The EU has recently approved a major revision of the EU legislation on workplace pension schemes – the Directive on Institutions for Occupational Retirement Provision.
‘IORP II’, as it is known, was finalised in January 2017. Member States now have until 12 January 2019 to implement it.
Early in the process, the Commission was forced to drop controversial plans for a Solvency II-based ‘Holistic Balance Sheet’ approach to pension scheme funding. An alliance of five Governments (UK, Neth, Ger, Ire and Belg) opposed the plans, as did BusinessEurope, ETUC and PensionsEurope.
IORP II focuses on the governance of pension schemes and on their communications with individual members.
10 key points on the IORP Directive Mk II
- This is much more than a revision. It transforms the Directive with extensive new requirements on governance and communications. The number of Articles rises from 24 to 67.
- There is a significant change to the long-standing rules on funding of cross-border schemes. Article 14.3 still requires these to be fully funded at all times, but the text now continues ‘If this condition is not met, the competent authority of the home Member State shall promptly intervene and require the IORP to immediately draw up appropriate measures and implement them without delay in a way that members and beneficiaries are adequately protected’. This allows cross-border schemes to have deficits and put recovery plans in place.
- Transfers (all transfers, not just those across borders) will require consent from the transferring IORP’s regulator and authorisation from the receiving IORP’s regulator (Article 12.4c). EIOPA may mediate if the two regulators disagree.
- The final text addresses one of the concerns raised by the PLSA throughout the negotiation - the proposal that schemes would be deemed ‘cross-border’ simply by virtue of having beneficiaries (as opposed to active members) in another Member State. This would have turned any scheme with pensioners in Spain or another EU country into a cross-border scheme. Recital 14 now states clearly that IORPs will not become ‘cross-border’ simply because they have beneficiaries in another Member State.
- There is a series of references to environmental, social and governance factors. Article 19.1.b, on investment rules, allows IORPs to take account of these factors within the prudent person rule.
- Plans to require those who ‘effectively run the scheme’ – pension trustees – to have professional qualifications were blocked during negotiations.
- There are detailed new governance requirements on risk management, outsourcing and internal audit. Schemes will be compile a new Own Risk Assessment. Schemes will required to have a remuneration policy.
- The Pension Benefit Statement, which schemes will be required to send to ‘each member’ (including deferred members) at least annually, is detailed in Articles 39 and 40. These now set out a relatively simple list of the required contents. Member States will ‘exchange best practice’ on format and content.
- Although the Directive introduces the concept of depositories for DC schemes, with responsibility for safekeeping and oversight of assets, the final version leaves it up to Member States to decide whether to make this a requirement
- The implementation arrangements set out in Article 64 provide for two years from entry into force to full implementation by Member States.
By James Walsh
Policy Lead: EU & International
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Text of revised IORP directive - Nov 2016
Draft report for European Parliament, Brian Hayes MEP – July 2015
Fourth Presidency compromise text - 28 Nov 2014
Council Working Group compromise text - 17 September 2014
Draft IORP Directive Mk II – March 2014
EIOPA discussion paper on sponsor support (4.7.13)
Barnier announcement - shelving Pillar I (May 2013)
EIOPA QIS papers (Oct 2012)
IORP Directive text (2003)