CROSS-BORDER PENSIONS / CROSS-BORDER PENSIONS / PENSIONS MARKET IN IRELANDPENSIONS MARKET IN IRELAND
Anne Maher 16 November, 2005Chief Executive CologneThe Pensions BoardIreland
EUROFORUMEUROFORUM
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AgendaAgenda Cross-Border pensions
• Requirements
• Who might use them
• Influences Ireland
Implementation of EU Pensions Directive Pension supervision As pensions location
Next Steps
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Cross-Border PensionsCross-Border Pensions
Member States must allow:• Undertakings in their territories to sponsor
IORPs located in other Member States
• IORPs in their territories to accept sponsorship from undertakings located in other Member States
which is ‘cross-border’ activity
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Cross-Border PensionsCross-Border PensionsRegulatory Requirements
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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Cross-Border PensionsCross-Border Pensions
Regulatory Requirements (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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Cross-Border PensionsCross-Border Pensions
Protocol
Agreement between supervisors to co-operate in supervising cross-border IORPS
Not yet agreed
Currently out for 2nd consultation period
Target is to get signed in February 2006
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Cross-Border PensionsCross-Border PensionsProtocol
Sets out Aims General principles Aspirations General matters (e.g. language)Covers Exchange of information Ongoing supervision Respective roles
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Cross-Border PensionsCross-Border Pensions
For Whom?
Single employer/single country scheme might consider relocation
Multinational employer might consider
• Pooling investments
• Pooling services
• Merging schemes in one location
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Cross-Border PensionsCross-Border PensionsReasons to relocate
Single employer/single country scheme Regulatory/supervisory regime?
Multinational employer Better governance/control
Single governance regime
Economies of scale/cost savings
Corporate change/culture
Accommodate mobile employees
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Cross-Border PensionsCross-Border Pensions
Influences on choice of location
Tax arrangements
Pension tradition/services available
Availability of tried and tested pension skills/resources
Regulatory/compliance regime
Ability to accommodate countries outside EU
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Ireland – Implementation of EU Ireland – Implementation of EU Pensions DirectivePensions Directive
Social Welfare and Pensions Act 2005 Statutory Regulations and Instruments
(September 2005) on:• investments• trustees• funding Standard• professional Guidance• preservation of benefits• disclosure of information• cross border
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Ireland – Implementation of EU Ireland – Implementation of EU Pensions DirectivePensions Directive
Social and Labour Law includes
• Preservation of benefits
• Pensions Ombudsman
• Disclosure of information and remittance of contributions
• No reduction in payable benefits because of Social Welfare pension increases
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Ireland – Pension SupervisionIreland – Pension Supervision
Supervisory Players in Pensions
The Pensions Board
The Financial Regulator
Revenue Commissioners
Pensions Ombudsman
Professionals (actuaries, auditors, administrators,
custodians, investment managers)
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Ireland – Pension SupervisionIreland – Pension SupervisionPrinciples of Pension Regulation
To maintain balance between necessary regulation and unnecessary cost
Voluntary nature of plans Trust-based system – role of trustees (but open to other
vehicles) Duty on trustees to comply Information disclosure Promotion of pension security Securing compliance without recourse to legal action
unless necessary
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Ireland – Pension SupervisionIreland – Pension Supervision
Regulatory Powers
Power to investigate
Power to prosecute
Power to remove trustees
Power to restore assets
Power to dispose of assets
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Ireland – Pension SupervisionIreland – Pension SupervisionRegulatory/Supervisory Activities
Scheme registration – schemes required to register with Pensions Board
Funding Standard – requirement to submit an Actuarial Funding Certificate (AFC) at specific times
Disclosure Compliance – conduct random audits of schemes
Ongoing discussions with relevant parties (e.g. trustees, advisers, providers)
Investigations – regular or arising from whistleblow reports
Prosecutions
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Ireland as Pensions LocationIreland as Pensions Location Tax arrangements
Irish law incorporates cross border tax reliefs
Pension tradition/services available Ireland has long established private pension structure
Availability of tried and tested pension skills/resources Investment, Actuarial, Accounting, Legal, Benefit consulting,
Benefit Administration, Compliance skills available in Ireland
Regulatory/compliance regime Acceptable, and balanced regulation by open and accessible
regulators supervisors in Ireland
Ability to accommodate countries outside EU Global services available in Ireland
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Ireland as Pensions LocationIreland as Pensions Location
Pan-European Pensions Task Force
• Examining opportunities in international pensions area
Suite of asset pooling vehicles
• Unit Trust (Fixed Income Investments)
• Limited Partnership
• UCITS CCF (Equities Investments)
• Non-UCITS CCF (Alternative Investments)
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Ireland as Pensions LocationIreland as Pensions Location
Common Contractual Fund (CCF) Specialised transparent fund structure facilitating the
pooling of pension fund assets
Investors treated as if they own a proportion of underlying investments thus being considered the direct holder, while investments are co-mingled in larger pool. In this way Pension Fund benefits from a larger scale of operations while retaining all individual rights.
CCF can be set up as a single fund or as an umbrella fund with multiple sub funds
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Ireland as Pensions LocationIreland as Pensions Location
Common Contractual Fund (CCF)
Use of sub-funds allows investor to weigh investment in various funds to best match their profile
Available in UCITS structure facilitating cross border investment in Equities without additional penalties
Also available in non-UCITS format allowing wider variety of assets to be considered (Derivatives, Hedge Funds, Property)
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Ireland as Pensions LocationIreland as Pensions LocationAdvantages of using CCF
Facilitates investment in Equities Tax transparency – income treated as accruing to each
investor Allows for wider risk spreading No subscription tax or VAT generally applicable Exemption on tax from income and gains Investors benefit from home country tax treaty benefits as a
result of transparent status Single v’s Multi Manager Structures Legal Structure combined with Tax Transparency enable the
benefits of pension pooling to be achieved
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Ireland as Pensions LocationIreland as Pensions LocationWhy Ireland for Pooling
Ireland has available a suite of Pension Pooling investment vehicles, e.g. Unit Trusts, Common Contractual Funds (CCF) etc.
Experienced International Legal Firms Big Four Accountancy Firms providing tax advice 12.5% Corporation Tax Rate on all Trading Activities Prudent but Progressive Regulatory Environment for
Funds World-class Pool of Service Providers Significant investment in the infrastructure required to
service the pooling of assets Pension pooling already happening
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Next StepsNext Steps
Clarification of some Directive requirements Finalisation of Protocol between Member
State pension supervisors Consideration and decision on location by
pension scheme sponsors and those managing schemes
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In ConclusionIn Conclusion Pensions Directive
Is a first step Provides a framework for change Investment/asset pooling is 1st step Liability pooling – centralised administration are
next steps
Full Pan-European Pension Funds Will take time But WILL come about