the iorps directive and the role of the pensions board anne maher, chief executive the pensions...
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The IORPs DirectiveThe IORPs Directive
AndAnd
The Role of the Pensions BoardThe Role of the Pensions Board
ANNE MAHER, Chief ExecutiveThe Pensions Board 15 September 2005
UCD COMMERCIAL LAW CENTRE SEMINAR
PAN-EUROPEAN PENSION FUNDS THE IORPS DIRECTIVE: OPPORTUNITIES FOR IRELAND
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AGENDA
Background to Directive
Progress
Contents
Irish Implementation
Likely Impacts of Directive
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BACKGROUND
EU aim to achieve Single Market for pensions
Speech by Sir Leon Britten, Vice President of EU Commission, in 1990
Various initiatives brought forward during 1990s – Proposal for Directive, Communications, Green Paper etc.
Lead to “Directive 2003/41/EC on the activities and supervision of Institutions for Occupational Retirement Provision” coming into force on 23 September 2003 (the EU Pensions Directive)
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PROGRESS
EU Pensions Directive came into force on 23 September 2003 with 2 years to implement
EU member states must implement by 23 September 2005
Difficulties with interpretation of some Directive Articles
Conference of Insurance and Pension Supervisors (CEIOPS) and its Working Group on Occupational Pensions (WGOP) supervising implementation
Member States at various stages of implementation
Some Member States will not be ready by 23 September
Protocol being agreed between pension supervisors on “who does what and when” for cross border supervision
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DIRECTIVE CONTENTS
PRINCIPLES
Sets framework for pension scheme supervision
Effectively sets common minimum level of supervision
Moves towards freedom of investment for pension schemes
Facilitates cross-border pension schemes
Provides possible legal framework for Pan European pension schemes
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DIRECTIVE CONTENTS
DETAILS
Scope Must be applied to IORPs
Activity of IORPsLimited activity and separate legal entity
Conditions for IORPsRecognised by supervisor
Run by persons of good repute and qualified management
Appropriate information to members
“Cross-border” must have prior authorisation from home state authority
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DIRECTIVE CONTENTS
DETAILS - continued
Competent AuthoritiesInformation to be provided
Powers of intervention
Technical Provisions and FundingPrudent calculation
Same solvency requirements as life offices for biometric
risks or guarantees
Full funding at all times required for “cross border”
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DIRECTIVE CONTENTS
DETAILS - continued
InvestmentPrudent person principle
Diversified
Self-investment limits
Limit on quantitive investment restrictions
Host state may impose investment restrictions on IORPs in
home member state for “cross border”
Management and CustodyMay appoint managers or custodians in another state
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DIRECTIVE CONTENTS
DETAILS – continued Cross Border Activity
Undertaking in one Member State (host state) may set up IORP in another Member State (home state)
Supervision is by home statePrudential rules are home stateSocial and labour laws are host stateInformation requirements and investment restrictions may
be imposed by host state
Co-operationMember States must apply DirectiveMust create conditions for cross-border membership
ImplementationBy 23 September 2005
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DIRECTIVE CONTENTS
Areas where member states may decide approach
Application to pension business of insurance companies covered by Life Directives
Exclusion of pension scheme with less than 100 members (de minimis rule)
Whether certain contracts (e.g. Irish PRSAs) fall inside or outside scope of Directive
Designation of competent authorities for different provisions
Any requirement for additional national investment provisions to be required for national employees in an IORPs located in another member state
Whether to have quantitative investment rules within limits permitted by Directive
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DIRECTIVE CONTENTS
Regulatory conditions needed for Pan European Pensions
Separate legal entity
Meet information to members, funding, diversification and security of assets, freedom of investment requirements of Directive
Recognition by home country supervisor
Special conditions
authorisation in home country
fully funded at all times
prudential rules: home country of IORP
social and labour laws: host country of beneficiaries
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DIRECTIVE CONTENTS
Regulatory conditions needed for Pan European Pensions – continued
Each host state may prescribe additional investment constraints relating to its “section” provided such constraints not greater than those imposed on local schemes in that state
Each host state may require information requirements as imposed on local schemes in that state
In practice may require ring fencing of each section’s assets
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IRISH IMPLEMENTATION
Statutory requirements in Social Welfare and Pensions Act 2005
underlying Regulations being done before 23 September
associated tax changes introduced in Finance Act 2005.
Approach implements essentials of Directive
no further new supervisory requirements added other than essentials of Directive
Areas Affected funding
scheme management
investment
cross-border
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IRISH IMPLEMENTATION
FUNDING
Directive consistent with existing funding standard
Where a deficit occurs, a funding plan must be agreed
Actuarial Certificate required 3 yearly (formerly 3 ½ years)
Regulatory underpin of actuarial bases
“Cross-border” requires full funding at all times
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IRISH IMPLEMENTATION
SCHEME MANAGEMENT
Fit and proper persons excludes
Bankrupt
Convicted for fraud Barred from directorship Companies/individuals
Training Required
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IRISH IMPLEMENTATION
INVESTMENT
Explicit rules replace indirect requirements
Look-through basis
Diversification, regulated markets, borrowing
Statement of investment principles
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IRISH IMPLEMENTATION
CROSS-BORDER SCHEMES
Legislation in place
Trust based requirement open to review
Social and labour law in regulation
Tax laws changed
Protocol between supervisors
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IMPACT ON EXISTING FUNDS
Changes (and possible increases) in compliance requirements
Single employer/single country plan might consider re-location
Multinational employer might consider
Pooling investments
Pooling services
Merging plans
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POSSIBLE CHANGES FOR PENSION INDUSTRY
Consolidation of investment services
Asset Management
Fund Administration
Custody
Consolidation of pension services
Actuarial
Legal
Benefit consulting
Benefit administration
Accounting
Compliance
Increased EU wide competition and pressure on charges
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POSSIBLE MEMBER STATE COMPETITION
Benefits to being location of choice
Influences may include
Tax arrangements
Pension tradition/services available/skills/resources
Supervisory regime
Irish Activities Common Contractual Fund (CCF)
Tax transparent equity pooling vehicle
Pan-European Pensions Task Force Established under Department of Taoiseach
To examine opportunities for Ireland in international pensions area with
particular regard to EU developments
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IN CONCLUSION
Pensions Directive
Is a first step
Likely to be catalyst for major change
Pan-European Pensions Fund
Will take time
But WILL come about
And Ireland is open for opportunities