Higgins, chairman of the UK regulator, also backed the use of large-scale, trust-based pension funds as the country's auto-enrolment reforms got underway.

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