“The challenges to provide sustainable and predictable supplementary pensions in Ireland continue as outlined inThe Pensions Board Annual Report and Accounts2012”
17 June 2013: Today, the Minister for Social Protection, Joan Burton T.D. launched The Pensions Board Annual Report and Accounts 2012. At the launch, The Pensions Board highlighted its ongoing investigations into pensions contributions deducted by employers but not passed on to pension schemes, as well as the challenges for defined benefit schemes and concerns about the governance of Ireland’s €70 billion pensions sector.
The Board’s Chief Executive, Brendan Kennedy, said: “In 2012, as in recent years, a considerable part of our time and effort has been spent investigating and prosecuting cases where some employers have failed to remit contributions to a pension scheme after deducting them from employees’ pay. This work has resulted in a significant number of prosecutions and convictions of companies and, in many cases, directors, and these have continued in 2013. More importantly, during 2012, over €1.3 million was restored to the scheme for cases which the Board was actively investigating.
These investigations and prosecutions have been the result of whistleblows by scheme trustees and others, and the number of these alerts is now falling sharply. This means that the Board will be able to devote more time in 2013 to proactive supervision and we can focus our attention on other areas of non-compliance.”
Although investment returns were generally good during 2012, there has been no overall improvement in the position of defined benefit schemes. The majority of such schemes have considerably less assets than are needed to meet the funding standard, and must prepare and submit a recovery plan to the Board by mid-2013. The Board is well aware that many scheme trustees are facing considerable challenges in preparing such a plan.
According to Kennedy: “The objective of the funding standard is to ensure that each scheme member has a reasonable chance of receiving the benefits set out in the rules of the scheme. Without an adequate standard, there is a substantial risk that by the time that younger members retire, the scheme assets will have been exhausted in paying the benefits of those who retired before them; the longer that schemes put off meeting the standard, the greater is this risk.”
Kennedy also said: “We continue to have concerns about the understanding that some defined benefit trustees have of their role and responsibilities. The task of trustees is to manage the scheme to ensure as far as possible that members and beneficiaries receive the benefits promised under the scheme rules. This requires trustees to understand the finances of their scheme and the risks that it faces, and to manage the scheme to mitigate these risks. This is especially important for investment risks, which are in effect borne disproportionately by the younger members of the scheme.”
Kennedy went on to say that: “The work of the Board must also reflect the increasing importance of defined contribution (DC) pension savings. The objective of the Board’s work in this area will be to ensure that the outcomes for contributors are as good as possible. The most important issues in defined contribution are investment risks and losses, contribution inadequacy and costs, and the Board’s work will comprise a mix of proposed additional regulation, contributor information and trustee guidance. The investment guidelines issued by the Board in early 2013 are an important first step. The Board is also considering the role and performance of DC trustees and how best to ensure that the role of trustees improves the results for members and that will be the subject of further discussion and consultation during 2013.”
The report by the Department of Social Protection on pension charges was one of the most important recent events for pensions and is especially relevant for defined contribution arrangements. This report shows that there are pension schemes which provide good results for members, but there are cases where the charges are much higher than is reasonable. There are no simple solutions for these issues, and there is a lot of work needed to make sure that all pension scheme members receive good value for money. One of the most important findings is the differences in outcomes between small and large schemes. Ireland has more small and especially single member schemes than any other country in Europe, and too often, this results in poorer value for money and lower standards of governance.
Kennedy, said: “The Board’s view is that members would benefit if smaller schemes were discouraged and is considering a number of initiatives in this area. The Board will consider making legislative recommendations to the Minister for Social Protection on this matter. It has also initiated a number of specific responses to the recommendations in the report, including promoting better awareness on charges to pension scheme members, trustees and employers; improving the impact of disclosures on fees and charges and enhancing the comparability of charges on different pensions products.”
2012 at a glance:
Membership of occupational pension schemes at 31 December 2012 was as follows:
- 760,620 members in 61,232 occupational pension schemes broken down as follows;
- 189,644 members in 933 defined benefit schemes - subject to the funding standard
- 338,037 members in 107 defined benefit schemes - excluded from the funding standard
- 232,939 members in 60,192 defined contribution schemes
There was an overall decrease in membership of 7,533 in defined benefit and 6,211 in defined contributionoccupational pension schemes during 2012.
PRSA contracts and assetsat 31 December 2012 were as follows:
- 206,936 PRSA contracts with total assets of €3.46 billion (an increase of €430 million in assets) and an increase in contracts of 8,898 comprising of 5,361 Standard PRSAs and 3,537 Non-Standard PRSAs.
During 2012, the Board:
- secured convictions in 15 cases. 5 cases were struck out or withdrawn due to payment of arrears.
- 15 cases related to Section 58A(1) (deduction and non-remittal to scheme) and Section 18 (failure to respond to Board)
- 5 cases related to Section 18 (failure to respond to Board)
- dealt with 25 suspected cases of deduction and non-remittance of pension contributions by employers in the construction sector which were reported to the Board. 102 cases were closed during the year.At the end of 2012 the Board was dealing with 38 suspected cases of deduction and non-remittance of pension contributions by employers in the construction sector. In the year ending 31 December 2012, €1,328,341.89 was restored to the scheme for cases which the Board was actively investigating, bringing the total since April 2008 to over €7 million
- carried out 28 on-site inspections of Registered Administrators (RAs). At 31 December 2012 there were 179 Registered Administrators (RAs) on the Board’s register of RAs – no RAs were refused renewal or had their activities restricted in 2012
- convened 52 meetings with trustees and pension providers to discuss a range of compliance issues
- was paid €66,000 in fines (€2,000 per fine) by 17 trustees of 6 schemes and subsequently passed it on to the Exchequer. Of the 33 fines paid, 17 fines related to a single corporate trustee
The grounds for these fines comprised:
- five schemes for failure to submit, or late submission of, actuarial funding certificates
- one scheme for failure, over a number of years, to meet statutory deadlines in respect of: the preparation and/or disclosure of annual reports and audited accounts and; the issue of annual benefit statements to members.
- delivered the National Pensions Awareness Campaign on behalf of the Government
- dealt with 6,295 information enquiries.
The Annual Report 2012 and a full listing and details of all the main news items issued by the Board in 2012 are available on www.pensionsboard.ie.
Speaking on the work of the Board during 2012, Chief Executive, Brendan Kennedy, said: “There are a number of areas that I would like to highlight that are of continuing concern, including:
- poor pensions administration and record keeping, which could result in members not receiving all of the benefits to which they are entitled. The Board’s oversight of Registered Administrators is therefore particularly important. During 2012, the Board carried out 28 on-site investigations. In four cases, the standard of administration was such that, had remedial action not been taken, the Board would have considered withdrawing the registration of the administrator concerned. It is extraordinary that any administrator should be so unaware of its responsibilities that this situation should arise. The Board will continue these on-site investigations in 2013 and future years, and will take appropriate steps in response to its findings, in conjunction with the Central Bank where appropriate.
- the level of compliance is unacceptably low when it comes to the submission of annual scheme information by trustees. This will also be the focus of particular attention by the Board in 2013.
- the proportion of schemes where the trustees have not fulfilled their legal responsibility to appoint a Registered Administrator is too high, and this will be the focus of ongoing Board activity in 2013. Trustees should be aware that failure to appoint a Registered Administrator may make them subject to prosecution. Administrators should also be aware that it is an offence to act as a Registered Administrator except where one has been appointed as such by the scheme’s trustees.
- there is a responsibility on trustees to recognise that there is specific knowledge needed to fulfil their role, and to take steps to acquire it. There is a wide range of trustee training available, including the Board’s own online facility, but the Board is concerned that a minority of trustees, especially DC trustees, are not meeting their training obligations: supervision of compliance with trustee training obligations is a priority for our work in 2013.
Kennedy went on to say that: “In 2012, as in recent years, a considerable part of the Board’s time and effort has been spent investigating and prosecuting cases where some employers, mostly in the construction industry, have failed to remit contributions to a pension scheme after deducting them from employees’ pay. This work has resulted in a significant number of prosecutions and convictions of companies and, in many cases, directors, and these have continued in 2013. The construction industry prosecutions have been the result of whistleblows by scheme trustees and others, and the number of these alerts is now falling sharply. This means that the Board will be able to devote more time in 2013 to proactive supervision and we can focus our attention on other areas of non-compliance.”
On the launch of the report, Chairperson of the Board, Jane Williams, said: “A key challenge we face is rebuilding confidence and trust in the pensions system. That trust has been eroded by the impact of the financial crisis on pension fund values and by the fall in confidence in financial institutions. In this regard, the Board welcomes the Government’s confirmation that the pensions levy will not continue beyond 2014.”
Williams also said: “I welcome the Minister’s initiative in commissioning the OECD to provide useful and timely commentary on the current challenges and the options we can consider. I noted the OECD’s recommendations on auto enrolment as an important initiative in the effort to improve pension provision and coverage. The report on pension charges, prepared by the Department of Social Protection, raises the need for vigilance on pension costs. In these times, all pension products and services must demonstrate good value for money.”
The Chairperson Jane Williams went on to say: “The Government’s announcement to establish a revised structure to include a Pensions Authority to provide operational oversight and a Pensions Council to provide policy advice, distinguishing between the oversight and the policy advice functions is welcomed. These new structures are likely to continue to address issues such as schemes in deficit, the adequacy of contributions, inadequacy of coverage and other issues that have been on our agenda over the last two and a half years. We wish the members of the new structures every success in their important roles.”
For further information, please contact:
David Malone Tel: (01) 613 1900 /087 6857743
Head of Operations
The Pensions Board