ANNE MAHER Chief Executive8 March 2004 The Pensions BoardD ü sseldorf

DIRECTIVE 2003/41/EC ON THE ACTIVITIES DIRECTIVE 2003/41/EC ON THE ACTIVITIES AND SUPERVISION OF INSTITUTIONS FOR AND SUPERVISION OF INSTITUTIONS FOR OCCUPATIONAL RETIREMENT PROVISIONOCCUPATIONAL RETIREMENT PROVISION

ANNE MAHERChief Executive 8 March 2004The Pensions Board Düsseldorf

EUROPEAN IGP ASSOCIATE INSURERSEUROPEAN IGP ASSOCIATE INSURERS

THE EU PENSIONS DIRECTIVE AND ITS THE EU PENSIONS DIRECTIVE AND ITS PROGRESSPROGRESS

2.

PRESENTATION WILL COVERPRESENTATION WILL COVER

Background

Contents of Pensions Directive

Implementation Process

Other related EU Activities

Leading to Pan European Pensions?

3.

BACKGROUNDBACKGROUND

Started with speech by Sir Leon Brittan, (then Vice-President of EU Commission) in 1990 announcing “A Single Market for Pensions”

EU activity during 1990s included Proposal for Pensions Directive Pensions Communication

both of which failed. From 1997 – 2000

Green Paper Various Communications Working Documents

issued as part of consultation process. Proposal for a Directive on the Activities of Institutions

for Occupational Retirement Provision published 11 October 2000

4.

EU PENSIONS DIRECTIVEEU PENSIONS DIRECTIVE

General

Came into force on 23 September 2003

EU Member states have 2 years to implement i.e. must implement by 23 September 2005

Key aims

ensure protection for pension plan members

liberalise investment environment for pension plans in EU

remove barriers to cross-border pension plans

Differentiates between national pension plans and cross-border plans

Provides legal framework for Pan-European pension plans

5.


Requirements to be met in National LegislationArticle 1 - 5(Scope)

Directive must be applied to institutions for occupational retirement pensions (IORPS)

Article 6 - 8(Activity)

IORPS mustlimit activities to retirement benefit related operations and activities arising therefrombe a separate legal entity

Article 9 - 12 (Conditions)

IORPS mustbe recognised by local supervisory authoritybe run by persons of good repute and have professionally qualified managementhave proper ruleshave technical provisions certified by an actuary or other similar specialisthave regular financing for any guaranteesprovide appropriate information to members including annual accounts, annual reports and statements of investment policy principlesfor cross-border activity have prior authorisation from competent authorities of home member state

6.


Article 13 - 14(Competent Authorities)

Information must be provided to competent authorities who must have powers of intervention

Article 15 - 17(Technical Provisions and Funding)

There must beprudent calculation of technical provisions and adequate funding for pension liabilitiesfor cross-border activity there must be full funding at all timeswhere IORPS is providing biometric risk cover or guarantees they are subject to same solvency requirements as life assurance companies

Article 18 (Investment)

Investment of assets must bein accordance with ‘prudent person rule’in line with nature and duration of pension liabilitiesdiversifiedsubject to limits on self-investmentMember states may only apply limited quantitative investment restrictions (up to 70% in stock and 30% in foreign currencies must be allowed)For cross border activity host member states may impose investment restrictions to IORPS in home member states provided same or stricter rules apply in host member state

Requirements to be met in National Legislation (continued)

7.


Article 19(Management and Custody)

IORPS must be allowed to appoint investment managers or custodians in another member state

Article 20(Cross-border Activity)

A sponsoring undertaking in one member state (host state) may set up an IORP in another member state (home state). In such casessupervision is by home stateprudential rules of home state applysocial and labour law of host state applies

Article 21(Co-operation)

Member states and Commission must co-operate to apply Directive and create conditions for cross-border membership

Article 22 – 24 (Implementation)

Member states must implement into national legislation before 23 September 2005

Requirements to be met in National Legislation (continued)

8.

Application to pension business of insurance companies Application to pension business of insurance companies covered by Life Directivescovered by Life Directives

Possible exclusion of pension schemes with less than 100 Possible exclusion of pension schemes with less than 100 members (de minimis rule)members (de minimis rule)

Designation of competent authorities for different Designation of competent authorities for different provisionsprovisions

Any requirement for additional national investment provisions to be required for national employees in an IORPS located in another Member State

Whether to maintain/introduce quantitative investment rules


Areas where Member States need to decide approach

9.

EU PENSIONS DIRECTIVEEU PENSIONS DIRECTIVERegulatory 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 of fund in home country fully funded at all times prudential rules: home country of fund social and labour laws: host country of beneficiaries information requirements: host country of beneficiaries

Each state may prescribe additional investment constraints relating to its “section” provided such constraints not greater than those imposed on local schemes in that state

In practice may require ring fencing of each section’s assets

10.

IMPLEMENTATION PROCESSIMPLEMENTATION PROCESS

Establishment of 2 EU Committees

European Insurance and Occupational Pensions Committee (EIOPC) consists of Finance Dept officials / policy level

Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) consists of supervisors/technical level

Progress of Member States Issues are time frame, consultation process, making of

decisions, amending of legislation All member states at different stages and most targeting

implementation in 2005 Must be done by 23 September 2005

Issues Cross Border Activities likely to be biggest issue

11.

Tax Co-Ordination European Court of Justice Cases EU Communication of 19 April 2001 Current moves to enforce

European Federation for Retirement Provision Model for Pan-European Pensions

Joint EU Commission/Council Report on Adequate and Sustainable Pensions

Equality Directives…

OTHER RELATED EU ACTIVITIESOTHER RELATED EU ACTIVITIES

12.

PAN-EUROPEAN PENSIONS?PAN-EUROPEAN PENSIONS?

What is in it for Employers?

Governance/Control Manager preferred providers Greater risk control/ALM Smaller number of plans

Cost Savings Influence investment strategy Fund managers pooling Tax efficiency Offset DB assets/surplus Service provider economies Centralised administration

Corporate Change/Culture M&A activity One company, one culture?

13.

Funds ManagementFunds AdministrationLegalAccountingActuarial Investment ConsultingBenefits Administration


What might Member States offer?

14.

Ireland’s Common Contractual Fund (CCF)Luxembourg’s Fund Communs de Placement

(FCP)CCF and FCP enable multinationals to pool

investments in a tax-efficient mannerFeatures of CCF

Contractual Structure• Unilateral establishment by manager• Custodian assumes fiduciary obligations

Common Ownership of assets = “Tenancy in Common” No separate Legal Personality Limitation of liability of Investors Established under EU UCITs directive Regulated by IFSRA


What is on offer already

15.

The Pensions Directive

is a first step

which is likely to trigger pension changes

and it is a time of opportunities

IN CONCLUSIONIN CONCLUSION

ANNE MAHER Chief Executive8 March 2004 The Pensions BoardD ü sseldorf

Documents

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