Secure Retirement for All Symposium Washington,DC April 21-22, 2016 Pensions Landscape in Ireland Pension Quality Standard (PQS) Jim Foley Chairman Irish Association of Pension Funds (IAPF) Irish Pensions Landscape Secure The IAPF is the representative organisation for occupational pension schemes in Ireland. Our members provide retirement security to over 200,000 employees, pay pensions to nearly 70,000 people who have already retired and are responsible for some 108 billion in retirement saving. Fair Simple 1
Pension Pillars The 1st pillar - compulsory, pay-as-you-go, state pension; Basic level of financial provision for all in retirement ( paid out of current taxation) The 2nd pillar - supplementary occupational pension; The 3rd pillar - individual savings (personal pension and assets and life insurance). Public Sector unfunded pay as you go ( paid out of current taxation) Private Sector funded schemes (paid by Employer and Employee contributions with tax relief on contributions) Defined Benefit Defined Contribution AVC Schemes, Private Pensions etc Pension Pillars The 1st pillar - compulsory, payas-you-go, state pension; Basic level of financial provision for all in retirement ( paid out of current taxation) 4.9bn paid out in 2013 to 420k people The 2nd pillar - supplementary occupational pension; Public Sector unfunded pay as you go ( paid out of current taxation) Private Sector funded schemes ( paid by Employer and employee contributions with tax relief on contributions) Estimated 98bn Unfunded Liability Defined Benefit Defined Contribution The 3rd pillar - individual savings (personal pension and assets and life insurance). AVC Schemes, Private Pensions etc Actives 400,000 Deferred 400,000 Pensioners 100,000 DB Schemes = 778 DC Schemes = 61,000 Scheme Assets 108bn (DB 68bn, DC 40bn) 2
Pensions Coverage in Ireland 51% of workforce has no Occupational pension 17% of workforce are in unfunded pay as you go Public Sector arrangements 12% of the workforce are in chronically underfunded PRSAs. 6% of the workforce are in 775 DB schemes, many are winding up & many are closed to future accruals. 14% of the workforce are in DC schemes with an average contribution of just 11.1%. DC PENSION CRISIS IS WORSENING Q. What's the problem? 1.983m A. Quite simply - insufficient funds to provide an adequate retirement income Lack of adequacy (contribution levels) Focussing on the wrong things (inputs not on outcomes) 3
Auto Enrolment? Current Pension Challenges Last days of DB Early days of DC Transparency of sustainability Accounting Discount Rates? Growing voice of Deferreds Liability Crisis in DB Search for Yield Lack of Pace of Pension Reform Asset growth giving false sense of security Pensions for the long term not just the next term How to deliver better member outcomes? Longevity increases Dramatic reduction in number of DC Schemes proposed Is active management a zero sum game? Complification v Simplification Master Trusts / Collective DC? DB End Game? Pensioner Power DC Default Funds fit for purpose? Industrial Relations dimension to pensions? Regulators driving pension funds into bonds Quantitative easing driving investors into equities Litigation growing Return of pay increases to add to Professionalisation of Trustee role DB pension liabilities Better Member Outcomes from Solid Scheme Foundations Efficient and effective administration Protection of assets Appropriate investment decisions Value for money Appropriate contribution level Factors required to help achieve a good outcome in retirement Appropriate decumulation decisions Source: UK Pension regulator 2011 paper - Enabling good member outcomes in work-based pension provision 4
Better Member Outcomes IAPF introduced the Pensions Quality Standard in 2010 Formal assessment of structure and quality of pension offering Contribution rates Communications Governance PQS accreditation valid for 3 years Better Member Outcomes Contributions For non-contributory Plans, a minimum employer contribution rate of 10% of basic annual salary. For contributory Plans, an overall contribution rate of 10% of basic annual salary of which 6% is the minimum employer contribution. Risk costs are in addition to the rates noted above. Plans with an overall rate of 15% of basic annual salary will qualify for award of PQS with Merit 5
Better Member Outcomes Governance Clear policy and demonstrable procedures to meet the governance standard. Regular Trustee Meetings & Ongoing Trustee Training Monitored Governance Agenda Adoption and compliance with IAPF and Pensions Authority Guidelines Better Member Outcomes Communications Membership of the scheme during the induction process; Information is in clear and easy to understand terms. Ongoing communications -range of options, e.g. dedicated newsletter, website or intranet page, group presentations or one-to-one guidance sessions; Generic information, including information on investment options, is provided on a website/intranet or via regular news letters; Tailored individual information, including information on investment options, is provided to scheme members, for example by providing access to the pension account online 6
Why the PQS is invaluable PQS demonstrates to your employees that your pension plan is of an appropriate standard. It shows that you are successfully communicating the long term benefits of retirement saving to members, recognising their contribution to your business through your own qualitative contributions and through robust governance procedures. The IAPF PQS provides independent endorsement of the quality of the pension plans offered to existing and future employees. PQS RECIPIENTS 7
PQS WITH MERIT Recipients Testimonials The Pensions Authority welcome s the IAPF s work to support and recognise good defined contribution pensions. This work acknowledges the increasing importance of DC schemes and of the importance to members of good scheme design and communication. Brendan Kennedy, Chief Executive of the Pensions Authority The PQS award re-enforces to our membership that the company pension plan is one of the best in the Irish market place in terms of qualitative contributions, communications and governance strategies for DC pension plans in Ireland and the company is willing to invest the time in offering a pension plan that is fit for purpose and is at the core of the overall benefits package for our employees. The PQS award gives members the comfort that their company pension plan is at the forefront of best practice. Colm Fortune, Trustee, Microsoft 8
Future Developments? Master Trusts? Multiple employers under a single plan with varying contribution rates Design and Governance standardised Contribution rates and communications individualised Retirement Quality Mark? highlighting the importance of Retirement planning and the decumulation phase of pension provision www.iapf.ie/pqs Jim.foley@trusteedecisions.com 9
Jim Foley FCCA, MSc Mgt, BFS, Dip Corp Gov, ASAI, AAPLI, M IoD Jim is a Director, Member of Council and Chairman of the Irish Association of Pension Funds Ltd which represents Irish Pension savers and works with policy makers in Government, Revenue and the Regulatory fields in Ireland and at EU level to ensure the development of a pensions system that is secure, fair and simple. Jim is a Director of Trustee Decisions Ltd and an independent, professional Trustee with 8 Irish Pension Funds in the aviation, FMCG and telecommunications sectors. He is also a Non Executive Director of the Irish Property Unit Trust (IPUT PLC), INTRUST Properties Ltd and Irish Forestry Unit Trust Forestry Management Ltd. Prior to joining Trustee Decisions Ltd as a Director in 2015 he worked previously with the Central Bank of Ireland, the National Australia Group and eircom ltd in a variety of economic, finance, human resource and pensions roles. Before specialising in pensions Jim worked in the telecommunications and financial services sectors in Ireland, the UK and Australia and completed a number of development projects funded by the World Bank in Zambia and Uganda. Jim qualified as a member of the Chartered Association of Certified Accountants in 1986 and was admitted to Fellowship in 1991. He has a Bachelor of Financial Services Degree from University College Dublin 1997 and a Master in Business Administration from Trinity College Dublin and the Irish Management Institute. He completed a post grad in Corporate Governance in 2012 at the Smurfit Business School. He is a member of the Institute of Directors in Ireland and an associate member of both the Society of Actuaries in Ireland (SAI) and the Association of Pension Lawyers in Ireland (APLI). Jim is a regular contributor to IAPF Pensions Conferences in Ireland and has also presented recently at Conferences in London & Rome (Institutional Investor), Paris ( JP Morgan Asset Management) and Brussels (Pensions Europe) 10