The New European Pension Fund Directive regulates the activities and supervision of institutions for occupational retirement provision (IORPs or pension funds). An overview of the main changes.
The IORP II directive was published in the Official Journal of the European Union on 23 December 2016. This immediately introduced the successor to the IORP I Directive 2003/41/EC of 3 June 2003 on the activities and supervision of institutions for occupational retirement provision (IORPs or pension funds).
This new Directive intends to achieve a number of objectives:
- to guarantee better protection for members and beneficiaries;
- to facilitate the mobility of employees between different Member States;
- to improve the provision of information to members and their beneficiaries.
Belgium is a good student in the area of pension funds and has already pursued a number of the above objectives when transposing the first Directive into Belgian law.
A summary of the main changes of the Second Directive follows below:
A cross-border activity exists when the home Member State of the pension fund differs from the host Member State of the contributing company and the employee.
For example: If a Dutch company pays contributions for its Dutch employee to a Belgian pension fund, there is a cross-border activity.
The Directive also explains the procedure for a cross-border transfer by a pension fund. The supervisory authority of the country where the transferring pension fund is established must give its consent prior to the authorisation by the supervisory authority of the country where the receiving pension fund is established. Both authorities have a strictly defined list of criteria which they may investigate.
The Directive contains a number of requirements for the remuneration policy that is applied within the pension fund for the persons who manage the fund or perform a key function. It is currently unclear how far this remuneration policy extends and to what extent its disclosure is required.
A new key role, namely the risk management role, has also been added to the existing internal audit and actuarial roles. Together with the internal audit and actuarial roles, the risk management role will be responsible for own-risk assessment.
The different roles may be combined, provided there is no conflict of interests. These roles shall be examined as a whole to assess whether there is fit and proper management.
The new Directive has also introduced a number of new measures concerning the provision of information to beneficiaries. In certain cases, the Personal Benefit Statement (PBS) will no longer just contain a best case scenario, but must also contain a worst case scenario in its projections. The details of deducted costs must also be included in the PBS, together with an indication of where an individual may contain further information regarding the pension fund’s annual financial statements or annual report.
No new obligations in relation to Solvency capital for pension funds have been imposed.
The Directive enters into force on 13 January 2017, but is applicable only from 13 January 2019. Belgium is currently working to transpose this Directive into national law on time. It goes without saying that this will lead to amendments to the current IORP legislation, among other acts.