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Differing approaches to legislative implementation of the IORP Directive and the practical impact of the Directive on cr

Differing approaches to legislative implementation of the IORP Directive and the practical impact of the Directive on cross-border workers. Dublin, Friday, 2 nd June, 2006. Your speakers. Kees-Pieter Dekker, Houthoff Buruma N.V., on the Dutch approach.

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Differing approaches to legislative implementation of the IORP Directive and the practical impact of the Directive on cr

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  1. PN061500007 Differing approaches to legislative implementation of the IORP Directive and the practical impact of the Directive on cross-border workers Dublin, Friday, 2nd June, 2006

  2. PN061500007 Your speakers • Kees-Pieter Dekker, Houthoff Buruma N.V., on the Dutch approach • Philip Smith, Arthur Cox, on the Irish approach • Philip Bennett, Slaughter and May, on the UK approach

  3. PN061500007 Structure of this talk • Part I: Brief reminder of institutions for occupational retirement provision in The Netherlands, Ireland and the UK • Part II: Reminder of what the Directive says on cross-border activity for the purposes of Article 20 of the Directive • Part III: Approach to implementing the IORP Directive in The Netherlands, Ireland and the UK

  4. PN061500007 Structure of this talk (cont’d) • Part IV: Implementing Article 20 in practice: The differing approaches and differing consequences for IORPs and members of IORPs established in: • The Netherlands • Ireland • the UK

  5. PN061500007 • Part I: Brief reminder of institutions for occupational retirement provision in The Netherlands, Ireland and the UK

  6. PN061500007 Part I: Brief reminder of institutions for occupational retirement provision in The Netherlands, Ireland and the UK • The IORP Directive is the shorthand used in this talk for Directive 2003/41/EC on the Activities and Supervision of Institutions for Occupational Retirement Provision • Published in the Official Journal on 23rd September, 2003 • In force: 23rd September, 2005 (with limited options to defer implementation of certain provisions in Article 17 (Regulatory own funds) and Article 18(1) (Limit on employer related investments) until 23rd September, 2010 • Institutions for occupational retirement provision are referred to as “IORPs” in this talk

  7. PN061500007 Part I (cont’d): Typical IORP structure in The Netherlands • IORP may only operate funded pension arrangements • pension arrangement must also meet tax requirements • new Financial Assessment Framework; very stringent regulations regarding funding requirements • Dutch legislation does not use (translated) term IORP. Current terminology is (considered to be) in line with IORP definition

  8. PN061500007 Part I (cont’d): Typical IORP structure in The Netherlands • possible: participants’ council • articles of association • mandatory requirements • actuarial and company technical memorandum • actuarial assumptions of the pension arrangement • investment policy • organisation of the IORP • board with equal representation between (representatives of the) employer and employees

  9. PN061500007 board IORP participants council financial obligations Benefits employee employer pension promise

  10. PN061500007 Part I (cont’d): Typical IORP structure in Ireland and the UK • Employer enters into Trust Deed with Trustee under which • Trustee agrees to hold assets on trust for purpose of pension scheme • purpose of pension scheme: provide retirement benefits for members • members are employees and former employees of employer • benefits funded out of employer contributions, any member contributions and investment income and gains • Remember English and Irish trusts do not have a separate legal personality

  11. PN061500007 Part I (cont’d): Typical IORP structure in Ireland and the UK (cont’d) • No distinction between IORP and pension scheme normally drawn (contrast position under Directive)

  12. PN061500007 • Memorandum & Articles of Association • Deeds of Adherence • Definitive Trust Deed • Shareholders • The Employers • 1. AAA PLC : Principal Employer • 2. BBB Limited • 3 CCC Limited • 4. DDD Limited • 5. EEE Limited • ABC Pension Trustee Limited • ABC Pension Scheme • acts astrustee of • Directors • The Trustee Company

  13. PN061500007 • The Trustee Company • invested • The Scheme bank account • pay contributions • regular • AVC • pay contributions • The employees who are active members • The Employers

  14. PN061500007 Part I (cont’d): IORPs covered in The Netherlands • Dutch government has refrained from applying IORP directive to “pension business” of insurance companies • IORP directive does not apply to: • pension arrangement for holders of political offices; • pension arrangements for shareholders if the company in which they hold shares acts as “pension insurer”

  15. PN061500007 Part I (cont’d): IORPs covered in Ireland • Irish private sector funded tax approved occupational pension schemes set up under trust qualify as IORPs • Definition of OPS expanded to refer to s.790B of the Taxes Consolidation Act 1997 (which treats x-border IORPS as exempt approved schemes) • but Directive does not apply to: • Unfunded arrangements including book reserve schemes • PRSAs (Irish equivalent of stakeholder) • PAYG schemes • Irish government has refrained from applying IORP directive to “pension business” of insurance companies

  16. PN061500007 Part I (cont’d): IORPs covered in the UK • Companies using book reserve schemes with a view to paying out retirement benefits to their employees (i.e. UURBS3 and AURBS4) • Unapproved Unfunded Retirement Benefits Schemes. • Approved Unfunded Retirement Benefits Schemes. • UK private sector funded tax approved occupational pension schemes set up under trust qualify as IORPs • but Directive does not apply to:

  17. PN061500007 Part I (cont’d): IORPs covered in the UK (cont’d) • Personal pension schemes including group personal pension schemes and stakeholder pension schemes are not IORPs • UK Government has not exercised option to extend Pension Funds Directive to the “pension business” of life insurance companies • Pension Act 2004 introduces new definition of occupational pension scheme to align with Directive definition of IORP

  18. PN061500007 Part II: Reminder of what the Directive says on cross-border activity for the purposes of Article 20 of the Directive

  19. PN061500007 Current EU Member States

  20. PN061500007 Part II: Article 20 of the Directive • May operate cross-border in EU subject to prior authorisation from home Member State “An institution wishing to accept sponsorship from a sponsoring undertakinglocated within the territory of another Member State shall be subject to a prior authorisationby the competent authorities of its home Member State, as referred to in Article 9(5). It shall notify its intention to accept sponsorship from a sponsoring undertakinglocating within the territory of another Member State to the competent authorities of the home Member State where it is authorised.”

  21. PN061500007 Part II (cont’d): Definition of “sponsoring undertaking” ““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 pays contributions into an institution for occupational retirement provision”See Article 6 • Importance of definition of “sponsoring undertaking”

  22. PN061500007 Part II (cont’d): Relationship with Mobile Workers Directive • Definition of “posted worker” See Title II of Regulations (EEC) 1408/71 • Contributions to supplementary pension schemesby or on behalf of posted workers Note:Wider than Pension Funds Directive definition of IORP • Consider relationship with Mobile Workers Directive • Directive 98/49/EC of 29th June, 1998

  23. PN061500007 Part II (cont’d): Relationship with Mobile Workers Directive • “1 Member States shall adopt such measures as are necessary to enable contributions to continue to be made to a supplementary pension scheme established in a Member State by or on behalf of a posted worker who is a member of such a scheme during the period of his or her posting in another Member State. • 2 Where, pursuant to paragraph 1, contributions continue to be made to a supplementary pension scheme in one Member State, the posted worker and, where applicable, his employer shall be exempted from any obligation to make contributions to a supplementary pension scheme in another Member State.” • See Article 6 of the Mobile Workers Directive

  24. PN061500007 Part II (cont’d): Definition of “Posted Worker” EU Regulation No. 1408/71 • Narrowly defined (unless bilateral exception agreed) • Limited period is 12 months (prospect of extension for a further 12 months owing to unforseen circumstance) unless bilateral exception agreed • Requirement to be posted: • from home member state (e.g. UK) to host member state (e.g. The Netherlands) • to perform work in host member state for home country employer

  25. PN061500007 Part II (cont’d): Form E101 process for staying in home country social security system • appears that 5 years can, in the UK, normally be agreed (but must be done by HM Revenue and Customs (previously DWP) with equivalent body in host member state) • Some countries more rigorous that others on bilateral exceptions under Regulation 1408/71 (eg. Belgium?) • To be a “Posted Worker” need to have Form E101 agreement in place between home and host member state social security authority Note: Not all secondments (see later) structured in this way

  26. PN061500007 Part II (cont’d): The Treaty of Amsterdam – freedom to provide services within the EU • Note: Free movement of persons, services and capital. • Do the cross-border provisions in Article 20 impose incompatible restrictions • Consider Danner (ECJ Case C-136/00) and also Ramstedt (ECJ Case C-422/01) “restrictions on freedom to provide services within the Community shall be prohibited in respect of nationals of Member States who are established in a State of Community other than that of the person for whom the services are intended” (Article 49 of the Treaty of Amsterdam)

  27. PN061500007 Part II (cont’d): The Treaty of Amsterdam – freedom to provide services within the EU (cont’d) • Query: Compatibility with requirement to comply with host Member State’s requirements of social and labour law relevant to the field of occupational pensions

  28. PN061500007 Part II (cont’d): Incompatibility of a Directive with the Treaty of Amsterdam • See Federal Republic of Germany v European Parliament and Council of the European Union1 Note 1:Also known as the “Tobacco advertising case” Note 2:See also Advocate General’s opinion, in this case, of 15th June, 2000 analysing principles to apply in determining whether a directive can be annulled in whole or in part 1 Case C-376/98 of 5th October, 2000

  29. PN061500007 • Part III: Approach to implementing the IORP Directive in The Netherlands, Ireland and the UK

  30. PN061500007 Part III: Approach to implementation in The Netherlands • Directive terminology is, where necessary, changed in order to bring it in line with current Dutch pension legislation • brief legislative process; no postponement regarding parliamentary discussion on new Pensions Act • IORP directive affects: • PSW • Act on mandatory participation in an industry wide IORP • Act on mandatory participation in an occupational IORP (“beroepspensioenfonds”)

  31. PN061500007 Part III (cont’d): Approach to implementation in The Netherlands • New: articles 32i through 32u PSW • “cross-border” activities • Dutch IORP receives payments from sponsoring employer in other Member State; • Dutch sponsoring employer wants to pay pension premiums to IORP in other Member State • Based on a system of notification by IORP or sponsoring employer and licence from competent authorities • (Small) adjustments to current legislation

  32. PN061500007 Part III (cont’d): Approach to implementation in Ireland • Pensions Act 1990 amended by ss 27 to 39 of the Social Welfare and Pensions Act 2005 • Occupational Pension Schemes (Cross Border) Regulations, 2005 • Few regulatory changes required. Main ones are amendments to disclosure regulations and new Investment and Trustee regulations which deal briefly with tweaks to take account of SIPPs and investment rules (Arts 12 and 18) and qualifications of trustees (Art 9(1)(b)) • Implemented on 23 September 2005

  33. PN061500007 Part III (cont’d): Relationship with Mobile Workers Directive (Ireland) • Unlike UK no provisions adopted regarding contributions to supplementary pension schemesand no definition of posted workers introduced into Irish pension law • MW Directive implemented by inclusion in the Pensions Act 1990 and Regulations of short provisions to confirm the position: • On Article 5 of MWD – preservation of benefit on cross border movement (s.39(2) PA90) • On Article 7 of MWD - information on pension rights on changing member state (see Article 10(5) of the disclosure regs)

  34. PN061500007 Part III (cont’d): Approach to implementation in the UK • Part 7 of the Pensions Act 2004 (Cross-border activities within European Union) • The Occupational Pension Schemes (Cross-border Activities) Regulations 2005: largely in force on 30th December, 2005 • The Occupational Pension Schemes (Cross-border Activities) (Amendment) Regulations 2006: in force on 28th March, 2006 • Pensions Act 2004

  35. PN061500007 Part III (cont’d): Approach to implementation in the UK (cont’d) • Definition of “posted worker” by reference to paragraph II of Regulation EEC 1408/71 (on the application of social security schemes to employed persons, to self-employed persons and to members of their families moving within the Community) • Pensions Act 2004 (Commencement Order No. 8), Article 3 • Relationship with the Mobile Workers Directive (Council Directive 98/49/EEC): implemented in UK in Section 66A of the Pensions Act 1995, as inserted by the Child Support, Pensions and Social Security Act 2000, Section 55

  36. PN061500007 Part IV: Implementing Article 20 in practice: The differing approaches and differing consequences for IORPs and members of IORPs established in: • Ireland • the UK • The Netherlands

  37. PN061500007 Part IV (cont’d): What happens if an IORP is engaging in “cross-border activity”? • Must be authorised to do so by the home country Regulator • For defined benefit schemes, must be “fully funded at all times” Article 16(3) of the IORP Directive • Must comply with social and labour law relevant to the field of occupational pension schemes of host country in relation to active members working in host country Article 20 of the IORP Directive

  38. PN061500007 Part IV (cont’d): Practical impact in The Netherlands • Mandatory participation: employer that falls under scope of mandatory industry wide IORP may not make contributions to IORP in other Member State • What about employers that are exempt from mandatory participation? • Bottlenecks: • mandatory participation in industry wide or occupation IORP • financial assessment framework • social and labour law provisions

  39. PN061500007 Part IV (cont’d): Practical impact in The Netherlands • Financial assessment framework • very strict rules: fully funded is not 100% but around 125% to 130% • fear of Dutch IORPs moving their seats to a Member State with less strict funding rules • Social and labour law aspects (among others) • prohibition of deferred financing (“65-x”) • provisions in case of termination participation prior to pension age • provisions regarding board and participants council

  40. PN061500007 Part IV (cont’d): Practical impact in Ireland • Trustees must not accept contributions from an undertaking in another MS unless authorised by the Pensions Board (s.149) • Authorisation requirements are Trustees’ statement of compliance with disclosure, trustee statutory duties, remittance of contributions and actuarial funding cert obligations (Art 5 of X-Bdr regs) • For a new undertaking Trustees shall not accept contributions until 2 months after date on which PB notifies Trustees about the host state social and labour law (s.151(7), Art 20(7)) • Irish funding standard applies

  41. PN061500007 Part IV (cont’d): Irish registration process • Irish law applies from 23 September 2005 • Schemes given until 14 December 2005 to notify Pensions Board of potential cross-border nature • Notification details released by Pensions Board on 23 March 2006 had to be submitted by 31 March 2006 • Information to be supplied in English and host Member State language (Art 8(b)(ii))

  42. PN061500007 Part IV (cont’d): UK: Some background • Inland Revenue tax approval requirement that expectation of return to the UK to resume work or retire within 10 years of leaving UK Note: This 10 year requirement removed in September, 2004 • Common for UK IORPs pre-IORP Directive to keep members working overseas in scheme

  43. PN061500007 Part IV (cont’d): What happened in the UK on 29th March, 2006 • UK defined benefit schemes, in general, not able to comply with "fully funded" requirement • Unfunded pension promise put in place (with employer option to reinstate) Note: Care needed with Section 66A of the Pensions Act 1995 • Unless employee working in other EU member state, • fell within “seconded worker exception”, or • not subject to social and labour laws relating to occupational pension schemes • membership of UK pension scheme, in practice, terminated

  44. PN061500007 Part IV (cont’d): What happened in the UK on 29th March, 2006 (cont’d) • Only provide unfunded top up pension promise for period of secondment (option to reinstate on return to UK) • Note: Watch out for tax issues (e.g. in Netherlands?) • Watch out for “contribution by European employer” • Alternative approach for some UK pension schemes of applying for registration as a cross-border scheme but with intention of terminating application for registration process once position had been sorted out in relation to active members working in other EU member states

  45. PN061500007 Part IV (cont’d): Secondments and cross-border activities in The Netherlands • Secondments • linked to Regulation 1408/71 • employees who – for the account of their employer – are employed in a Member State other then the Member State where their employer’s seat is • relation between employer and employee remains • short period

  46. PN061500007 Part IV (cont’d): Secondments and cross-border activities in The Netherlands (cont’d) • Secondments • articles 32d – 32h PSW • a seconded employee may remain participant in his “home Member State” pension arrangement • during secondment: PSW remains applicable • employer and employee may agree otherwise • articles 32d – 32h PSW only apply in secondment based on Regulation 1408/71: employee remains social security system of home Member State

  47. PN061500007 Part IV (cont’d): Secondments and the position in Ireland • Main alternative will be use of secondment arrangements • Unfunded promises are possible in Ireland but have historically been rare – (no equivalent to UK earnings cap until recently)

  48. PN061500007 Part IV (cont’d): Secondments in more detail - Ireland • Relying on common law • Reference to Revenue practice (but cannot rely on all Revenue cross-border approval as in part covers arrangements which are no secondments) • Uncertainty as to precise elements required for secondment so as to be outside X-bdr IORPs requirements • No definition of seconded or posted worker

  49. PN061500007 Part IV (cont’d): Secondment problem areas - Ireland • Risk on promotion and/or engagement by seconding group company • Treatment of charge back arrangements • Risk of exceeding agreed extended limited periods • Risk of assignment outside the EU into host member state in EU not being spotted

  50. PN061500007 Part IV (cont’d): UK: Secondments, some background • Old position: Distinction between • remaining employed by UK employer and working overseas (pre 29th March, 2006 position can stay in as long as employer wishes) and • employment with UK employer terminating and employment with overseas employer starting

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