Professional and lay trustees have been instrumental in promoting good practice among Irish pension plans, but their job is becoming an increasingly difficult one, according to Mairéad O’Mahony of Mercer Ireland. O’Mahony is the Defined Contribution and Financial Wellness Leader at Mercer, providing consulting services and delegated investment solutions to over 500 Irish DC clients.
“Through trustees’ relentless pursuit of best possible outcomes for their members, the quality of investment options available has improved dramatically, as has the level of support and guidance now offered as a matter of course to pension plan members,” says O’Mahony. “However, the role of a trustee is becoming ever more complicated with increased regulation and supervisory standards, which are making it difficult for lay trustees to participate.”
The problem is that trustee setups are not realistic options for many businesses, O’Mahony notes, adding that the Pensions Authority proposals to streamline Defined Contribution schemes could help with this situation.
“Where companies can support trustees by allocating adequate time and resources to enable them to develop and discharge the scheme’s strategic objectives around governance, investment and communication, a bespoke trust with in-house trusteeship is to be encouraged. This is more likely to prevail amongst larger companies where resourcing is less constrained,” says O’Mahony.
Consolidation
“However, for the vast number of smaller companies it is not practical to run their own trusts and achieve the high standards of governance expected by the Pensions Authority. In situations where time and resources are scarce, a sensible approach is to consolidate with others to leverage economies of scale and provide certainty that strong governance standards can be met to the benefit of their employees. Master trusts offer a route to achieving that consolidation.”
In Association with
O’Mahony agrees with the Pensions Authority that when it comes to small company pension schemes, it is also not practical for many businesses to run their own trusts to Pensions Authority standards. “Smaller companies should seek to leverage the benefits of the trust model while at the same time relieving the associated governance burden,” she argues.
“The solution lies in the use of a multi-employer trust or master trust, with inbuilt professional trusteeship under a single umbrella structure. Many different companies can participate in a single master trust, each with its own distinct set of contribution rates and benefits. All participants can leverage the administration and investment arrangements established under the trust, creating better value for money for individual retirement savers.”
While the master trust approach is not yet prevalent in Ireland, O’Mahony observes that it is popular in the UK and Australia, where auto-enrolment systems are in place. “Given that the government has recently re-stated its commitment to the introduction of an auto-enrolment system in Ireland, it seems inevitable that master trusts will become more popular here in the coming years.”
Regular Feedback
Where individual member trustees do not exist, in the case of a sole professional trustee or master trust, O’Mahony stresses the importance of ensuring that there are regular feedback mechanisms from members to the company and trustees. “For master trusts, this could be facilitated through the establishment of regular, or at least annual, feedback forums.”
Asked about the future of the c.68,000 one member pension schemes, O'Mahony says: "The Pensions Authority has indicated a key objective of reducing the number of small or one-member schemes. This large cohort of one-member schemes has arisen primarily because there are tax efficiencies for directors contributing to a trust over and above an individual contract such as a PRSA."
"Aligning the tax relief arrangements for individual products with those for trusts would dramatically reduce the appeal of trusts to directors and, at least, limit growth in the number of schemes. More generally, simplification of the pension tax rules and range of products available would help drive greater transparency, understanding and trust on the part of savers throughout the system."
