ESTABLISHING IORPs ANNE MAHER Chief Executive The Pensions Board London Ireland 5 October 2005 Pan-European Pensions

2 AGENDA What is an IORP? Where will they locate? Next steps

3 IORPs Directive definition of IORPs (a)‘institution for occupational retirement provision’, or ‘institution’, means an institution, irrespective of its legal form, operating on a funded basis, established separately from any sponsoring undertaking or trade for the purpose of providing retirement benefits in the context of an occupational activity on the basis of an agreement or a contract agreed: individually or collectively between the employer(s) and the employee(s) or their respective representatives, or with self-employed persons, in compliance with the legislation of the home and host Member States, and which carries out activities directly arising therefrom.

4 IORPs Key Elements Operating on funded basis Established separately Sponsoring undertaking Legal persons, public bodies and natural persons Acting “as an employer or in a self-employed capacity” Context is of benefits relating to retirement from employment or self-employment Limited to activities referred to in Directive

5 IORPs Member States specify what are IORPs under domestic legislation Defined in Directive as much by what they are not as what they are Aims to accommodate different national systems Includes institutions with or without legal personality Member States can decide whether an entity is in or out of the Directive (subject to review by European Court of Justice)

6 IORPs Excludes Social Security schemes Financial institutions covered by other Directives: Insurance undertakings (but Member States may choose to apply IORPs Directive to pension business of insurance undertakings) UCITs Investment firms Credit institutions Pay-as-you-go pension schemes “Support Funds” (Unterstützungskassen in Germany) where scheme members have no legal rights to benefits Book Reserve schemes (as in Germany, Austria, Sweden)

7 IORPs Small Pension Institutions and Statutory Schemes Member States may choose not to apply Directive in whole or in part to schemes with less than 100 members Small schemes have right to apply Directive on voluntary basis Member States can exclude application of Articles to IORPs where retirement provision is made under statute – guaranteed by a public body

8 IORPs Requirements Limit activity Separate legal entity Meet various conditions on operation, governance and member information Subject to competent authorities Meet technical provisions and funding requirements Comply with investment requirements Allow appointment of managers and custodians in other Member States Allow cross-border activity

9 LOCATION Member States must allow: Undertakings in their territories to sponsor IORPs located in other Member States IORPs in their territories to accept sponsorship from undertakings located in other Member States which is ‘cross-border’ activity Single employer/single country scheme might consider re-location Multinational employer might consider: Pooling investments Pooling services Merging schemes in one location

10 LOCATION Regulatory conditions needed for Cross-Border Recognition by home country supervisor Special conditions: Authorisation in home country Fully funded at all times Prudential rules: home country of IORP Social and labour laws: host country of beneficiaries Host state may prescribe additional investment constraints Host state may require information requirements as imposed on local schemes in that state In practice may require ring fencing

11 LOCATION Reasons to relocate Single employer/single country scheme Regulatory/supervisory regime? Multinational employer Better governance/control Single governance regime Economies of scale/cost savings Corporate change/culture Accommodate mobile employees

12 LOCATION Influences on choice Tax arrangements Pension tradition/services available Availability of tried and tested pension skills/resources Regulatory/compliance regime Ability to accommodate countries outside EU

13 LOCATION Possible Member State Competition Benefits to being location of choice Ireland and Luxembourg being mentioned

14 LOCATION Possible changes for pension industry Consolidation of investment services Asset management Fund Administration Custody Consolidation of pension services Actuarial Legal Benefit consulting Benefit administration Accounting Compliance Increased EU-wide competition and pressure on charges

15 NEXT STEPS Clarification of some Directive requirements Finalisation of Protocol between Member State pension supervisors Consideration and decision on location by pension scheme sponsors and those managing schemes

16 IN CONCLUSION Pensions Directive Is a first step Likely to be catalyst Pan-European Pension Funds Will take time But WILL come about