Member States shall ensure that IORPs outsourcing key functions, the management of those IORPs, or other activities covered by this Directive enter into a written agreement with the service provider. 4. Member States should protect workers from old-age poverty and promote supplementary pension schemes linked to employment contracts as additional coverage to public pensions. Since IORPs aim to ensure financial security in retirement, the retirement benefits paid by them should generally take the form of payments for life, payments to be made for a temporary period, lump sum payments, or any combination thereof. Required solvency margin for the purpose of Article 17(3). By derogation from paragraph 1, where a pension scheme is being wound up, Member States may allow confidential information to be divulged in civil or commercial proceedings. Competent authorities may also restrict or prohibit the free disposal of the IORP's assets when, in particular: the IORP has failed to establish sufficient technical provisions in respect of the entire business or has insufficient assets to cover the technical provisions; the IORP has failed to hold the regulatory own funds. Sufficient and appropriate assets to cover the technical provisions should be required to protect the interests of members and beneficiaries of the pension scheme if the sponsoring undertaking becomes insolvent. Where the sponsoring undertaking and the IORP are located in the same Member State, the mere fact that members or beneficiaries of a pension scheme have their residence in another Member State does not in itself constitute a cross-border activity. If a cross-border transfer of a pension scheme leads to cross-border activity, the provisions on cross-border activity should then apply. On receiving the communication referred to in paragraph 7, or if no communication is received from the competent authority of the home Member State on expiry of the period provided for in paragraph 7, the IORP may start to carry out a cross-border activity in accordance with the host Member State's requirements of social and labour law relevant to the field of occupational pension schemes and with the host Member State's information requirements as referred to in paragraph 7. A new European Pensions Directive(the Directive) came into force in January 2017. From that sum there shall then be deducted the total amount of premiums or contributions cancelled in the previous financial year, as well as the total amount of taxes and levies pertaining to the premiums or contributions entering into the aggregate. It is not appropriate, therefore, to adopt a ‘one-size-fits-all’ approach to IORPs. Member States shall also inform the other Member States and the Commission of the authorities or bodies to which the documents referred to in paragraphs 3, 4 and 5 are to be submitted in support of an application to pursue the activities referred to in Article 11 in the territory of that Member State. made available to prospective members, members and beneficiaries free of charge through electronic means, including on a durable medium or by means of a website, or on paper. The required solvency margin shall be equal to the sum of the following results: a 4 % fraction of the mathematical provisions relating to direct business and reinsurance acceptances gross of reinsurance cessions shall be multiplied by the ratio, which shall not be less than 85 %, for the previous financial year, of the mathematical provisions net of reinsurance cessions to the gross total mathematical provisions; for policies on which the capital at risk is not a negative figure, a 0,3 % fraction of such capital underwritten by the IORP shall be multiplied by the ratio, which shall not be less than 50 %, for the previous financial year, of the total capital at risk retained as the IORP's liability after reinsurance cessions and retrocessions to the total capital at risk gross of reinsurance. To that sum there shall be added the amount of claims paid in respect of reinsurances or retrocessions accepted during the same periods and the amount of provisions for claims outstanding established at the end of the previous financial year both for direct business and for reinsurance acceptances. The competent authority of the host Member State shall inform the competent authority of the home Member State of any significant change in the host Member State's requirements of social and labour law relevant to the field of occupational pension schemes which may affect the characteristics of the pension scheme insofar as it concerns the cross-border activity, and any significant change in the host Member State's information requirements as referred to in paragraph 7. A part reason for the implementation of IORP II is to harmonise pension investment in the EU with the goals of the EU Capital Markets Union (CMU), to invest in infrastructure projects and to reduce the reliance on the banking sector in the event of another global crash by creating a source of finance from domestic pension schemes. 2. However, this should not undermine the right of such IORPs to appoint investment managers established and duly authorised in another Member State for the management of their investment portfolio, and custodians or depositaries established and duly authorised in another Member State for the custody of their assets. This can cause problems where an IORP needs to comply with the prudential regulation of its home Member State whilst simultaneously complying with the social and labour law of its host Member State. 11. 3. IORP II Directive The new EU Directive on the activities and supervision of institutions for occupational retirement provision (IORP II) was adopted in 2016. After transmission of the draft legislative act to the national parliaments. IORPs carrying out cross-border activity shall be subject to the information requirements referred to in Title IV imposed by the host Member State in respect of the prospective members, members and beneficiaries which that cross-border activity concerns. 3. 1. (15)  Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies (OJ L 302, 17.11.2009, p. 1). The information on the conditions of the transfer shall be made available to the members and beneficiaries concerned and, where applicable, to their representatives, in a timely manner by the transferring IORP before the application referred to in paragraph 4 is submitted; and. “This will probably go above and beyond what most trustees are used to, and we’d expect significant costs for trustees to comply,” she told IPE. 1. Where there is a significant change in the risk profile of a specific pension scheme, the risk assessment may be limited to that pension scheme. Any decision to prohibit or restrict the activities of an IORP shall contain detailed reasons and be notified to the IORP in question. Financial institutions which already benefit from a Union legislative framework should in general be excluded from the scope of this Directive. Where, on the entry into force of this Directive, home Member States applied provisions referred to in Article 4 of Directive (EU) 2016/2341, those home Member States may continue to apply the laws, regulations and administrative provisions that had been adopted by them with a view to complying with Articles 1 to 19, Articles 27 to 30, Articles 32 to 35 and Articles 37 to 67 of Directive 2002/83/EC as in force on 31 December 2015 for a transitional period expiring on 31 December 2022. Furthermore, 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 EIOPA to carry out mediation. 1. ‘IORP II’, as it is known, was finalised in January 2017. It was adopted into EU law in December 2016 and needed to be implemented into the law of EU member states by 13 January 2019. Remuneration policies which encourage excessive risk-taking behaviour can undermine the sound and effective risk management of IORPs. Member States shall not restrict IORPs from appointing, for the management of the investment portfolio, investment managers established in another Member State and duly authorised for this activity, in accordance with Directives 2009/65/EC, 2009/138/EC, 2011/61/EU, 2013/36/EU and 2014/65/EU, as well as the authorised entities referred to in Article 2(1) of this Directive. This document is an excerpt from the EUR-Lex website, Directive (EU) 2016/2341 of the European Parliament and of the Council of 14 December 2016 on the activities and supervision of institutions for occupational retirement provision (IORPs) (Text with EEA relevance ), OJ L 354, 23.12.2016, p. 37–85 (BG, ES, CS, DA, DE, ET, EL, EN, FR, HR, IT, LV, LT, HU, MT, NL, PL, PT, RO, SK, SL, FI, SV), ELI: http://data.europa.eu/eli/dir/2016/2341/oj, DIRECTIVE (EU) 2016/2341 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL, on the activities and supervision of institutions for occupational retirement provision (IORPs). Member States shall ensure that the competent authorities duly consider the potential impact of their actions on the stability of the financial systems in the Union, in particular in emergency situations. Where, in accordance with national law, IORPs do not have legal personality, Member States shall apply this Directive either to those IORPs or, subject to paragraph 2, to those authorised entities responsible for operating them and acting on their behalf. and which carries out activities directly arising therefrom; ‘pension scheme’ means a contract, an agreement, a trust deed or rules stipulating which retirement benefits are granted and under which conditions; ‘sponsoring undertaking’ means any undertaking or other body, regardless of whether it includes or consists of one or more legal or natural persons, which acts as an employer or in a self-employed capacity or any combination thereof and which offers a pension scheme or pays contributions to an IORP; ‘retirement benefits’ means benefits paid by reference to reaching, or the expectation of reaching, retirement or, where they are supplementary to those benefits and provided on an ancillary basis, in the form of payments on death, disability, or cessation of employment or in the form of support payments or services in case of sickness, indigence or death. Other information and documents to be provided, Information to be given to prospective members. The sum so obtained shall be multiplied by the ratio existing in respect of the sum of the previous three financial years between the amount of claims remaining to be borne by the IORP after deduction of amounts recoverable under reinsurance and the gross amount of claims. Monitoring implementation and enforcement of Directive 2016/2341/EU. Where an IORP itself provides cover against biometric risks or guarantees either an investment performance or a given level of benefits, Member States shall require that IORP to provide for an effective actuarial function to: coordinate and oversee the calculation of technical provisions; assess the appropriateness of the methodologies and underlying models used in the calculation of technical provisions and the assumptions made for this purpose; assess the sufficiency and quality of the data used in the calculation of technical provisions; compare the assumptions underlying the calculation of the technical provisions with the experience; inform the administrative, management or supervisory body of the IORP of the reliability and adequacy of the calculation of technical provisions; express an opinion on the overall underwriting policy in the event of the IORP having such a policy; express an opinion on the adequacy of insurance arrangements in the event of the IORP having such arrangements; and. 3. A genuine internal market for occupational retirement provision remains crucial for economic growth and job creation in the Union and for tackling the challenge of an ageing society. More are expected to follow as insurers seek to move pension assets out from the restrictive Solvency II framework. 8. 2. An internal market for IORPs requires mutual recognition of prudential standards. 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. In order to promote a level playing field between domestic and cross-border IORPs, Member States should take into consideration the funding requirements for both domestic and cross-border IORPs. Investments in shares in currencies other than those of the liabilities and in other instruments that have a long-term economic profile and are not traded on regulated markets, MTFs or OTFs should therefore not be restricted, in line with the prudent person rule so as to protect the interest of members and beneficiaries, except on prudential grounds. For operations referred to in point (b)(i) of Article 2(3) of Directive 2009/138/EC, the required solvency margin shall be equal to 1 % of their assets. 8. Where the competent authority of the home Member State is notified under paragraph 3, and unless it has issued a reasoned decision that the administrative structure or the financial situation of the IORP or the good repute or professional qualifications or experience of the persons running the IORP are not compatible with the proposed cross-border activity, that competent authority shall within three months of receiving all the information referred to in paragraph 3 communicate that information to the competent authority of the host Member State and inform the IORP accordingly. Employers will be given the right to set up a pension plan for their employees via a fund manager. Therefore, the host Member States should not be allowed to impose additional investment requirements on IORPs located in other Member States. The imminent introduction of the EU’s IORP II directive in Ireland has been described by the Pensions Authority as the most significant regulatory change in at least a generation. 1. Repealed Directive with list of its successive amendments, Directive 2003/41/EC of the European Parliament and of the Council, Directive 2009/138/EC of the European Parliament and of the Council, Directive 2010/78/EU of the European Parliament and of the Council, Directive 2011/61/EU of the European Parliament and of the Council, Directive 2013/14/EU of the European Parliament and of the Council, List of time-limits for transposition into national law and application, Article 20(11) third and fourth subparagraphs, Use quotation marks to search for an "exact phrase". Member States shall ensure that a depositary's liability, as referred to in paragraph 3, shall not be affected by the fact that it has entrusted to a third party all or some of the assets in its safe-keeping. Directive 2003/41/EC, as amended by the Directives listed in Annex I, Part A, is repealed with effect from 13 January 2019 without prejudice to the obligations of the Member States relating to the time-limits for transposition into national law and the dates of application of the Directives set out in Annex I, Part B. References to the repealed Directive 2003/41/EC shall be construed as references to this Directive and shall be read in accordance with the correlation table in Annex II. As a general principle, IORPs should, where relevant, take into account the objective of ensuring the intergenerational balance of occupational pension schemes, by aiming to have an equitable spread of risks and benefits between generations in occupational retirement provision. The Irish Association of Pension Funds has called for an exemption from IORP II rules for pension funds with 100 members or fewer until suitable consolidation options become available. The amount so obtained shall be divided into two portions, the first extending up to EUR 50 000 000, the second comprising the excess; 18 % of the first portion and 16 % of the second shall be added together. 1. Read our policy. Member States may, taking into account the size, nature, scale and complexity of the activities of the IORP, allow the IORP to carry out key functions through the same single person or organisational unit as in the sponsoring undertaking, provided that the IORP explains how it prevents or manages any conflicts of interest with the sponsoring undertaking. 5. IORPs play an important role in the long-term financing of the Union's economy and in the provision of secure retirement benefits. They shall immediately communicate the text of those measures to the Commission. Investments in assets issued by the same issuer or by issuers belonging to the same group shall not expose an IORP to excessive risk concentration; investment in the sponsoring undertaking shall be no more than 5 % of the portfolio as a whole and, when the sponsoring undertaking belongs to a group, investment in the undertakings belonging to the same group as the sponsoring undertaking shall not be more than 10 % of the portfolio. Ireland has missed the deadline for implementing IORP II. This Directive is without prejudice to the role of social partners in the management of IORPs. 1. Falling active membership and changes to insurance premiums were already putting the fund under pressure before IORP II came along. ensure that income produced by assets is applied in accordance with the rules of the IORP. In November 2018, Aviva France set up the country’s first FRPS and transferred €4bn of pension fund assets to the vehicle. The competent authorities may authorise the early repayment of such loans provided application is made by the issuing IORP and its available solvency margin will not fall below the required level; loans the maturity of which is not fixed shall be repayable only subject to five years' notice unless the loans are no longer considered as a component of the available solvency margin or unless the prior consent of the competent authorities is specifically required for early repayment. 3. (2)  Position of the European Parliament of 24 November 2016 (not yet published in the Official Journal) and decision of the Council of 8 December 2016. Where the required solvency margin as calculated in paragraphs 2 to 4 is lower than the required solvency margin of the preceding year, the required solvency margin shall be at least equal to the required solvency margin of the preceding year, multiplied by the ratio of the amount of the technical provisions for claims outstanding at the end of the previous financial year and the amount of the technical provisions for claims outstanding at the beginning of the previous financial year. The information received by the authorities, bodies and persons referred to in paragraph 1 shall be subject to the rules on professional secrecy laid down in Article 52. IORP II is the key European regulation for workplace pension funds, replacing the 2003 IORP Directive. 8. It also pushed back at the German government’s initial proposal for implementing IORP II, which it claimed would have pushed pension funds towards an insurance-type framework similar to Solvency II. The Pension Benefit Statement shall specify where and how to obtain supplementary information including: further practical information about the member's options provided under the pension scheme; the information specified in Articles 29 and 30; where applicable, information about the assumptions used for amounts expressed in annuities, in particular with respect to the annuity rate, the type of provider and the duration of the annuity; information on the level of benefits, in case of cessation of employment. Upon application, with supporting evidence, by the IORP to the competent authority of the home Member State and with the agreement of that competent authority, the available solvency margin may also comprise: where Zillmerising is not practised or where, if practised, it is less than the loading for acquisition costs included in the premium, the difference between a non-Zillmerised or partially Zillmerised mathematical provision and a mathematical provision Zillmerised at a rate equal to the loading for acquisition costs included in the premium; any hidden net reserves arising out of the valuation of assets, insofar as such hidden net reserves are not of an exceptional nature; one half of the unpaid share capital or initial fund, once the paid-up part amounts to 25 % of that share capital or fund, up to 50 % of the available or required solvency margin, whichever is the lesser. Environmental, social and governance factors, as referred to in the United Nations-supported Principles for Responsible Investment, are important for the investment policy and risk management systems of IORPs. EU member states had until 13 January 2019 to transpose IORP II into national law. Information should be adequate to the needs of the user and should take into account the United Nations Convention on the Rights of Persons with Disabilities, in particular as regards accessibility and access to information, as provided for in Articles 3 and 21 thereof respectively. National provisions of a prudential nature. IORPs should be completely separated from any sponsoring undertaking and operate on a funded basis for the purpose of providing retirement benefits. Therefore, Member States should be given some discretion on the precise investment rules that they wish to impose on IORPs located in their territories. Member States shall allow IORPs registered or authorised in their territories to transfer 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, to a receiving IORP. To that sum there shall be added the amount of premiums accepted for all reinsurance in the previous financial year. National rules concerning the participation of self-employed persons in IORPs differ. 1. They shall also include a statement that references in existing laws, regulations and administrative provisions to the Directives repealed by this Directive shall be construed as references to this Directive. Those rules shall be applied by IORPs to determine, where relevant, the annual rate of nominal investment returns, the annual rate of inflation and the trend of future wages. The depositary shall be appointed by means of a written contract. 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: the name of the IORP, the Member State in which the IORP is registered or authorised and the name of its competent authority; the rights and obligations of the parties involved in the pension scheme; the nature of financial risks borne by the members and beneficiaries; the conditions regarding full or partial guarantees under the pension scheme or of a given level of benefits or, where no guarantee is provided under the pension scheme, a statement to that effect; the mechanisms protecting accrued entitlements or the benefit reduction mechanisms, if any; 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, or for all the years that the scheme has been operating where this is less than five years; the structure of costs borne by members and beneficiaries, for schemes which do not provide for a given level of benefits; the options available to members and beneficiaries in receiving their retirement benefits; in case a member has the right to transfer pension rights, further information about the arrangements relating to such a transfer. The internal audit function shall include an evaluation of the adequacy and effectiveness of the internal control system and other elements of the system of governance, including, where applicable, outsourced activities. Member States shall ensure that competent authorities have the necessary powers to review the strategies, processes and reporting procedures which are established by IORPs to comply with the laws, regulations and administrative provisions adopted pursuant to this Directive, taking into account the size, nature, scale and complexity of the activities of the IORP. 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. However, the introduction in 2016 of France’s Sapin II law and the “fond de retraite professionalle supplémentaire” (FRPS) model has paved the way for a new type of pension fund that is subject to the EU directive. Tony Bacon, senior consultant at LCP, has warned that the DWP risked falling foul of the European Commission if it had not implemented the directive properly – although with the UK’s departure from the EU imminent, it is unclear how much authority the Commission would have. The annual accounts and information in the reports shall be consistent, comprehensive, fairly presented and duly approved by authorised persons, in accordance with national law. Beneficiaries should also be informed of any reduction in the level of benefits due, prior to the application of any such reduction, after a decision which will result in a reduction has been taken. If, despite the measures taken by the competent authority of the home Member State or because appropriate measures are lacking in the home Member State, the IORP persists in breaching the applicable provisions of the host Member State's requirements of social and labour law relevant to the field of occupational pension schemes or the host Member State's information requirements as referred to in paragraph 7, the competent authority of the host Member State may, after informing the competent authority of the home Member State, take appropriate measures to prevent or penalise further irregularities, including, insofar as is strictly necessary, preventing the IORP from operating in the host Member State for the sponsoring undertaking. For a PDF version of this Alert please click here. (8)  Regulation (EC) No 45/2001 of the European Parliament and of the Council of 18 December 2000 on the protection of individuals with regard to the processing of personal data by the Community institutions and bodies on the free movement of such data (OJ L 8, 12.1.2001, p. 1). The competent authorities shall require every IORP registered or authorised in their territories to have sound administrative and accounting procedures and adequate internal control mechanisms. In the case of a potential conflict of interest, an IORP, or the entity which manages its portfolio, shall ensure that the investment is made in the sole interest of members and beneficiaries; within the prudent person rule, Member States shall allow IORPs to take into account the potential long-term impact of investment decisions on environmental, social, and governance factors; the assets shall be invested in such a manner as to ensure the security, quality, liquidity and profitability of the portfolio as a whole; the assets shall be predominantly invested on regulated markets.