Insurers blindsided by threat to prosecute over pensions deemed out of step with new rules

Insurers are at a loss to understand the sudden hard-line approach taken by pensions regulators just days in advance of a deadline for compliance with new governance rules.

The regulator, the Pensions Authority, has threatened action up to prosecution of anyone not fully compliant with the new arrangement.

The industry argues that neither the regulator nor the Government has taken any steps to amend pension structures to accommodate tens of thousands of small business owners and company directors, who have generally availed of highly flexible one-member arrangements to fund their retirements.

The EU Iorp II directive — the second institutions for occupational retirement provision directive — puts in place new, higher governance standards to maximise consumer protection.

UK election draws veil of silence over bitter economic truths

---

Aer Lingus set for fresh talks with pilots

---

‘People are not reading your stuff’ is the worst thing you can say to journalists

---

Deposits war heats up: Irish savers starting to see much higher rates offered

---

The burden of these standards is such that, since the end of last week, most small pension schemes, including one-member arrangements, are no longer deemed compliant. While small company schemes are moving to a master trust arrangement whereby one trust manages multiple schemes, spreading the cost of compliance, such trusts are not appropriate for one-member schemers.

As far back as November 2020, it was generally accepted in the industry that the solution was to amend rules on personal retirement savings accounts (PRSAs) to accommodate the late start and heavy, albeit irregular, investment pattern in one-member schemes. This was expected in the Finance Act after the last budget but that never materialised.

The expectation now is that it will be addressed in Budget 2023 in September, and it had been assumed that no dramatic intervention would be made before then. In the meantime, insurers have put arrangements in place to bridge the gap.

But less than a week before the new rules came into force, the regulator sent a letter to insurance firms warning that “noncompliance of new one-member arrangements will not be tolerated post July 1st, 2022, and that enforcement action, up to and including prosecution” may be taken against any trustees involved after that date.

“It is unhelpful at best and detrimental at worst,” said one industry source.

“There is no other way you can interpret this than as a shot across the bows of the industry, coming less than a week before the compliance date — especially as it is not us who can be prosecuted, only the trustees. [Prosecution] has never been mentioned before, although there had been plenty of discussions on compliance.

“And they won’t say what they believe is noncompliant about the arrangements we have put in place. Until we understand what the concerns are, we cannot take steps to address them.”

“The firms are trying to do their best. We’ve looked at Iorps with the benefit of legal advice regarding governance and would have been reassured that [the schemes we put in place] would be compliant.”

Insurance Ireland, which represents the industry, said Ireland could have sought a derogation from the new rules to exclude one-member arrangements, as it did previously. But this time the decision was taken not to.

“Consolidation of the market is a key aim of the Pensions Authority as part of the implementation of the Iorp II,” it says. “However, trying to reduce the number of schemes with no viable alternative in place is not logical and potentially results in a reduction in the ability of pension savers to contribute to a suitable pension vehicle.”