PURPOSE: to establish an EU legal framework for institutions for occupational retirement provision.

LEGISLATIVE ACT: Directive (EU) 2016/2341 of the European Parliament and of the Council on the activities and supervision of institutions for occupational retirement provision (IORPs).

CONTENT: this Directive is a recast of Directive 2003/41/EC of the European Parliament and of the Council on the activities and supervision of institutions for occupational retirement provision. It lays down rules for the taking-up and pursuit of activities carried out by institutions for occupational retirement provision (IORPs) . They are a vital part of the Union economy, holding assets worth EUR 2.5 trillion on behalf of around 75 million members and beneficiaries.

This Directive is aimed at minimum harmonisation and therefore should not preclude Member States from maintaining or introducing further provisions in order to protect members and beneficiaries of occupational pension schemes.

Revising directive 2003/41/EC, the text has four specific objectives:

1. Clarifying procedures for cross-border activities : the Directive provides that Member States shall authorise IORPs registered or authorised in their territory:

to engage in cross-border activity . An IORP intending to engage in cross-border activity should be subject to the prior approval of the relevant competent authority of its home Member State; to transfer pension schemes to other IORPs across borders within the Union in order to facilitate the organisation of occupational retirement provision on a Union scale. Transfers should be subject to authorisation by the competent authority in the home Member State of the receiving IORP after that competent authority has received the consent of the competent authority of the home Member State of the IORP transferring the pension scheme.

Every IORP shall have: (i) sufficient and appropriate assets at all times to cover the technical provisions in respect of the total range of pension schemes operated; (ii) an adequate available solvency margin in respect of its entire business at all times which is at least equal to the requirements in this Directive in order to ensure long-term sustainability of occupational retirement provision.

2. Ensuring good governance and risk management : the IORPs shall:

put in place an effective system of governance which provides for sound and prudent management of their activities. The system of governance shall include consideration of environmental, social and governance factors related to investment assets in investment decisions; ensure that all persons who manage IORPs have the adequate professional qualifications and requirements for fit and proper management; establish and apply a sound remuneration policy in line with the long-term interests of members and beneficiaries of pension schemes operated by the IORP and shall include measures aimed at avoiding conflicts of interest and shall not encourage risk-taking which is inconsistent with the risk profiles and rules of the IORP; put in place a risk-management function, an internal audit function and, where applicable, an actuarial function; in the case of an occupational pension scheme where members and beneficiaries fully bear the investment risk, the home Member State may require the IORP to appoint one or more depositaries for the safe-keeping of assets and oversight duties.

3. Providing clear and relevant information to members and beneficiaries : the Directive places an obligation on IORPs to:

provide clear and adequate information to prospective members, members and beneficiaries including: (i) accrued pension entitlements; (ii) information on the investment profile (iii) the nature of investment risks; (iv) the options available to members and beneficiaries in receiving their retirement benefits; provide, every twelve months, a pension benefit statement (PBS) for the individual in the clearest possible way, also as a basis to feed information into a potential pension tracking service. The Pension Benefit Statement should be clear and comprehensive and should contain relevant and appropriate information to facilitate the understanding of pension entitlements over time and across schemes and serve labour mobility. It should provide information on pension benefit projections based on the retirement age.

4. Ensuring that supervisors have the necessary tools to effectively supervise IORPs : the Directive lays down that the competent authorities of the home Member State shall be responsible for the prudential supervision of IORPs. Member States shall ensure that their competent authorities may impose administrative sanctions and other measures applicable to all infringements of the national provisions implementing this Directive. Supervision of IORPs shall be prospective and risk-based . It shall comprise an appropriate combination of off-site activities and on-site inspections.

ENTRY INTO FORCE: 12.1.2017.

TRANSPOSITION: 13.1.2019 at the latest.

The European Parliament adopted by 512 to 70, with 40 abstentions, a legislative resolution on the proposal for a directive of the European Parliament and of the Council on the activities and supervision of institutions for occupational retirement provision (recast).

Parliament’s position, adopted at first reading following the ordinary legislative procedure, amended the Commission proposal as follows:

Subject matter and scope : IORPs play an important role in the long-term financing of the Union’s economy and in the provision of secure retirement benefits. They are a vital part of the Union economy , holding assets worth EUR 2.5 trillion on behalf of around 75 million members and beneficiaries.

In the internal market, institutions for occupational retirement provision (IORPs) should have the possibility to operate in other Member States while ensuring a high level of protection and security for members and beneficiaries of occupational pension schemes.

This Directive is aimed at minimum harmonisation and therefore should not preclude Member States from maintaining or introducing further provisions in order to protect members and beneficiaries of occupational pension schemes, provided that such provisions are consistent with Member States' obligations under Union law. This Directive does not concern issues of national social, labour, tax or contract law, or the adequacy of pension provision in Member States.

Registration or authorisation : Member States shall, in respect of every IORP, the main administration of which is located in their territories, ensure that the IORP is registered in a national register, or authorised , by the competent authority. The location of the main administration refers to the place where the main strategic decisions of an IORP are made.

Member States may provide that additional benefits such as the option of longevity and disability cover, provision for surviving dependants and a guarantee of repayment of contributions are offered to members with the agreement of the employers and the employees or their respective representatives.

Transfers of pension schemes :

in the case of a transfer of part of a pension scheme, the viability of both the transferred part and the remaining part of the pension scheme should be ensured and the rights of all members and beneficiaries should be adequately protected after the transfer, by requiring both the transferring and the receiving IORPs to have sufficient and appropriate assets to cover the technical provisions for the transferred part and the remaining part of the scheme; the transfer and its conditions should be subject to prior approval by a majority of the members and a majority of the beneficiaries concerned or where applicable, by a majority of their representatives, such as the trustees of a trust-based scheme; the transfer of all or a part of a pension scheme's liabilities, technical provisions, and other obligations and rights, as well as corresponding assets or cash equivalent thereof, between transferring and receiving IORPs shall be subject to authorisation by the competent authority of the home Member State of the receiving IORP after obtaining the prior consent of the competent authority of the home Member State of the transferring IORP; the transfer of all or a part of a pension scheme's liabilities, technical provisions, and other obligations and rights, as well as corresponding assets or cash equivalent thereof, between transferring and receiving IORPs shall be subject to authorisation by the competent authority of the home Member State of the receiving IORP after obtaining the prior consent of the competent authority of the home Member State of the transferring IORP; in the event of a whole or partial cross-border transfer of a pension scheme, where there is a disagreement between the competent authorities concerned, it should be possible for the European Insurance and Occupational Pensions Authority (EIOPA) to carry out mediation.

Governance systems :

the system of governance shall include consideration of environmental, social and governance factors related to investment assets in investment decisions, and shall be subject to regular internal review. Member States shall ensure that IORPs establish and apply written policies in relation to risk management, internal audit and, where relevant, actuarial and outsourced activities; persons who effectively run an IORP should collectively be fit and proper and persons who carry out key functions (the actuarial or internal audits, etc) should have adequate knowledge and experience and, where applicable, adequate professional qualifications.

Remuneration policy : Member States shall require IORPs to establish and apply a sound remuneration policy for all those persons who effectively run the IORP, carry out key functions and other categories of staff whose professional activities have a material impact on the risk profile of the IORP in a manner that is proportionate to their size and internal organisation, as well as to the size, nature, scale and complexity of their activities.

The remuneration policy shall comply with the following principles:

be in line with the long-term interests of members and beneficiaries of pension schemes operated by the IORP; be consistent with sound and effective risk management and shall not encourage risk-taking which is inconsistent with the risk profiles; it shall include measures aimed at avoiding conflicts of interest.

Outsourcing : IORPs should be allowed to entrust any activity, including key functions, in whole or in part, to service providers operating on their behalf. IORPs should remain fully responsible for discharging all of their obligations under this Directive when they outsource key functions or any other activities. IORPs should enter into a written agreement with the service provider when outsourcing any activity.

Information on the pension scheme : Member States shall, in respect of every IORP registered or authorised in their territories, ensure that members and beneficiaries are sufficiently informed about the respective pension scheme operated by the IORP, in particular concerning:

information on the investment profile ; the nature of financial risks borne by the members and beneficiaries; the conditions regarding full or partial guarantees under the pension scheme; the mechanisms protecting accrued entitlements or the benefit reduction mechanisms; where members bear investment risk or can take investment decisions, information on the past performance of investments related to the pension scheme for a minimum of five years; the options available to members and beneficiaries in receiving their retirement benefits; further information about the arrangements relating to such a transfer.

Where prospective members do not have a choice and are automatically enrolled in a pension scheme, the IORP should provide them with the key relevant information about their membership promptly after enrolment.

Pension Benefit Statement : the Pension Benefit Statement should be clear and comprehensive and should contain relevant and appropriate information to facilitate the understanding of pension entitlements over time and across schemes and serve labour mobility.

The Statement should provide information on pension benefit projections based on the retirement age. If the pension benefit projections are based on economic scenarios, that information shall also include a best estimate scenario and an unfavourable scenario, taking into consideration the specific nature of the pension scheme.

Prudential supervision : Member States shall ensure that their competent authorities may impose administrative sanctions and other measures applicable to all infringements of the national provisions implementing this Directive, and shall take all measures necessary to ensure that they are implemented. Administrative sanctions and other measures are effective, proportionate and dissuasive.

The Committee on Economic and Monetary Affairs adopted the report by Brian HAYES (EPP, IE) on the proposal for a directive of the European Parliament and of the Council on the activities and supervision of institutions for occupational retirement provision (recast).

The committee recommended that the European Parliament’s position, adopted at first reading following the ordinary legislative procedure, should amend the Commission proposal as follows:

Purpose and scope : Members stressed that institutions for occupational retirement provision play an important role in the long-term financing of the Union’s economy and in providing secure retirement benefits for citizens of the Union. Member States should take into account the objective for all institutions of ensuring the intergenerational balance of occupational pension schemes, by aiming to have an equitable spread of risks and benefits between generations .

This Directive aims to provide for minimum harmonisation and should not preclude Member States from maintaining or introducing further provisions in order to protect members and beneficiaries, provided that such provisions are consistent with Member States' obligations under Union law. The Directive does not concern issues of national social, labour, tax , and contract law, nor the adequacy of pension provisions in Member States,.

The Directive shall:

encourage Member States to build up safe and adequate occupational pension provision and facilitate cross-border activity; ensure good governance, provision of information to scheme members, transparency and safety of occupational retirement provision; facilitate the development of new and innovative pension products within collective systems which aim to guarantee adequate retirement provisions for all; clarify the procedures enabling institutions to carry out cross-border activity and remove unnecessary obstacles, which hamper such cross-border activity.

Registration or authorisation : Member States shall, in respect of every institution located in their territories, ensure that the institution is registered in a national register, or authorised, by the competent authority. The location of the main administration refers to the place where the main strategic decisions of an institution are made. Member States shall require an institution to have its main administration in the same Member State as its registered office.

Transfers of pension schemes : according to the amended text, Member States shall allow institutions authorised or registered in their territories to transfer all or a part of a pension scheme's liabilities, technical provisions, other obligations and rights and corresponding assets, and cash equivalent thereof, to a receiving institution. In the event of a transfer of part of a pension scheme, Member States shall require the transferring and the receiving institution to have sufficient and appropriate assets to cover the technical provisions for the transferred part and the remaining part of the scheme.

The transfer and its conditions shall be made subject to prior approval by a majority of members and a majority of the beneficiaries concerned or, where applicable, by a majority of their representatives. Members stated that the application for authorisation of the transfer shall be submitted by the receiving institution.

Duty of Care : where a cross-border transfer has been approved by members and beneficiaries of a pension scheme and where the transferring institution provides cover against biometric risks or guarantees either an investment performance or a given level of benefits, the European Insurance and Occupational Pensions Authority (EIOPA) shall, at the request of the competent authorities of the home Member State of the transferring institution, assess: (i) whether there could be any systemic risk to the Union financial system arising from the transfer and, (ii) whether the long-term interests of members and beneficiaries are negatively affected if the scheme were to be operated in the home Member State of the receiving institution.

System of governance : institutions shall establish and apply written policies in relation to risk management and internal audit. Those written policies shall be subject to prior approval by the management or supervisory body of the institution and shall be reviewed at least every three years.

Persons who effectively run the institution should collectively be fit and proper and persons who perform key functions should have adequate professional qualifications, knowledge and experience . However, only the key function holders should be subject to notification requirements to the competent authority.

Member States shall require institutions to establish and apply a sound remuneration policy for all those persons who effectively run the institution, perform key functions and other categories of staff whose professional activities have a material impact on the risk profile of the institution.

The remuneration policy is in line with the risk profile and the long-term interests of members and beneficiaries of pension schemes operated by the institution.

Member States should be able to authorise the institution to conduct key functions through the same person or through an organisational unit provided that no conflict of interest exists and the institution has adequate measures to address and prevent any conflict of interest.

Information to be given to prospective members, members and beneficiaries : in order to protect members and beneficiaries, institutions for occupational retirement provision should limit their activities, and those arising therefrom, to those referred to in this Directive and provide clear and relevant information to members and beneficiaries for the purpose of ensuring good governance and risk management.

Where prospective members do not have a choice and are automatically enrolled in a pension scheme, the institution should provide them with the key relevant information about their membership immediately after enrolment.

Beneficiaries shall also be informed of any potential reduction in the level of benefits due, prior to any decision on such a potential reduction.

Member States shall ensure that members are sufficiently informed of the conditions of the pension scheme, in particular concerning the risks borne by members and beneficiaries associated with the pension scheme.

Pension benefit statement : institutions shall be required to draw up a concise document containing key relevant information for each member . The pension benefit statement should be clear and comprehensible and should contain relevant and appropriate information to facilitate the understanding of pension entitlements over time and across schemes and serve labour mobility. The information contained in the pension benefit statement shall be accurate, and updated and sent to each member, free of charge, at least annually.

Prudential supervision : Member States shall lay down rules on administrative penalties and other administrative measures applicable to all infringements of the national provisions transposing this Directive.

The competent authority shall publish without undue delay any administrative penalty or other administrative measure that has been imposed for an infringement of the national provisions transposing this Directive, and against which no appeal was lodged in time, including information on the type and nature of the infringement and the identity of persons held responsible.

It is stipulated that Articles 66 (professional secrecy) and 67 (use of confidential information) shall be without prejudice to the powers of investigation conferred on the European Parliament.

Closing the gender pension gap : taking into account that the gender pension gap in the Union is 39 % on average, the Commission should study extensively the impact of different pillars, pensions systems and their structures on both women and men. Based on the results, the Commission should propose actions and possible structural changes that are needed in order to ensure equal levels of pensions for women and men across the Member States.

PURPOSE: to facilitate the development of occupational retirement savings.

PROPOSED ACT: Directive of the European Parliament and the Council.

ROLE OF THE EUROPEAN PARLIAMENT: the European Parliament decides in accordance with the ordinary legislative procedure and on an equal footing with the Council.

BACKGROUND: European society is ageing. Pension systems across the European Union (EU) have to adapt in order to ensure adequate, safe and sustainable pensions.

The institutions for occupational retirement provision (IORPs) sector is being developed in many Member States where occupational pensions so far play a limited role, including by setting up regulatory frameworks. Failing to provide an up-to-date EU regulatory framework now entails the risk that Member States continue to develop diverging solutions, thereby exacerbating regulatory fragmentation. Furthermore, improvements to the performance of occupational pensions require long periods of time to materialise.

According to the Commission, a revision of Directive 2003/41/EC on the activities and supervision of institutions for occupational retirement provision is necessary for the following reasons:

(1) protect members and beneficiaries , and facilitate safe cross-border provisioning through higher governance standards reflecting best practices at national level following the economic and financial crisis;

(2) reduce the obstacles to develop cross border occupational pensions markets, which would help companies, including SMEs and multinationals, to organise their pension provision on a European scale more efficiently;

(3) there is evidence of significant gaps in the level of information provided to scheme members and beneficiaries across the EU.

This proposal builds on a number of initiatives launched in recent years such as the White Paper on pensions and the Green Paper on long-term financing of the European economy.

IMPACT ASSESSMENT: this proposal is accompanied by an impact assessment report that considers a range of policy options and sub-options. The report was first submitted to the Impact Assessment Board on 4 September 2013. The Board asked for resubmission with additional information on the views of the different stakeholder groups, problem definition, subsidiarity and proportionality aspects, options and expected impacts.

The impact assessment was resubmitted on 16 October 2013. On 6 November the Board stated it could not issue a positive opinion and requested some further amendments.

CONTENT: this proposal to recast Directive 2003/41/EC has four specific objectives:

1. Removing remaining prudential barriers for cross-border IORPs , notably by:

requiring that the rules on investment and disclosure of information to members and beneficiaries are those of the home Member State, clarifying procedures for cross-border activities, clearly defining the scope of action of home and host Member State.

2. Ensuring good governance and risk management : the proposal: (i) establishes that institutions need to have in place an effective system of governance which provides for sound and prudent management of their activities; (ii) sets out that institutions must have a sound remuneration policy; (iii) provides for an effective internal audit function which evaluates the adequacy and effectiveness of the internal control system; (iv) sets out that IORPs need to appoint a single depositary for safekeeping of assets and oversight duties if members and beneficiaries fully bear the investment risk.

3. Providing clear and relevant information to members and beneficiaries : the proposal places an obligation on IORPs to provide, every twelve months, a pension benefit statement (‘PBS’) for the individual in the clearest possible way, also as a basis to feed information into a potential pension tracking service.

4. Ensuring that supervisors have the necessary tools to effectively supervise IORPs : the proposal lays down that the competent authority of the home Member State has the sole responsibility for the prudential supervision of all IORPs authorised or registered in its jurisdiction. It establishes the principle that supervision of IORPs needs to be prospective and risk-based, as well as timely and proportionate. In addition, the proposal introduces the supervisory review process which aims to identify IORPs with financial, organisational or other features susceptible to producing a higher risk profile.

BUDGETARY IMPLICATIONS: the budgetary implications relate to tasks allocated to European Insurance and Occupational Pensions Authority (EIOPA).

No new resources will be needed. Operation appropriations which are necessary for the implementation of this initiative will be covered by redeployment within the contribution granted to EIOPA during the annual budgetary procedure, in accordance with the financial programming set by the Communication from the Commission "Programming of human and financial resources for decentralised agencies 2014-2020". The estimated impact on expenditure is EUR 2.035 million for the period 2015-2020.