Ireland is heading into a period that could see the biggest ever era of structural reform for the pensions system, and the introduction of auto-enrolment here will play a central part in all future employee benefits packages.
In this Q&A, our pensions expert, Colm Power, helps to cut through the complexities of auto-enrolment, state pension reform, IORP II and Master Trusts, and gives his opinion on how the new reforms might impact businesses and employees.
1. Here at NFP, we believe that employers should view pensions as part of their overall employee benefits brand. Can you explain why?
Making sure that your employees are happy and well looked after is one of the most important building blocks for your business, and are a key way to attract new talent. Pensions are seen as a major component of an employee’s total compensation package and can often be a deciding factor in attracting or retaining that key talent.
We cut through the red tape and guide each client so they are structuring their benefit package and company pension in line with their peer group, to make sure that they are not only competitive, but providing the right support for their specific workforce.
Ultimately, employers want to engage quality people to work in their business… and stay with their business. We help them do this through high level employee engagement strategies and education programmes, to help them understand and get the most out of their benefits and company pension.
2. For group pension schemes, what distinguishes engaging with NFP rather than going direct to a life company?
The key message here is that we can offer advice on the whole market instead of just one specific market offering. Never underestimate how important and powerful that is for the employer and their pension plan members. Competition, and the ability to compare and contrast the providers on their various strengths and weaknesses, is something that we strongly advocate. I cannot stress enough how important it is for employers to be able to make fully informed decisions, and as a benefits broker, NFP ensure that the client is given access to all the available providers so that we can secure the most competitive terms available for them.
3. Regulatory changes are intended to encourage thousands of small pension schemes to group together under the Master Trust framework. What’s your advice to companies with small defined contribution schemes?
One of the key benefits of a Master Trust is the ability to meet regulatory requirements centrally, rather than individual plans being subjected to the onerous requirements and increased compliance costs. Moving to a Master Trust essentially removes all significant responsibility from the employer, as it is managed and overseen by the Master Trust’s trustees.
That’s why it is so crucial, when an employer is selecting a Master Trust provider, to ensure that they have carried out sufficient due diligence and are satisfied that the Master Trust has qualified, professional trustees and governance structures in place to ensure it is managed centrally. We can manage this process on behalf of our clients and provide the necessary advice and guidance.
4. Automatic Enrolment has been promised by government to commence in 2024. For employers who have pension schemes that not every staff member participates in, how should they prepare for the advent of AE?
The recent announcement by the Government on auto-enrolment is a very positive one. However, the devil is always in the detail. Employers really need to review their current pension arrangements, and if they have not already done so they must speak to their pension provider or adviser to agree their strategy for compliance with the new IORP II and Master Trust regulations. Companies are, understandably, struggling to get their head around all the changes in the pension space, but ignoring the requirements on governance and risk management around employer-sponsored pension plans has the potential to prove very costly.
We are advising all of our corporate clients to roll out their own auto-enrolment plan, and they have reacted very positively. They are anxious to stay ahead of the curve to avoid government intervention. Our experience, when working with clients that have introduced auto-enrolment in their company pension plans, is that the number of members that opt out is extremely low.
5. The Commission in Taxation and Welfare has recommended the removal of age-related contribution rates, to be replaced with a single annual contribution rate, and the removal of the annual earnings cap on contributions subject to lifetime limits. Do you concur?
No. Any perceived reduction in funding opportunity can only be a negative. I am really not convinced this will have the desired effect that they anticipate. Indeed, when we review the data on pension engagement in the UK after it was introduced there, we know it has had an adverse impact on pension funding.
Historically, Irish people leave their pension funding to later in life, and the age related contribution rates allow people to catch up on missed years due to other financial constraints, such as funding children’s education. The current salary cap of €115K ensures that perceived high earners cannot have an unfair advantage over everyone else.
Funding into a pension is the most efficient long-term savings route to ensure that people can have financial security and dignity in retirement. Until auto-enrolment has been rolled out and is proven to be working efficiently and effectively, any intervention to the current tax reliefs and contribution rates would be hugely damaging for all pension holders.
6. What is NFP’s approach to pension consultancy?
We cut through the complexities around company pensions and employee benefits, with advice that is clear and succinct. Our approach has always been to identify pain paints and solve problems for our clients, rather than just selling products.
Risk management is a key driver, and we ensure that our clients’ pension plans meet the high levels of governance and compliance that are now required. We act as the single point of contact for the employer and their employees, and manage the day to day running of their pension and wider employee benefits strategy.
7. Do we have any innovative technology solutions that can help businesses streamline their company pension administration and governance?
We have some hugely exciting benefits and pensions technology that we are planning on introducing to the Irish market in 2023, to provide an automated, one-stop-shop solution for benefits management, pensions governance and administration, personalised employee engagement, and digital hosting. It is already in use with our UK clients and the feedback is overwhelmingly positive.
How can we help
NFP can support your business through these complex times, by supporting your business with pension plan strategy and design, governance, administration, and even employee engagement and communication - always with an independent perspective and impartial advice. To find out how we can help you identify your pension challenges and opportunities, contact Colm at colm.power@nfp.com or visit https://nfpireland.ie/employee-benefits/group-and-company-pensions/