Having fewer pension plans is a great idea - but will it work?
Published 24/04/2016 | 02:30
On the face of it, reducing the number of pension plans out there is a great idea. The head of the regulatory body - the Pensions Authority - has said there are too many schemes.
According to the CEO of the authority, Brendan Kennedy, there are 150,000 defined contribution plans. He wants the overall number reduced to around 100 - a move that he feels will put pressure on pension providers and asset managers to reduce their fees.
And there is no doubt that fees are a big issue. A report in 2012, commissioned by the Department of Social Protection and the Pensions Authority, warned that fees in the pension industry were often too high.
It revealed that the average annual charge of 2.18pc could diminish a final pension pot by as much as a third.
Mr Kennedy said the country's €90bn corporate pension system needs to be overhauled to make it more "member-centred and more efficient".
Pooling pension schemes into larger plans would result in "higher standards of governance, savings for members and enable us to carry out more detailed oversight of the pension schemes," he added.
So what is not to like about this plan? Surely, fewer plans would mean lower fees for members, better returns and bigger pensions?
Mr Kennedy's proposals to reduce the number of pension schemes will form part of a series of reforms to be put to the government towards the end of this year.
The regulator plans to hold a public consultation on its proposals around the middle of this year.
But the problem is that many of the 150,000 defined contribution schemes out there have just one member.
Company owners have in the past been setting up defined contribution schemes instead of PRSAs (personal retirement savings accounts) because they could get relief from universal social contributions (USC) from a DC scheme, but not from a PRSA.
That situation has since been rectified, but helps explain why there are so many DC schemes.
Jerry Moriarty of the Irish Association of Pension Funds, which represents trustees, said a smaller number of large schemes was attractive in theory, but questioned how it would work in practice.
He worries that scheme members would not be so well represented by trustees if they were part of huge schemes. Remember that the same Pensions Authority has also proposed that it would be mandatory to have a professional pension qualification to act as a trustee in defined contribution schemes, a move that would remove most worker trustees from oversight of their schemes.
Sunday Indo Business