(BRUSSELS) – The EU agreed new rules for work pension funds Thursday, in a bid to improve the way they are governed and to enhance clarity in the information that is provided to pension savers.
The EU Parliament, Council and the Commission agreed on a proposal for a revised Directive on occupational pension funds, known as IORP2.
The Commission says the directive will improve the way pension funds are governed, make it easier for pension funds to conduct cross-border business and provide clear information to pension scheme members and beneficiaries. These rules will make it easier for pension funds to invest in long-term assets, strengthening the role they can play in the Capital Markets Union.
Financial Services Commissioner Jonathan Hill, said: “This agreement will ensure high standards of governance, improve information for pension savers, and encourage more cross-border pension services.”
The revised Directive strengthens and replaces the existing 2003 IORP Directive. It does not include any harmonised solvency rules for occupational pension funds.
The text will now have to be formally approved by the European Parliament, and will enter into force once it is published in the EU’s Official Journal. Member States will have 24 months to transpose the text into their national legislation.
Under the new Directive, workplace pension funds and their members and beneficiaries will benefit from: – Enhanced cross-border rules: the Directive will introduce a new procedure for the cross-border transfer of pension scheme portfolios with a role given to both countries’ supervisory authorities based on a list of criteria. Non-binding EIOPA mediation is possible in case these authorities disagree.
– The principal rule that cross-border IORPs should be fully funded at all times will continue to apply. However, the Directive acknowledges the possibility of cross-border IORPs to be underfunded, in which case the supervisor must promptly intervene and require the pension fund to develop and implement measures without delay to protect members and beneficiaries;
– Improved governance: the key functions of pension funds such as the risk-management function, the internal audit function and the actuarial function (for DB schemes) must be experienced persons and carry out their duties in an objective, fair and independent way. IORPs must, furthermore, identify the risks they are or could be exposed to in the short and in the long term which may have an impact on their ability to meet their obligations and they must draw up an own risk assessment accordingly.
– Provision of better and more comprehensible information to pension scheme members through the annual Pension Benefit Statement (PBS). This document will set out information on the guarantees under the pension scheme, on the pension benefit projections, information on the accrued entitlements, the contributions paid and the costs deducted, as well as information on the funding level of the pension scheme. The PBS is designed to allow pension scheme members to take more informed decisions about their pensions while leaving Member States the flexibility to tailor its exact content and design to their market.
– Responsible investments: as a result of the agreement, pension funds will have to consider the risk of environmental, social and governance risks in their investment decisions and document this in their three-yearly statement of investment policy principles.
