1. CROSS-BORDER PENSIONS / PENSIONS MARKET IN IRELAND Anne Maher 16 November, 2005 Chief Executive Cologne The Pensions Board Ireland EUROFORUM

2. 2 Agenda  Cross-Border pensions Requirements Who might use them Influences  Ireland  Implementation of EU Pensions Directive  Pension supervision  As pensions location  Next Steps

3. 3 Cross-Border Pensions  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

4. 4 Cross-Border Pensions Regulatory Requirements  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 in home country “Fully funded” at all times Prudential rules: home country of IORP Social and labour laws: host country of beneficiaries

5. 5 Cross-Border Pensions Regulatory Requirements (continued)  Each host state may prescribe additional investment constraints relating to its “section” provided such constraints not greater than those imposed on local schemes in that state  Each host state may require information requirements as imposed on local schemes in that state  In practice may require ring fencing of each section’s assets

6. 6 Cross-Border Pensions Protocol  Agreement between supervisors to co-operate in supervising cross-border IORPS  Not yet agreed  Currently out for 2 nd consultation period  Target is to get signed in February 2006

7. 7 Cross-Border Pensions Protocol Sets out  Aims  General principles  Aspirations  General matters (e.g. language) Covers  Exchange of information  Ongoing supervision  Respective roles

8. 8 Cross-Border Pensions For Whom?  Single employer/single country scheme might consider relocation  Multinational employer might consider Pooling investments Pooling services Merging schemes in one location

9. 9 Cross-Border Pensions 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

10. 10 Cross-Border Pensions Influences on choice of location  Tax arrangements  Pension tradition/services available  Availability of tried and tested pension skills/resources  Regulatory/compliance regime  Ability to accommodate countries outside EU

11. 11 Ireland – Implementation of EU Pensions Directive  Social Welfare and Pensions Act 2005  Statutory Regulations and Instruments (September 2005) on: investments trustees funding Standard professional Guidance preservation of benefits disclosure of information cross border

12. 12 Ireland – Implementation of EU Pensions Directive  Social and Labour Law includes Preservation of benefits Pensions Ombudsman Disclosure of information and remittance of contributions No reduction in payable benefits because of Social Welfare pension increases

13. 13 Ireland – Pension Supervision Supervisory Players in Pensions  The Pensions Board  The Financial Regulator  Revenue Commissioners  Pensions Ombudsman  Professionals (actuaries, auditors, administrators, custodians, investment managers)

14. 14 Ireland – Pension Supervision Principles of Pension Regulation  To maintain balance between necessary regulation and unnecessary cost  Voluntary nature of plans  Trust-based system – role of trustees (but open to other vehicles)  Duty on trustees to comply  Information disclosure  Promotion of pension security  Securing compliance without recourse to legal action unless necessary

15. 15 Ireland – Pension Supervision Regulatory Powers  Power to investigate  Power to prosecute  Power to remove trustees  Power to restore assets  Power to dispose of assets

16. 16 Ireland – Pension Supervision Regulatory/Supervisory Activities  Scheme registration – schemes required to register with Pensions Board  Funding Standard – requirement to submit an Actuarial Funding Certificate (AFC) at specific times  Disclosure Compliance – conduct random audits of schemes  Ongoing discussions with relevant parties (e.g. trustees, advisers, providers)  Investigations – regular or arising from whistleblow reports  Prosecutions

17. 17 Ireland as Pensions Location  Tax arrangements  Irish law incorporates cross border tax reliefs  Pension tradition/services available  Ireland has long established private pension structure  Availability of tried and tested pension skills/resources  Investment, Actuarial, Accounting, Legal, Benefit consulting, Benefit Administration, Compliance skills available in Ireland  Regulatory/compliance regime  Acceptable, and balanced regulation by open and accessible regulators supervisors in Ireland  Ability to accommodate countries outside EU  Global services available in Ireland

18. 18 Ireland as Pensions Location  Pan-European Pensions Task Force Examining opportunities in international pensions area  Suite of asset pooling vehicles Unit Trust (Fixed Income Investments) Limited Partnership UCITS CCF (Equities Investments) Non-UCITS CCF (Alternative Investments)

19. 19 Ireland as Pensions Location Common Contractual Fund (CCF)  Specialised transparent fund structure facilitating the pooling of pension fund assets  Investors treated as if they own a proportion of underlying investments thus being considered the direct holder, while investments are co-mingled in larger pool. In this way Pension Fund benefits from a larger scale of operations while retaining all individual rights.  CCF can be set up as a single fund or as an umbrella fund with multiple sub funds

20. 20 Ireland as Pensions Location Common Contractual Fund (CCF)  Use of sub-funds allows investor to weigh investment in various funds to best match their profile  Available in UCITS structure facilitating cross border investment in Equities without additional penalties  Also available in non-UCITS format allowing wider variety of assets to be considered (Derivatives, Hedge Funds, Property)

21. 21 Ireland as Pensions Location Advantages of using CCF  Facilitates investment in Equities  Tax transparency – income treated as accruing to each investor  Allows for wider risk spreading  No subscription tax or VAT generally applicable  Exemption on tax from income and gains  Investors benefit from home country tax treaty benefits as a result of transparent status  Single v’s Multi Manager Structures  Legal Structure combined with Tax Transparency enable the benefits of pension pooling to be achieved

22. 22 Ireland as Pensions Location Why Ireland for Pooling  Ireland has available a suite of Pension Pooling investment vehicles, e.g. Unit Trusts, Common Contractual Funds (CCF) etc.  Experienced International Legal Firms  Big Four Accountancy Firms providing tax advice  12.5% Corporation Tax Rate on all Trading Activities  Prudent but Progressive Regulatory Environment for Funds  World-class Pool of Service Providers  Significant investment in the infrastructure required to service the pooling of assets  Pension pooling already happening

23. 23 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

24. 24 In Conclusion  Pensions Directive  Is a first step  Provides a framework for change  Investment/asset pooling is 1 st step  Liability pooling – centralised administration are next steps  Full Pan-European Pension Funds  Will take time  But WILL come about