Regina Doherty (Meath East, Fine Gael) | Oireachtas source

The overarching objective of the IORP II directive is to facilitate the development of occupational retirement savings in every EU country. Many of the provisions contained in the directive will support positive reform of the Irish occupational pension sector. The implementation of the directive will greatly enhance scheme governance and consumer protection for pensioners, members and future members.

The value of investments held in many small schemes fell substantially during the financial crisis. That highlighted the need for stricter supervision and regulation of schemes, especially for schemes investing in unregulated markets. The Government has agreed that the provisions of the IORP II directive should apply to all funded occupational pension schemes so that members of small schemes, including small self-administered pension schemes, get the same protections and oversight as members of large schemes, to safeguard their investments for the purposes of providing adequate income in retirement years. In that context, it is worth noting that the application of derogations in other EU countries is not common. It is unusual for the Deputy to compare us to the example set by the United Kingdom.

Article 19 of the IORP II directive sets out the investment rules for occupational pension schemes. The underlying principle in respect of capital investment is for schemes to invest in accordance with the "prudent person" rule and the other specific rules set out in the article. It is recognised that there should be an appropriate level of investment freedom for schemes within prudent limits and that is reflected in the rules. Assets must be predominantly invested on regulated markets, which means, at least 50%. That allows adequate scope for investment in instruments with a long-term economic profile and non-listed undertakings such as property and infrastructure.

There are approximately 100,000 single-member schemes in Ireland. The Pensions Authority advises that approximately 98% of those are already compliant with the new investment rules under the IORP II directive. According to the 2017 report of the Association of Pension Trustees of Ireland, APTI, there are 22,312 self-directed pension arrangements in Ireland. Only 7,756 of these are self-directed pension schemes. It is that small cohort that will now have to meet the standards that apply to all other occupational schemes in the country. Information from the Pensions Authority indicates that the vast majority of schemes are already compliant with the provisions of the new directive. It is important to note that the small percentage of existing schemes which are not compliant with the new rules will not be obliged to change their existing investments or borrowings.

Small self-administered pension schemes may continue to invest in the economy, including property and SMEs, but their investments must be properly diversified to avoid excessive reliance on any particular asset or group in order to minimise risk in the portfolio as a whole. Such diversification has been proven to reduce investment risk. The new directive does not ban self-directed investment. Rather, it does not facilitate further borrowing for investment and it limits future investment in unregulated sectors.

This is probably the most important part of what I will say. The application of the directive is prospective, not retrospective, which means that the changes will not affect existing investments and borrowings by schemes. The information given to the Deputy that a company will be affected and jobs will be affected is not accurate. The new directive will only impact prospectively. Single member schemes, including small self-administered pension schemes, will no longer be allowed to enter into new borrowing agreements, except for short term and liquidity purposes, and all future investments will have to be in accordance with the rules of the directive. Accordingly, no current investment plans will be impacted upon or jeopardised.

Officials in my Department, supported by the Pensions Authority, are managing the transposition process of the IORP II directive. The drafting of regulations is at an advanced stage to facilitate transposition into Irish law later this quarter.

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