Dáil debates

Thursday, 22 September 2022

Pensions (Amendment) (Transparency in Charges) Bill 2021: Second Stage [Private Members]


5:05 pm

Photo of Heather HumphreysHeather Humphreys (Cavan-Monaghan, Fine Gael) | Oireachtas source

I move amendment No. 1:

To delete all words after "That" and substitute the following: "Dáil Éireann resolves that the Pensions (Amendment) (Transparency in Charges) Bill 2021 be deemed to be read a second time this day nine months, to allow for, amongst other things, an examination and assessment of the issues pertaining to the provision of information to pension scheme members in relation to costs and charges incurred by pension schemes and, if deemed to be required, to identify and develop the appropriate policy responses and associated methodologies."

I am happy to accept the amendment to the amendment tabled by my Labour Party colleagues and I am grateful for their consideration in this regard. The nine-month timed amendment to the Bill will allow for consideration by my Department of the provision of charges-related information to pension scheme members and to report to the Dáil. I thank Deputy Nash for his work on preparing the Bill and providing the House with an opportunity to debate this matter. I fully accept the spirit in which this Bill is being brought forward and I agree that improved pension costs transparency and better outcomes for pension savers are always desirable. The availability of comprehensive and transparent information on costs and charges is important, and helps consumers to decide whether investments represent value for money.

Prior to commenting on the Bill itself, it is worthwhile to first note that the Government continues to progress several key initiatives, or has recently implemented policy measures, which will lead to considerably reduced administrative costs for pensions and improved costs transparency which I will now briefly set out. For the purposes of transposing IORP Il requirements, regulations signed in April 2021 require trustees to draw up and provide scheme members with an annual pension benefit statement containing key information about the pension scheme. Those regulations require that the statement contain information on pension projections and costs incurred by the scheme over the past 12 months, and provide that such information should be clear, succinct and comprehensive and avoid the use of jargon. Given the recent introduction of these requirements, it would be more appropriate and prudent for a sufficient period of time to have elapsed prior to introducing or implementing additional requirements.

The Roadmap for Pension Reform 2018-2023 highlighted the very large number of private pension schemes in Ireland, numbering approximately 160,000. It also highlighted concerns regarding the professional fees charged to these schemes both for administration and investment advice, and the standard of governance of these schemes. The roadmap sets out an approach to reforming the pensions market and rationalising these schemes, which will contribute to lower overall pension costs in the future. Charges incurred by schemes should also be considered in the context of ongoing work to develop a master trust regime which will realise significant consolidation of pension schemes. This will enhance scheme governance, achieve economies of scale and result in reduced administrative costs to schemes. Research has shown that larger pension schemes incur lower pension costs, particularly across defined contribution pension schemes. Deputy Nash will also be aware that I wrote to the Pension Council in March of last year requesting that it consider the issue of pension costs in Irish schemes, including issues with regard to the transparency of these costs. Specifically, I asked the council to consider the merits of introducing a cost transparency Initiative, similar to that in the UK, Denmark and the Netherlands. The council's report was recently completed and its recommendations are currently being considered by my officials. That examination will require consultation with the Pensions Authority, as well as other Departments prior to determining the appropriate policy responses. I hope Deputy Nash will appreciate that the introduction of new provisions into the Pensions Act, such as those proposed by the Bill, would be premature until that examination has been finalised, which is why we have suggested a timed amendment today.

In March of this year, the Government approved the final design principles for the automatic enrolment supplementary retirement savings system. A general scheme for the legislation has recently been approved by the Government, and work in this regard is ongoing in conjunction with the Office of the Parliamentary Counsel. It is envisaged that the system will impose a charges cap on auto-enrolment providers. It is essential that any information provided to scheme members is, as required by IORP Il, set out in a clear manner and presented in a way that is easy to read. The complex nature of the proposed statement as set out in the Bill, while obviously introduced with best intentions, raises concern as to whether it can achieve the intended policy objective of providing such clarity and, as such, whether it would comply with IORP Il information-related requirements. People are often reluctant to engage with pensions and the more detailed and complex the information, the less likely they are to engage with it. In addition to these concerns, the statement proposed by the Bill will necessitate complicated calculations in such matters as benefit projections and anticipated reduction in yields. Again, I fully appreciate the Deputy's intention here, but this measure would increase the administrative burden on schemes, as well as resulting in higher costs arising from the engagement of specialists such as actuaries to provide these calculations. As we know, if a scheme becomes more costly to run, this will negatively impact on the pension payments ultimately payable to scheme members.

I will now turn to the provisions in the Bill. The Bill, as drafted, applies to all pension schemes. However, it would not be possible to apply most of the provisions to defined benefit schemes given that administrative costs are ordinarily borne by the sponsoring employer rather than the individual pension saver. The Bill sets out detailed and complex provisions in relation to the matters that shall be specified in the proposed statement of the impact of charges. This includes projected level of benefits, the number and amount of charges incurred in the next 12 months which must be expressed in three different ways, and the anticipated reduction in yield. This is problematic as some charges may not be known 12 months in advance, and would depend on the contributions made and investment growth achieved. In addition, previous research has highlighted that charges communicated in percentages appear difficult to understand.

The Bill proposes that the statement should contain information on reduction in yield in percentage and cash terms. Reduction in yield represents just one method of expressing total charges and it may not be the most appropriate in the context of the impact of charges on a pension scheme. In any case, reduction in yield cannot, by definition, be expressed in cash terms.

The Bill also proposes that the statement shall be provided within seven days of any increase in the number or amounts of charges. Any charges based on accumulated assets would result in the charges increasing when assets do. Every such increase would automatically trigger an obligation to issue a statement resulting in a higher administrative burden and costs being incurred by schemes. There are a number of other technical difficulties with this Bill which need further consideration and remedy as it progresses.

As I have already outlined, any new proposals must take account of the existing information-related requirements imposed on trustees, as well as the various policy initiatives currently under way. This is to ensure that the proposals do not add greater complexity and duplication for pension savers and schemes. I am of the view that the timed amendment will provide an opportunity to consider the approach to the information on charges in a holistic and integrated manner. I again commend the Deputy for his work in preparing the Bill and am happy to engage with him in the months ahead as we look to progress measures to ensure pension schemes have greater transparency, which is certainly something on which we all agree.

The Deputy mentioned lower paid workers who do not have pensions. More than 700,000 working people in this country do not provide for a pension. That is why I have introduced the auto-enrolment scheme, which means that one's employer will match every €3 one saves, and the Government will top it up with a further €1. For every €1 saved, there will be a pot of €7 in total. We are progressing that legislation. It is my intention to move it on as quickly as we can and get it operational by January 2024. That is the plan. A good deal of work is being undertaken at the moment in that regard. I thank the Deputy for bringing forward this Bill. We all agree we need transparency for costs and charges in pensions. There is no doubt but that it is difficult to understand. We are happy to work with the Deputy on this Bill.


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