‘Employers face penalties and fines unless pensions deadline is extended’

Employers will struggle to meet a deadline set down by the Pensions Authority to conduct their due diligence as they shift away from occupational pension schemes for their employees towards so-called “master trust” schemes.

New European Union regulations, which came into force in the Republic last month, have placed a significant compliance burden on certain pension plans with a view to reducing the number of occupational schemes in the State to fewer than 200 from 65,000.

From July 1st, the new rules applied to all new single-member schemes — aimed at company owners, who tend to start saving for retirement later in life — effectively forcing insurers to suspend opening any new plans.

But from January 1st next year, the new regulations will also apply to all occupational schemes and is likely to mean most employers moving to a master trust scheme once they wind down their old scheme. In a report published this week, the Pensions Authority said that just 821 employers were using a master trust in the State at the end of June.

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It means that as many as 64,000 employers could be looking to move to one of the 12 master trust plans available in the Irish market by the end of the year, a “significant change” that could pose challenges for many businesses, said Ray McKenna, partner at employee benefits and pensions specialists Lockton.

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Some employers may miss the compliance deadline due to the volume of work that is required to complete the transition, he said, and end up facing penalties that could include fines and the removal of tax reliefs.

Employers will be required to wind down their old scheme and transfer its members to the new scheme by year-end.

Those who rush to meet the deadline run the risk of “making suboptimal decisions”. Mr McKenna said it’s clear from the Pensions Authority report that it will “not accept cosy deals between master trust providers” and trustees, meaning many employers will be required to conduct an independent market review to ensure they are achieving value for money.

In that context, Mr McKenna said that employers may need more time to get their ducks in a row before the January 1st compliance deadline.

“Employers will need to carefully consider what master trust provider they choose to partner with for future pension provision for their employees, as this is a significant decision which will also mean the formal winding up of their existing pension plan,” Mr McKenna said.

“From the numbers of schemes that have transitioned to date, it’s very clear that there will be challenges to capacity in the market in order to meet the need.”