PENSION REFORMS IN EASTER EUROPE: Individual Pension Schemes: Best practices Kiev, 27 th May 2004 Angel Martínez-Aldama Vice Chairman EFRP

ŒIntroduction Codes ŽIORP Directive Principles 2/12

3/12  INTRODUCTION (I) 1.1 Assets under Management

Source: INTERSEC 3/12

Source: Inverco, Intersec 4/12  INTRODUCTION (II) 1.2 Assets % GDP

5/12  INTRODUCTION ( & III) 1.3 Recent scandals 1.4 Reactions: Public Institutions Codes Industry Statements Private Ratings (Deminor)

6/12  CODES (I) 2.1 OECD Principles of Corporate Governance (May 1999) 2.2 ICGN Statement on Global Corporate Governance Principles (July 1999) 2.3 NAPF Towards better Corporate Governance (2000) 2.4 IOSCO Collective Invest.Schemes as Shareholders (May 2002) 2.5 OECD Guidelines for Pension Fund Governance (July 2002) 2.6 WINTER Report (November 2002) 2.7 ICGN Statement on Institutional Shareholder Responsibilities (2003) 2.8 EC Communic. enhancing Corporate Governance (May 2003)

CODES (& II) 2.9 OECD Guidelines for the protection of rights of members and beneficiaries in occupational pension Plans (2003) 2.10 Revised OECD Principles of Corporate Governance (2004) 7/12

1. Legal separation between sponsoring undertaking and IORP. 2. IORP to be registered in a national register. 3. IORP run by persons of good repute, appropiate qualifications and experience. 4. Properly constituted rules regarding the functioning of any Pension Scheme operated by the IORP (members to be informed adequately). 5. All technical provisions are computed and certified by an actuary bers, former members and pensioners should be treated as confidential. 6. The members are sufficiently informed of the conditions of the pen- sion scheme (the rights and obligations of the parties, the financial, technical and other risks, the nature and distribution of those risks). 7. Members States may provide that the option of longevity and disability cover, prov for surviving and guarantee of repayment be offered to memebers. 8. Member State may entrust management of IORPs to other entities.  IORP DIRECTIVE PRINCIPLES (I) Conditions of Operations 8/12

9/12 1. IORPs will draw up annual accounts and annual reports for each pension scheme and shall give a true and fair view of IORP financial position. Annual accounts and information to members  IORP DIRECTIVE PRINCIPLES (II) 1. Members and beneficiaries shall receive: on request, the annual accounts and the annual reports; any relevant information regarding changes to the pension scheme rules. 2. They shall also receive, on request, detailed and substantial information on: level of the retirement benefits, the range of investment options (DC), the arrangements relating to the transfer of pension rights. 3. They shall also receive appropriate information on the benefits and payment options. 4. At least every three years, IORP will prepare and review a written statement of investment-policy principles. Information to be given to the members and beneficiaries

10/12  IORP DIRECTIVE PRINCIPLES (III) 1. To require IORP to supply information about all business matters. 2. To supervise relationships between the IORP and other companies (outsourcing). 3. To obtain regularly the statement of investmet-policy principles, the annual accounts and the annual reports. 4. To carry out on-site inspections at IORP premises. Information to be provided to authorities

11/12  IORP DIRECTIVE PRINCIPLES (IV) 1. To have sound administrative and accounting procedures and adequate internal control mechanisms. 2. Authorities shall have the power to take any measures, including those of an administrative or financial nature to prevent or remedy any irregularities. 3. In order to safeguard the interests of members, authorities may transfer the powers which the persons running an IORP located in their territories hold in. 4. Authorities may prohibit or restrict the activities of an IORP (be supported by precise reasons). 1. Establish at all times adequate amount of liabilities corresponding to the financial commitments. 2. The calculation of technical provisions shall take place every year and shall be executed and certified by an actuary Powers of intervention and Technical provisions

12/12 1. IORP to invest in accordance with the “prudent person” rule. 2. In the case of a potential conflict of interest, the investment will be made in the sole interest of members and beneficiaries. 3. Assets invested in such a manner as to ensure the security, quality, liquidity and profitability of the portfolio. 4. The assets shall be predominantly invested on regulated markets. 5. Investment in derivative instruments shall be possible. 6. The assets shall be properly diversified. 7. Investment in the sponsoring undertaking shall be no more than 5%. 8. Members States shall not require to invest in particular categories of assets. 9. Member States shall not subject the investment decisions to any kind of prior approval or systematic notification requirements. Investment rules  IORP DIRECTIVE PRINCIPLES ( & V)