Managing collective retirement schemes — occupational pension funds

Directive (EU) 2016/2341 — activities and supervision of institutions for occupational retirement provision

It sets out minimum harmonisation rules for institutions managing collective retirement schemes for employers on behalf of their employees. EU governments may introduce further measures they consider necessary.

The rules aim to:

ensure occupational pension schemes are financially sound;
give greater protection and information to members and beneficiaries;
remove obstacles to cross-border fund activity;
encourage long-term and responsible investment.

The legislation revises and replaces Directive 2003/41/EC, which needed to be updated after the 2008 financial crisis.

KEY POINTS

EU countries must ensure that occupational pension funds or institutions for occupational retirement provision (IORPs):

are only involved in retirement-benefit activities;
safeguard their assets for members and beneficiaries if a partner organisation goes bankrupt;
are registered and authorised by the relevant national authority, including for cross-border activities;
have sufficient funds to cover their financial commitments;
invest prudently in the best long-term interest of members and beneficiaries;
operate an effective governance system that provides sound and prudent management of their activities;
are run by people with the suitable expertise, qualifications and knowledge;
apply a sound remuneration policy for all employees;
have risk management, internal audit and actuarial functions* in place;
at least every 3 years carry out an internal risk assessment and provide a written statement of their investment policy principles;
draw up and publicly disclose annual accounts;
are subject to prudential supervision on issues such as solvency margins and investment rules.

The relevant national authorities in the EU countries:

must have the resources necessary to exercise the prudential supervision;
require IORPs to have sound administrative, accounting and internal control mechanisms;
may impose administrative and other penalties for any breaches of legislation;
have the power to review an IORP’s strategies, processes and reporting procedures, obtain internal documents they may require and conduct on-site inspections;
may exchange information with each other and monetary authorities without violating professional secrecy conditions.

IORPs must provide prospective and actual members and beneficiaries with clear, updated and free information. This includes:

details of the IORP itself and members’ rights and obligations;
pension benefit statements containing, for instance, data on contributions paid, a breakdown of costs and the value of the personal scheme;
advice on how to obtain supplementary information;
pre-retirement advice on benefit pay-out options.
Depending on the requirements in question, EU countries may exempt certain funds which operate pension schemes with fewer than 15 or 100 members from certain conditions of the legislation. In the event that a pension fund wishes to provide its services in other EU countries, however, it has to apply all the rules laid down in the directive.

The European Insurance and Occupational Pensions Authority:

helps cooperation between national authorities;
ensures consistent application of EU insurance and occupational pensions legislation.
The European Commission must report to the European Parliament and to the Council on the implementation of the legislation by 13 January 2023.

BACKGROUND

The directive entered into force on 12 January 2017. It has to become law in the EU countries by 13 January 2019 and it will apply from the date of national transposition.

Occupational pensions include contributions from employers. They are the ‘second pillar’ of the pension system. State-based social security pensions are the ‘first pillar’. The ‘third pillar’ consists of individuals’ non-compulsory private pension savings.

Under EU rules, funds in one country can manage occupational pension schemes for companies based in another. Pan-EU companies can also have a single pension fund for all their European subsidiaries.

Some 125,000 occupational funds operate across the EU. They hold assets worth €2.5 trillion on behalf of around 75 million citizens, representing 20% of the EU’s working-age population.

Actuarial functions: defined in Article 48 of Directive 2009/138/EC (Solvency II), it covers (i) the coordination and monitoring of technical rules, including methodology, assumptions and data; (ii) reporting; and (iii) supporting the risk-management function.

DOCUMENTS

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) (recast) (OJ L 354, 23.12.2016, pp. 37-85)

Regulation (EU) No 1094/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/79/EC (OJ L 331, 15.12.2010, pp. 48-83)

Successive amendments to Regulation (EU) No 1094/2010 have been incorporated into the original document. This consolidated version is of documentary value only.

Directive 2003/41/EC of the European Parliament and of the Council of 3 June 2003 on the activities and supervision of institutions for occupational retirement provision (OJ L 235, 23.9.2003, pp. 10-21)

Supplementary pensions – keeping your rights when moving abroad

The legislation guarantees that people who move to another EU country to work will not lose the benefits they have already acquired in their existing company or occupational pension scheme.

Directive 2014/50/EU of the European Parliament and of the Council of 16 April 2014 on minimum requirements for enhancing worker mobility between Member States by improving the acquisition and preservation of supplementary pension rights.

SUMMARY

EU countries provide state pensions for their citizens when they retire. Since the early days of the EU, these basic rights have been respected when someone leaves one country to work or live in another.

For the increasing number of people who have an additional pension scheme linked to their employment, and later decide to work abroad, the situation was far less clear. Many could lose out on their future pension if they left the job before fulfilling conditions such as lengthy qualifying periods. These either penalised them or deterred them from moving.

The legislation ensures that anyone with supplementary pension rights does not lose out when they go to live or work in another EU country.

Protecting rights

The directive stipulates the following:

Pension rights should be guaranteed after 3 years of employment at the latest. If a minimum age is required, it must not be higher than 21 years.
The rights of workers who leave an employer-run pension scheme before retirement must be preserved and treated like those who remain in the scheme on matters such as indexation.
Information

Workers in a pension scheme can ask its administrators how stopping employment or moving would affect their supplementary pension rights and the conditions that would apply to the future treatment of those rights.

People who have left the scheme must be informed about the value and treatment of their rights.

Timetable

The provisions of the legislation must be in place by 21 May 2018. The Commission will draft a report on its implementation by 21 May 2020.

REFERENCES

Directive 2014/50/EU

Safeguarding supplementary pension rights

This Directive is intended to remove obstacles to the free movement of employed and self-employed persons, while safeguarding their supplementary pension rights when moving from one Member State to another. This protection concerns both voluntary and compulsory pension schemes , with the exception of social security schemes covered by Regulation (EC) No 883/2004.

Council Directive 98/49/EC of 29 June 1998 on safeguarding the supplementary pension rights of employed and self-employed persons moving within the Community.

SUMMARY

This Directive applies to members of supplementary pension schemes and others holding entitlement under such schemes who have acquired or are in the process of acquiring rights in one or more Member States.

This Directive provides for four main measures to safeguard the supplementary pension rights of workers moving within the Community:

Equality of treatment as regards preservation of pension rights

Member States must, for persons who have left a supplementary pension scheme as a consequence of going to work in another Member State, take the necessary measures to ensure the preservation of vested pension rights to the same extent as for persons in respect of whom contributions are no longer being made but who remain within the same Member State.

Directive 2014/50/EU, which must be incorporated in EU countries’ national laws by 21.5.2018, ensures that anyone with supplementary pension rights does not lose out when they go to live or work in another EU country. It requires that:

supplementary pension rights be guaranteed after 3 years of employment at the latest. If a minimum age is required, it must not be higher than 21 years;
the rights of workers who leave an occupational pension scheme before retirement be preserved and treated like those who remain in the scheme on matters such as indexation.

Cross-border payments

Member States shall ensure that supplementary pension schemes make payment in other Member States, net of any taxes and transaction charges, of all benefits due under these supplementary schemes.

Posted workers and supplementary pensions

Posted workers have the option of remaining within the pension scheme in their country of origin during the period of posting in another Member State. Posted workers and, where applicable, their employers are thus exempted from any obligation to make contributions to a supplementary pension scheme in another Member State.

Information to scheme members

Employers, trustees or others responsible for the management of supplementary pension schemes shall provide adequate information to scheme members, when they move to another Member State, as to their pension rights and the choices which are available to them under the scheme.

Under Directive 2014/50/EU, workers in a supplementary pension scheme can ask how stopping employment or moving would affect their supplementary pension rights and the conditions that would apply to the future treatment of those rights.

People who have left the scheme must be informed about the value and treatment of their rights.

REFERENCES

Directive 98/49/EC

Green Paper of 7 July 2010 towards adequate, sustainable and safe European pension systems [COM(2010) 365 final – Not published in the Official Journal].

Directive 2014/50/EU of the European Parliament and of the Council on minimum requirements for enhancing worker mobility between Member States by improving the acquisition and preservation of supplementary pension rights (Official Journal L 128 of 30.4.2014).