The IORPs Directive And The Role of the Pensions Board

1. UCD COMMERCIAL LAW CENTRE SEMINAR PAN-EUROPEAN PENSION FUNDS THE IORPS DIRECTIVE: OPPORTUNITIES FOR IRELAND The IORPs Directive And The Role of the Pensions Board ANNE MAHER, Chief Executive The Pensions Board 15 September 2005

2. AGENDA Background to Directive Progress Contents Irish Implementation Likely Impacts of Directive

3. 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)

4. 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

5. 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

6. DIRECTIVE CONTENTS DETAILS • Scope • Must be applied to IORPs • Activity of IORPs • Limited activity and separate legal entity • Conditions for IORPs • Recognised 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

7. DIRECTIVE CONTENTS DETAILS - continued • Competent Authorities • Information to be provided • Powers of intervention • Technical Provisions and Funding • Prudent calculation • Same solvency requirements as life offices for biometric risks or guarantees • Full funding at all times required for “cross border”

8. DIRECTIVE CONTENTS DETAILS - continued • Investment • Prudent 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 Custody • May appoint managers or custodians in another state

9. 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 state • Prudential rules are home state • Social and labour laws are host state • Information requirements and investment restrictions may be imposed by host state • Co-operation • Member States must apply Directive • Must create conditions for cross-border membership • Implementation • By 23 September 2005

10. 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

11. 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

12. 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

13. 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

14. 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

15. IRISH IMPLEMENTATION SCHEME MANAGEMENT • Fit and proper persons excludes • Bankrupt • Convicted for fraud • Barred from directorship • Companies/individuals • Training Required

16. IRISH IMPLEMENTATION INVESTMENT • Explicit rules replace indirect requirements • Look-through basis • Diversification, regulated markets, borrowing • Statement of investment principles

17. 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

18. 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

19. 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

20. 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

21. 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