Pensions Regulation in Ireland

presentation to

The Bulgarian Association of Supplementary Pension Security Companies

14 June 2012

The Pensions BoardEstablished by the Pensions Act, 1990

• Supervision, regulation and enforcement

• Policy, legal and actuarial

• Information and awareness (Delivers NPAC on behalf of the Government)

Pensions system in Ireland• Pillar 1: State pension

– Contributory pension of maximum of €230.30 per week = 35% of average earnings (Non-statutory political commitment to maintain at this level)

– Means-tested non-contributory pension of €219 per week– Aim is essentially one of poverty prevention

• Pillar 2: Occupational pension schemes– Employer sponsored DB and DC schemes– Operate on a funded basis (private sector) and pay-as you go basis (public

service)

• Pillar 3: Personal pensions– Personal pension vehicles – Includes Personal Retirement Savings Accounts (PRSAs) regulated by

Board and Retirement Annuity Contracts (RACs)

• Total of pillars 2 and 3 pension fund assets = 45% of GDP - but account for just 25% of retirement income

• 75% rely on the State pension

Types of private pensions

Company Pension Schemes

Defined benefit schemes

Defined contribution schemes

Personal Retirement Savings Accounts

(PRSAs)

Retirement Annuity Contracts (RACs) or Personal Pensions

Numbers in Irish private pensions (at 31 December 2011)

Company Pension Schemes

– 534,921members in 1,061 DB schemes– 956 schemes with 196,628 members are subject to the Funding

Standard– 330,000 approx are Public Service employees

– 239,551members in over 100,000 DC schemes (includes frozen and AVC schemes)

– 50,000 approx are single member schemes

Personal Retirement Savings Accounts (PRSAs)197,996 PRSAs with asset value of €3.01 billion

Personal Pension Plans/Retirement Annuity Contracts (RACs) (200,000 + contracts – Irish Insurance Federation)

Pensions Coverage in the Irish Workforce

Why have a Pension?

Life expectancy increasing – 20 plus years in retirement

What kind of lifestyle do you want and how will you fund it?

Current State pension = €230.30 per week

8 out of 10 people say - the State pension will not meet all their needs in retirement

Pension = Income in Retirement

Tax relief on personal contributions

Highest age at any time during the tax year Limit Under 30 15% 30-39 20% 40-49 25% 50-54 30% 55-59 35% 60 and over 40%

For tax purposes limited to earnings up to a maximum of €115,000 in any year.

Maximum pension fund of €2.3 million.

Changing world we live in

Living Longer

More Contract Work

More mobility in careers

Changing work patterns

More Part Time Working

Single Parent Households

Smaller Families

Separation/Divorce

Changing Demographics

Pensions in the workplace

• The workplace is the optimum location for pension provision, information and education

• A company benefits from having:– a reputation and respect as a good employer– a workforce that feels valued and important– increased loyalty and commitment from staff– an enhanced staff recruitment, reward and retention

package

“A good pension is a valuable asset, don’t leave work without it”

Employers’ Pension Obligations

By law an employer must provide ALL employees with some form of access to a pension, whether they are in full-time, part-time, temporary, contract or casual employment

All employers regardless of their size are obliged to provide access to a Standard PRSA for “excluded employees”

The Board encourages employers to regard pensions as part of the recruit, reward & retain approach to staff

The Board also encourages all employees to ask their employer about their pension rights

The National Pensions FrameworkThe recommendations in the Framework include :

increasing the State pension age to 66 in 2014, 67 in 2021, 68 in 2028

introducing auto-enrolment into a pension for those aged 22 years or over and in employment from 2014

new model defined benefit pension scheme

new model scheme for public servants

An Implementation Group has been established to progress the National Pensions Framework

Trustee Challenges

Administration Investment Regulation Costs Communication

Trusteeship Numbers

• Number of schemes and trustees

The Board estimates that at any one time there are some 130,000 pension scheme trustees connected with the 100,000 plus pension schemes in Ireland with some €70 billion in assets under management. 

• Trustee E-learning

Over 2,000 people have subscribed to the Board’sTrustee E-learning facility.

 • Trustee Trainers registered with the Board

42 trustee trainers are registered on the Board’s website.

Main duties of Trustees under the Act

register the scheme with The Pensions Board

ensure contributions are deducted and paid over to the scheme

invest the funds and pay the benefits

ensure that the funding standard is met

keep records and accounts

preserve or transfer benefits

ensure equal pensions treatment

apply the resources of the scheme on wind up

disclose information as required

What the Board expects of trustees

• Before describing, it may be useful to set out what we do not expect:

– Trustees are not expected to be full-time – Trustees are not expected to be pension professionals – Trustees are not expected to be infallible.

• Nonetheless, trustees are looking after money on behalf of other people. Therefore there are minimum standards they must satisfy:

– They must have certain basic knowledge – They must engage – They must act reasonably – They must have process

Risk Management for Trustees• Where trustees do not have the knowledge themselves, they engage professionals –

most often covering administration, investment and communications.

• It is the trustees’ job to: – question the professionals– to push back, and not to accept answers that they don’t understand or do not feel

to be right.

• The trustees must recognise that it is their responsibility to make decisions, and their options should be set out for them clearly by the professional advisers.

• This is probably the most challenging aspect of being a trustee.

• It is important that trustees identify the decisions that they are making, and that they have set out the alternatives among which they are deciding.

Risk Management Strategy• Unless trustees have a strategy for dealing with risks, they are not managing their

scheme properly.

• There is no single or simple answer - trustees must identify the best answers for their own scheme.

• Hoping it won’t happen or hoping that something will turn up is not a risk management strategy. – As a trustee do you know the costs? – How optimistic are the calculations? – How much might they vary? – Are you depending on high equity returns? – What happens if you don’t get them?

• In the long run, trustees will do themselves and all others concerned with the scheme most good if they look at scheme funding from all angles.

Supporting Trustees• The Board supports trustees in the following ways:

the Trustee Handbook an extensive range of guidance and FAQs on pension matters generally booklets and checklists for trustees the Board provides an information and enquiry service a register of trustee training providers is available on the Board’s

website the Board has developed an e-learning facility for trustees which is free

of charge and can be accessed on the Board’s website

The Board’s approach to Regulation

Presented by

Catherine Goulding

The Board’s approach to Regulation

The Board’s regulatory objectives are based on a hierarchy of risk priorities as follows:

1st priority scheme or PRSA assets or contributions being misappropriated

2nd priority benefit entitlements being calculated incorrectly

3rd priority defined benefit schemes being funded inadequately

4th priority inappropriate investment of pension scheme assets

5th priority insufficient information provided to members

This order represents the seriousness of the risks, not the likelihood of their occurrence.

Regulation, Supervision & Enforcement Pro-active approach

On the spot fines regime introduced in September 2007 - fine for

each offence = €2,000

Compulsory trustees training introduced in February 2010

Registered Administrators introduced in November

2008

Engagement and Enforcement Activity

On-the-spot finesThe Board has power to issue fines notices to trustees for certain breaches of the Pensions Act.

2010 OTSFs notices issued to 76 trustees of 37 schemes relating to:

– failure to submit or late submission of actuarial funding certificates – 20 schemes – non-payment of Pension Board fees - 10 schemes – late preparation of trustee annual reports - 6 schemes – failure to furnish options on leaving service - 1 scheme

€88,000 was paid by trustees in fines to the Board and subsequently passed on to the Exchequer during 2010.

2011 OTSFs totalling €14,000 were paid by 7 trustees of 3 schemes

Engagement and Enforcement Activity

Meetings with Scheme Trustees and Pension Providers

• Purpose: To discuss their schemes compliance with the Pensions Act

• Scheme Documentation ‘audited’ in advance• Findings discussed • Follow-up action

• Scheme specific issues i.e. funding of DB schemes

• 2011: 26 meetings held

Registered Administrators (RAs)

From 1 November 2008 trustees of every scheme must appoint an RA to provide core administration functions

Core administration functions are:- preparation of annual reports- preparation of benefit statements- maintenance of sufficient and accurate member

records to discharge above

RA on-site Inspections On-site inspections of RAs commenced in 2010

12 on-site inspections carried out in 2011

40 inspections scheduled for 2012

Selection done both on a risk–based and random selection basis - covers the broad spectrum of RAs based on their type and size of business

Reports on Finding’s published on Board’s website

Engagement and Enforcement Activity

Investigations

• Whistle blow reports – from scheme members, pension administrators, through Board’s proactive supervisory activity

• Deduction and non-remittance of pension contributions

• Mainly in the Construction Industry

• Full investigation carried out by the Board

• Board successfully prosecuted 26 cases in 2011

Sanctions for non-compliance

Board prosecutions:

• The Pensions Board may take prosecutions against persons who breach provisions of the Act or Regulations made there-under

• Offences can be prosecuted by the Board on summary basis (District Court) or by DPP on indictment (Circuit Court)

• On summary conviction - a fine not exceeding €5,000 or imprisonment for term not exceeding 1 year or both

• On conviction or indictment by DPP- a fine not exceeding €25,000 or imprisonment for term not exceeding 2 years or both (or in the case of a prosecution under Section 58(A) a fine not exceeding €25,000 or imprisonment for term not exceeding 5 years or both)

National Pensions Awareness Campaign (NPAC)

Presented by Deirdre Kelly

NPAC - introduction

NPAC was established in 2003, by the Department of Social Protection following a recommendation in NPPI (National Pensions Policy Initiative 1998).

The campaign is funded by Government on an annual basis through the Department of Social Protection and is managed by the Board.

Each year a working group plan and review the strategy and the implementation of the campaign.

NPAC objectives

NPAC objectives are to:

• increase pensions awareness including better understanding of pensions and tax

relief support, particularly among the target audiences where pension activity is low

• prompt action among those with no pension provision

• encourage those with pensions to address the adequacy of their pension provision

and to better “engage” with the pension process with their own plans.

• progress development of financial education planning and programmes.

Target Groups

NPAC programme 2012

Agriculture

RetailHospitality

Women Young People

Pensions information

Enquiry serviceinfo@pensionsboard.ie/

01-6131900

Information booklets

Pension checklists

Pension calculators

Free Online Trustee Training, Guidance & FAQs, E-mail alerts & Trustee supports

and to finish…..

Thank you for your time and attention.

I hope you found the presentation interesting and of some benefit.

Questions & Answers