Lack of clarity on new pension arrangements concerning employers

Employer reluctance to move their staff pension schemes to master trusts is down to a lack of clarity on how they will work and concern that they will lose control of their employees’ retirement benefits, say some industry advisers.

New tighter rules on governance and risk management set down by Europe — IORP II — mean that most employers will face increased costs and a substantial additional administrative burden if they try to continue to operate as stand-alone pension schemes.

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Ireland has a reported 75,000 pension schemes, far more than other EU states. Most have just one member and the bulk of the rest have an average of 20, according to industry data.

As a result, they have been encouraged to join master trusts, new arrangements where the schemes of many employers will be managed in one entity.

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Lose control

However, more than one adviser noted that there are downsides to these new trusts.

In the first place, they said, employers will lose all control or influence in how their employees’ retirement benefits are managed, including on such issues as charges.

“The employer is not trying to make a buck out of the scheme under current arrangements,” said one adviser. “However, under the master trust, the sponsor is a commercial financial institution out to make a buck from operating the master trust.”

They also pointed to “inherent conflicts of interest” in master trusts as they are predominantly “tied” arrangements where the trust will likely look only to products and funds operated by the trust sponsor.

There is also concern about how easy it would be for companies, once they commit, to switch to another master trust.

One adviser confirmed that no fall in employee charges is likely except for schemes that have not actively tendered in recent years. They cited an Irish Life employer presentation that stated it would “would look to match the existing cost structure”, never mind improving it.