27 March 2014

Commission adopts legislative proposal for new rules on occupational pension funds (IORPs)

Sustainability of pension systems improving

Recent reforms have significantly improved the long-term sustainability of pension provision. As the 2012 Ageing Report noted, thanks to reforms launched in 2009-2012, the projected increase in EU public pension expenditure by 2060 was reduced from 2.5% GDP to only 1.5%. Since then, further progress has been made in many Member States which will be reviewed in the 2015 Ageing Report.

Adequacy of pensions linked to labour market developments

Because higher pensionable ages do not automatically translate into longer working lives, it is also necessary to protect the adequacy of pensions. For this to happen, older workers must be able to remain on the labour market, while access to early retirement is restricted or phased out.

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The 2012 Pension Adequacy Report showed that many pension reforms aimed at improving sustainability will lead to lower replacement rates unless people work longer. At the same time, many reforms have strengthened poverty protection measures which should benefit in particular those who cannot stay in work until they reach the regular retirement age.

Cross-border protection of supplementary pensions improved

To protect the pension rights of mobile workers, the European Parliament and the EU's Council of Minister have reached an agreement on a Directive on the acquisition and preservation of supplementary pension rights, based on the Commission proposal tabled in 2005. The final adoption of the Directive is scheduled at the beginning of April 2014.

The Directive stipulates that occupational pension rights of workers moving to other EU countries must be granted no later than after three years of employment relationship and sets out rigid standards to ensure that the rights continue to be preserved in a fair manner (compared to the acquired rights of those who remain in the company) after leaving the pension scheme.

Next steps

The Commission will further take stock of the sustainability and adequacy of pensions in the EU in the 2015 Pension Adequacy Report and the 2015 Ageing Report. The preparation of these reports has already started in cooperation with Member States.

Press release

White Paper "An Agenda for Adequate, Safe and Sustainable Pensions", February 2012

Key aims and contents of this proposal

The proposal has four key objectives and introduces improvements in all these areas to:

Ensure the soundness of occupational pensions and better protect pension scheme members and beneficiaries. The proposal would introduce:

(i) new governance requirements on key functions (risk management, internal audit and where relevant actuarial function),

(ii) new provisions on remuneration policy, so that institutions have a sound remuneration policy (for instance avoiding conflicts of interest) and regularly disclose relevant information on such policy,

(iii) a self-assessment of the risk-management system (through a Risk Evaluation for Pensions),

(iv) the requirement to use a depositary (that is an entity in charge of for the safe-keeping and oversight of members and beneficiaries' assets), particularly to reduce operational risk,

(v) enhanced powers for supervisors including for chain-outsourcing (outsourcing and all subsequent re-outsourcing) and stress testing.

Better inform pension scheme members and beneficiaries. The proposal would introduce a Pension Benefit Statement standardised at EU level that provided pension scheme members with simple and clear information about their individual pension entitlements....

Remove obstacles for cross-border provision of services so that occupational pension funds and employers can fully reap the benefits of the single market. The proposal would make it easier for occupational pension funds to operate a pension scheme that is subject to the social and labour law of another Member State and for fund assets to be transferred across Member States, notably by introducing a pension fund transfer procedure...

Encourage occupational pension funds to invest long-term in growth-, environment- and employment-enhancing economic activities. The proposal would modernise investment rules to allow occupational pension funds to invest in financial assets with a long-term economic profile thereby supporting the financing of growth in the real economy. The proposal would change the existing provisions on investment restrictions to make sure occupational pension funds remained free to invest in infrastructure, unrated loans etc., thus ensuring that investments, in particular with a long-term profile, should not be restricted if the restriction is not justified on prudential grounds.

Benefits arising from this proposal

The proposal would improve financial stability, as certain occupational pension funds are large financial institutions with several millions of members and beneficiaries.

Employers, including SMEs, are expected to benefit through the reduced cost of joining an existing occupational pension fund. Moreover, employers joining a pension scheme in an established market can expect to see a reduction in their administration and investment costs.

Multinational companies would also benefit from more easily consolidating their existing pension schemes (possibly in different Member States) into one occupational pension fund. Member States would benefit because well-governed occupational pension funds, and wider geographic coverage, are expected to reduce some of the fiscal pressure on state pension systems.

Citizens in general and those who are mobile across borders in the course of their careers in particular would also benefit from having the Pension Benefit Statement in a standardised format, for all the Member States in which they have worked. More generally, all citizens would benefit from better protection through strengthened rules for governance of occupational pension funds. They would also benefit from improved personalised information so that they could make better-informed decisions about their retirement provision.

Contributing to long-term investment

The proposal would stimulate the capacity of occupational pension funds to invest in financial assets with a long-term economic profile and thereby support the financing of growth in the real economy in several ways:

• The Risk Evaluation for Pensions would allow occupational pension funds to be more aware of their commitments to their beneficiaries and thus make better-informed decisions about investments in long-term assets;

• Provisions on investment restrictions would be modernised (as explained above) so that Member States could not restrict investment choices made by occupational pension funds (in particular in assets with a long-term profile such as infrastructure) if restrictions were not justified on prudential grounds.

Contributing to the agenda for safe and sustainable pensions

In February 2012, the Commission adopted a White Paper on safe and sustainable pensions, containing a range of ideas and suggestions for improving various aspects of pension provision in the EU (IP/12/140, MEMO/12/108). A reform of the 2003 Occupational Pension Funds Directive featured prominently among the action points included in that White Paper. This legislative proposal meets that commitment.

Solvency rules for occupational pension funds

This proposal does not contain a review of the existing quantitative solvency rules for occupational pension funds. EIOPA is carrying out detailed technical work on this. A Quantitative Impact Study of occupational pensions was completed in February 2013 (view). However, based on the results of this work, the Commission did not consider it appropriate to introduce new quantitative solvency rules with this proposal.

Further details

Text of the proposal

Annexes

Impact assessment:

• Executive Summary
• Full text – part 1
• Full text – part 2

Press conference video

Comments on revised IORP-Directive

See also: Commission roadmap to meet the long-term financing needs of the European economy

© European Commission