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