A NEW REGIME FOR IRISH PENSIONS

Transcription

1 Conference on Private Pensions in Asia Pension Plan Governance A NEW REGIME FOR IRISH PENSIONS Mary Hutch October 2002 Head of Information & Training Seoul, Korea The Pensions Board

2 WHAT I WILL COVER BACKGROUND TO IRISH PENSION REFORM NATIONAL PENSIONS POLICY INITIATIVE (NPPI) POLICY DIRECTION UNDERLYING NPPI NATIONAL PENSIONS POLICY INITIATIVE RECOMMENDATIONS PENSIONS (AMENDMENT) ACT, 2002 PRESENT IRISH PENSION SYSTEM THE IRISH APPROACH TO PENSION FUND REGULATION 2.

3 ROLE OF PENSIONS BOARD HOW PENSIONS BOARD CARRIES OUT ITS REGULATORY ROLE GENERAL RESPONSIBILITIES OF TRUSTEES OTHER REGULATORY PLAYERS IN IRISH PENSIONS NEW CHALLENGES FOR: ½ PENSION FUND REGULATION ½ TRUSTEES ½ THE PENSIONS BOARD CONCLUSION 3.

4 BACKGROUND TO IRISH PENSION REFORM Acceptance by Government of need to facilitate adequate retirement provision for all citizens. Uncertainty on how best to do this. Flat rate basic Social Welfare pension in place. Funded private pension arrangements on voluntary basis. Awareness of issues surrounding employment, employer competitiveness and the Irish economy and, in particular: ½ Unemployment problem has changed to virtually full employment; ½ Problems with economy have changed to a modern and successful economy; ½ We have favourable demographic situation which will change; ½ We have a Partnership approach to decision making. 4.

5 NATIONAL PENSIONS POLICY INITIATIVE (NPPI) A national pensions consultation and research process from 1996 to 1998 called the National Pensions Policy Initiative (NPPI) NPPI culminated in a report by the Board to Government in 1998 recommending a pension reform package (Securing Retirement Income report) NPPI recommendations now largely implemented through the National Pensions Reserve Fund Act, 2000 and the Pensions (Amendment) Act,

6 POLICY DIRECTION UNDERLYING NPPI Essential underlying decision on way forward - ½ Mandatory or voluntary private pension system? NPPI conclusion continuation of voluntary system subject to review of progress after agreed interval. Recommendation that mandatory options be considered if progress not achieved within target time frame. All legislation and regulation had to take into account this voluntary environment. 6.

7 NATIONAL PENSIONS POLICY INITIATIVE RECOMMENDATIONS A basic Social Welfare pension of 34% average industrial earnings aimed at avoiding poverty and providing replacement income for lower paid (increased by each National Budget and now at 31% average industrial earnings). The establishment of an explicit mechanism to fund, at least partially, the prospective substantial growth in Social Welfare pensions (introduced by National Pensions Reserve Fund Act, 2000). Continuation of voluntary private pension system. A wide range of changes to the voluntary private pension system (introduced by Pensions (Amendment) Act, 2002). 7.

8 PENSIONS (AMENDMENT) ACT, 2002 Introduces framework for Personal Retirement Savings Accounts (PRSAs). Introduces Pensions Ombudsman scheme. Includes large number of amendments to existing pension provisions including: ½ Improved vesting, preservation and revaluation requirements for early leavers; ½ Provisions on dealing with surpluses; ½ Provisions on indexation of pensions in payment. Aim is to increase private pension coverage and progress is to be reviewed in 3 years. 8.

9 PRESENT IRISH PENSION SYSTEM Social Welfare (First Pillar) pension providing either: ½ Old age contributory pensions for those satisfying certain conditions, or ½ Old age non-contributory pension subject to a means test for those not qualifying for contributory pension. Social Welfare pension arrangement funded on a pay-as-you-go basis supported by National Pensions Reserve Fund Public Service pension scheme which faces greatly increased costs (also supported by National Pensions Reserve Fund) Private pensions for approximately 50% of the workforce arising from funded occupational pension schemes and personal pensions 9.

10 THE IRISH APPROACH TO PENSION FUND REGULATION Legislation, Regulation, Guidance Notes, Codes of Practice Based on aim to secure compliance rather than punish Largely re-active rather than pro-active Prudent man investment regulation Focused on Trustees 10.

11 ROLE OF THE PENSIONS BOARD To regulate occupational pension schemes. To regulate PRSAs. To advise Minister/Government on all pension issues (including Social Welfare pensions and personal pensions). To promote pensions development and increased pension coverage. To play major role in Government sponsored National Pensions Awareness Campaign (NPAC). 11.

12 HOW PENSIONS BOARD CARRIES OUT ITS REGULATORY ROLE Regulatory Activities Scheme Registration schemes required to register with Pensions Board Funding Standard requirement to submit an Actuarial Funding Certificate (AFC) every 3.5 years Disclosure Compliance conduct random audits of schemes. Also work with providers to ensure compliance Investigations Regular Whistleblow reports only mandatory for fraud or misappropriation Sanctions Strong powers of investigation Powers of direct intervention in scheme administration by application to High Court 12.

13 GENERAL RESPONSIBILITIES OF TRUSTEES Trusteeship in law Trust law and other law Pensions law (The Pensions Act, 1990 and subsequent Statutes). The Trust Deed and Rules responsibilities discretion and powers member trusteeship 13.

14 GENERAL RESPONSIBILITIES OF TRUSTEES Trusteeship in practice Investment Administration Compliance Disclosure/Information Funding Getting advice Conflict 14.

15 OTHER REGULATORY PLAYERS IN IRISH PENSIONS Central Bank /Department of Enterprise, Trade & Employment New Irish Financial Services Regulatory Authority (IFSRA) Professionals (actuaries, auditors, administrators, custodians, investment managers) 15.

16 NEW CHALLENGES FOR PENSION FUND REGULATION Now is a watershed for regulation Accusations of regulatory failure, for example Enron and other accountancy failures, Equitable Life etc. Over-regulation blamed for moves away from Defined Benefit pension provision and levels of pension coverage EU proposal for a Pensions Directive deals with regulation Various changes/reviews on-going in UK, for example, response to Myners, Sandler review of medium and long-term savings, tax simplification review, Pickering review on Pensions Simplification Irish Pensions Board recommends tax simplification and also has overall regulatory simplification on its policy programme But Ireland and UK have a steady stream of new regulation flowing! 16.

17 NEW CHALLENGES FOR TRUSTEES Investment ½ Volatile markets questioning of equity cult ½ Myners code of Best Practice (UK) ½ Consultation on new standards of care on investment matters /independent custodians / shareholder activism (UK) Funding ½ Need to take a long hard look ½ Minimum Funding Standard Information ½ Disclosure changes ½ Simplification 17.

18 NEW CHALLENGES FOR PENSIONS BOARD Play its part in implementing the new Irish pensions regime Adapt to its new role in the approval and monitoring of PRSAs Ensure the extension of pension coverage without undermining existing (particularly DB) pensions Key player in the National Pensions Awareness Campaign Maintain the balance between protection/equity and over-regulation in the context of the simplification debate Prepare for the transposition of the EU Pensions Directive into national law 18.

19 CONCLUSION Ireland believes it has a reasonable balance of pension regulation It recognises the need to constantly evolve regulation in order to respond to internal and external developments An educated, effective and flexible regulatory body is an essential part of the Irish pensions regime In the Irish experience a good regulatory system is an essential ingredient in the development of supplementary pensions. 19.