Mercer’s welcomes the announcement at today’s IAPF Governance Conference in Dublin that the Pensions Authority intends to improve the governance of DC pension schemes. However, to ensure a robust, sustainable and cost-effective system Mercer believes in-depth structural review of the DC system is required.
Speaking at the IAPF Governance Conference in Dublin, Brendan Kennedy, Chief Executive of the Pensions Authority noted that governance is essential ongoing work that has a profound effect on members. Amongst a number of suggested measures Mr Kennedy noted that steps to improve scheme governance would include cutting some of the 160,000 DC schemes currently in place in Ireland to allow space for better dialogue between the schemes and the regulator.
Niall O’Callaghan, DC Leader, Mercer commented “stronger governance of DC schemes is welcomed. However, a radical simplification of the current Defined Contribution (DC) pension system is required so that there is only one type of DC pension scheme with one set of rules governing it”.
Mr O’Callaghan explained that there are currently nine different types of DC arrangements, all with their own requirements. This complexity increases costs, reduces understanding and acts as a barrier to individuals saving for retirement. Depending on the type of DC plan and when it was set up, there are varying rules around tax treatment and the form of benefits that can be taken. As such, layers of legacy issues cause confusion and undermine peoples’ engagement with these plans.
Mr O’Callaghan noted “These proposed reforms should not simply be layered on top of the existing system. There is now an opportunity for the government to reform the pension rules and put in place a world-class auto-enrolment system. This improved governance framework should only be the first step in a wider reform of pension rules, which is necessary to succeed in improving coverage and addressing pensions adequacy.”