Pensions Since the Directive Paul Kenny Pensions Ombudsman Mary Hutch Head of Information & Training The Pensions Board 28 November 2006

2 EU PENSIONS DIRECTIVE Directive 2003/41/EC came into force on 23 September 2003 “on the activities and supervision of Institutions for Occupational Retirement Provision” – “IORPS” EU Member States required to implement by 23 September 2005 Directive sets common minimum level of supervision across EU Member States Allows pension schemes to operate “Cross-Border” “Budapest” protocol agreed between pension supervisors on “who does what and when” for cross-border supervision. Link to Protocol is available on

3 IRISH IMPLEMENTATION Statutory Requirements in Social Welfare and Pensions Act 2005 Underlying Regulations in place by 23 September 2005 Remake Regulations 2006 Associated tax changes introduced in Finance Act 2005 Approach Implements essentials of Directive No further new supervisory requirements added other than the essentials of the Directive Areas affected Scheme management Investment Funding Cross-border Note on Remake Regulations is on

4 SCHEME MANAGEMENT Trustee Qualification Requirements S59 A(1) – addresses aspect of good repute Person shall not act as trustee if: - undischarged bankrupt / composition with creditors (and is not discharged) convicted of fraud / dishonesty trustee is a company and director is prohibited under this section Person subject of declaration under S.150 Companies Act 1990 (restriction)

5 SCHEME MANAGEMENT Trustee Qualification Requirements S59 A(2) requires Regulations to be made providing that: Trustees must possess (or employ or contract with advisers who do possess) qualifications and experience prescribed in those regulations, and Specifying circumstances in which trustees will be regarded as possessing the specified qualifications and experience “Qualifications and experience” are those appropriate and relevant to investment of resources of scheme enter into contract with one/more investment managers to provide investment service one of trustees themselves have such qualifications and experience employ an adviser with qualifications and experience Regulations only refer to need for investment qualifications - Act and other Regulations already require appropriate professional qualifications for other aspects of running a scheme

6 SCHEME MANAGEMENT Trustee Qualification Requirements S59 A(3) gives Board power to determine if trustee or person proposing to act as trustee satisfies requirements Determination must be notified to trustee/person - effective 21 days after date - removes trustee who does not satisfy requirements Appeal to High Court

7 INVESTMENT Trustees Investment Duties S59 1(b) duty to provide “proper investment of the resources of the scheme in accordance with regulations and, subject to those regulations, (and S59(2) member directed investment), and rules of scheme” S 59 (1A) “Regulations shall prescribe rules which shall be adhered to by trustees in providing for proper investment of scheme resources in particular, in accordance with para (1) of Article 18 of IORPS Directive” FAQs on Investment Regulations are available on

8 INVESTMENT Trustees Investment Duties Regulations set out specific rules that must be applied to pension fund investment - implement “prudent person” rule as required by Article 18.1 of IORPS Directive Assets to be invested: -in manner to ensure security, quality, liquidity and profitability -predominantly on regulated markets (>50%) -in a diversified manner so as to avoid excessive accumulations of risk Prohibition on borrowing (except for 1 member arrangements) Derivatives permitted but limited Applies to all schemes (no exemption for small schemes)

9 INVESTMENT Trustees Investment Duties Insurance policies and unitised investments will be assessed on “look through” basis - assessed on basis of underlying holdings Insurance policies that provide for annuities or return of minimum invested - comply with regulated market and diversification rules Investment in Government bonds also treated as diversified.

10 INVESTMENT Trustee Investment Duties Statement of Investment Policy Principles (SIPP) Regulations require all schemes >100 members (combined active and deferred) to put in place a SIPP SIPP must be in writing and provide : - investment objectives investment risk measurement methods risk management processes strategic asset allocation with respect to nature and duration of liabilities Review at least every 3 years and revise if change in investment policy

11 FUNDING Funding Standard (Amendment) Regulations - implement some recommendations of Board’s review of Funding Standard Additional grounds for funding proposal – S49 (3)(b) Adverse experience relating to:- price inflation or interest rates underlying actuarial values over relevant period increases in pensionable earnings payment of benefits (other than long service benefits) Also new S59 G – early retirement subject to trustees consent if scheme does not meet Funding Standard

12 FUNDING Funding Standard (Amendment) Regulations - also comply with some of requirements of Articles 10 and 11 of IORPS Directive AFCS Every 3 years - dated of first AFC due after 23 September 2005 unchanged - new period applies to any subsequent AFCs Also change to content of AFC - disclosure of assets and liabilities of scheme Regulatory underpin of actuarial bases

13 CROSS-BORDER Part XII of Pensions Act and Cross-Border Regulations sets out provisions Cross-Border Activity Undertaking in one Member State (Host State) may set up IORP in another Member State (Home State) Supervision is by Home State Prudential rules are Home State Social and Labour Laws are Host State Information requirements and investment restrictions may be imposed by Host State Co-operation Member States must apply Directive Must create conditions for cross-border membership

14 CROSS-BORDER Cross-Border Schemes Irish approved scheme (Home Member State) Trustees apply to Pensions Board for prior authorisation to operate cross-border – conditions set out in S149 Trustees apply to Board for approval to accept contributions from Host Member State – Section 151 Approval granted by Board within 3 months Board must notify trustees and Regulator in Host Member State Pensions Board Guidelines in relation to Cross-Border Schemes are available on

15 CROSS-BORDER Conditions For Authorisation Trustees provide written statement in form (available on Trustees confirm compliance with Pensions Act requirements: - Disclosure of Information Trustee qualifications Remittance of contributions Funding Standard Trustees must also supply the Board with: - AFC where applicable PB registration number of scheme Small IORPS operating cross-border (<100 active and deferred members) must comply with all requirements of Directive

16 CROSS-BORDER Social and Labour Laws (Relevant Statutory Requirements S153 sets out obligations of Board with respect to cross-border schemes overseas with Irish members Board must notify competent authority of Member State involved of Irish Social and Labour Law applicable to Irish members Regulations specify the Social and Labour Law provisions (relevant statutory requirements) as :- Preservation (Part III) Disclosure (Part V) SS 59B and 59C (Part VI) Applied to cross-border schemes established outside Ireland Disapplied to non-Irish members of cross-border schemes established in Ireland

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Occupational Pension Schemes (Disclosure of Information) Regulations, 2005 SI 633 0f 2005 Paul Kenny

19 New Obligations 1998 Regulations revoked and replaced Based on Pensions Board recommendations Some Pensions (Amendment) Act provisions IORPS disclosure requirements

20 Article 1 – Citation and Commencement – different dates for different provisions* Article 2 – Revocation - different dates for different provisions* Articles 3 and 4 – Interpretation and definitions * Time-frame from 23 September 2005 to 1 January 2007

21 Article 5 - Audited Accounts Operative 23 September ’05 Scheme years COMMENCING on or after Accounts now required of all DC schemes with more than 100 members (active plus deferred) Specific exclusion from exemption for one- member schemes

22 Article 6 – Valuation Reports Operative 23 September 2005 New DB schemes – first valuation in 3 years, and 3-yearly thereafter Existing DB schemes- First AFC after 23/9/2005 can have effective 3½ years from last cert – 3-yearly thereafter DC schemes – liabilities valued at end of scheme year, and report ASAP

23 Article 7 – Annual Reports Operative 23 September 2005 For scheme years Commencing on or after… No Annual Report for one-member DC schemes Article 8 makes changes for Alternative reports

24 Article 7 – main changes If Funding Proposal (DB), details to be given Numbers included for Death Benefit only S.I.P.P. Trustee access to “Appropriate” training? Procedures in place to receive and remit contributions onwards

25 Article 7 – main changes 2 Statement re “condition” of scheme – financial, technical & other risks, their nature and distribution Unless already disclosed (e.g., in booklet), details of IDR arrangements

26 Article 8 – Alternative Reports Operative 23 September 2005 –etc. Small schemes – fewer than 100 members (active and deferred) One type of report – types A and B abolished Arrangements if more than one insurer

27 Content of alternative reports Contributions received Numbers covered for death benefit only Access to trustee training/ “Condition of scheme” statement IDR Process S.I.P.P Details, if funding proposal Valuation report Statement that scheme has not been audited by an auditor

28 Articles 9 and 10 –Disclosure of Reports, etc, and Constitution Operative 23 September 2005 No change in time limits for disclosure No changes to disclosure on Constitution of the Scheme

29 Article 12 General Disclosure to Individuals Technical changes only Operative dates –from 23/9/05 (termination of employment and Investment matters) –to 1/1/2007 (Members in employment, retirement/death, winding-up, PAOs)

30 Article 13 –Members in Employment DB requirements Benefit statement may include or ignore allowances / emoluments* Leaving service (post 1/1/2007)* Extra DB benefits secured by AVCs State if integrated State pension subject to Social Welfare tests – details of Dept *And how calculated

31 Article 13 –Members in Employment DB requirements 2 Method of calculating contributions is in the Rules Who to contact if you think contributions not remitted Statement on trustee duties re contributions

32 Article 13 –Members in Employment DC requirements (inc DC Element) Statement of Reasonable Projection based on past and proposed contributions State if integrated State Pension subject to Social Welfare tests – details of Dept Breakdown of contributions received and invested; explanation of differences New statement of Reasonable Projection if TV in, change to scheme, etc

33 Statement of Reasonable Projection Included with Annual benefit Statement –Also on joining, leaving, on request and if scheme benefits change Benefit levels at specified date, based on –Value of of statement –Estimated value of past and future contributions Assumptions: investment return, future contributions, date of retirement/ leaving – but NOT inflation Advise importance of making adequate financial provision for retirement

34 Public Authority schemes Paragraph 13 of Schedule D sets out detailed requirements Paragraph 12 permits notification of how the information can be accessed electronically

35 Article 14 – termination of Employment Operative 23 September 2005 DB: if TV is reduced, by how much? DC: Statement of Reasonable Projection

36 Article 15 – retirement or Death Operative 1 January 2007 DC members must be told of option to take a lower pension with escalation factor

37 Article 16 – Winding Up DB: Members must be told if any transfer amount reduced because of solvency issues (Section 34(2)) DC: Statement of Reasonable Projection Operative 1/1/2007, but small scheme exceptions from 1/7/2006

38 Small Scheme Exceptions No annual reports, accounts or valuations provided: –Report within 3 months and annually –Containing: Date of windup event Estimate of Realisable asset value Estimate of cost of liabilities Receipts and payments to date Progress report Information requested by Board

39 Article 17 – Pensions Adjustment Orders Operative 1 January 2007 Nothing new here except that Non-member spouse must be told if TV reduced for solvency

40 Article 18 – Investment Alternatives, Default Investment Strategy DC Schemes and “Elements” Where scheme gives investment options, –Within 3 months of request: Investment Alternatives Default Investment strategy Name Investment Manager Describe investment alternatives, risks, etc How member gives directions Charges on investment alternatives Name/address for enquiries If trustees not liable, say so (S.59 (1C)) Information on investment portfolio, risk exposures and costs