The Irish Association of Pension Funds (IAPF) has said proposed increases to the Pensions Authority’s fee structure, coming at a time of economic uncertainty, may cause employers to question the feasibility of pension provision for their employees.
IAPF made the comment in response to a consultation paper published last month by the Pensions Authority, which regulates the pension sector in Ireland.
The consultation paper covered the fees paid by occupational pension schemes, trust RACs (retirement annuity contracts) and PRSA (personal retirement savings accounts) providers. It sought industry views on the proposed change to the basis on which fees are paid.
Changes proposed by the authority included an asset-based levy as a primary fee, charged equally to occupational schemes and PRSAs. It also suggested a substantial per scheme fee after an interval to allow and encourage scheme consolidation.
Industry sources expressed concern that large employers could experience big cost increases to their pension schemes. The IAPF said potential increases for some schemes may be “very significant” and could run into hundreds of thousands of euro.
It is understood that tech giant IBM wrote to the Pensions Authority, saying it opposed any substantial increases in costs. IBM said it felt asset-based fees would have a “disproportionate impact on larger pension funds such as IBM”, compared to smaller funds.
IBM didn’t respond to a request for comment.
The Pension Authority said its fee income is expected to be almost €7m less than its total expenditure this year. It would be met by a combination of a €3m Exchequer subvention and reserves accumulated in recent years.
However, the Department of Public Expenditure and Reform said the 2021 subvention would be a “once- off support” and fees should meet the future costs of the authority. The subvention is recoupable from future fee income.
If fee levels remain unchanged, the authority said, fee income in 2022 would represent only about 60pc of projected expenditure – a difference “much greater” than its reserves.
The authority said a new EU directive would require more direct engagement with trustees, meaning increased staff numbers and significant IT development.
The IAPF highlighted that the proposals are coming as schemes already face increased costs following a recent EU directive. It said many employers currently cover additional costs, but the scale of cost increases could mean they are less likely to do this, and may reduce member benefits.
“Furthermore, many employers are facing economic uncertainty as a result of the impact of Covid – and this, combined with additional pension costs, may cause them to question the feasibility of them continuing pension provision for their employees.”
The IAPF also said the proposals failed to provide any “detailed breakdown of the costs of the Pensions Authority”. It said not all of the costs from the authority relate to regulation, pointing to pension schemes paying for advice the authority gives to the Minister for Social Protection, or running its public information service.
The Pensions Authority said it would not comment until it reviewed all submissions to the consultation, which had a closing date of June 22.
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