Institutions for Occupational Retirement Provision (IORP)
Directive 2016/2341 (IORPII) concerning the activities and monitoring of the Institutions for Occupational Retirement Provisions (IORP). It reviews the current directive (2003/41/EC) on retirement schemes. The text published in the Official Journal of the EU on 23 December 2016 entered into force on 13 January 2017, but is only applicable as from 13 January 2019.
Retirement schemes in Europe are generally both very complex and varied. They are the result of the history of social dialogue within each country, and are based on three pillars:
The first is constituted by the public pension schemes linked to revenues,
The second are private schemes of an occupational nature,
The third incorporates retirement schemes of an individual nature.
If the first pillar is suposed to remain the most important pension system, the EC observes that most member states in the EU have set up reforms to explore alternatives.
What is this Directive trying to do?
Two major reasons can be seen in the wish of the Commission to review the current IORP regime:
The need for transparency with regard to information provided to members and beneficiaries of IORPs.
The intention to facilitate the cross-border development of pension schemes and the importance of harmonising the various European pension systems.
This necessity of transparency is expressed by an obligation to provide details of the investments and new information reports to the members and beneficiaries of the IORPs. And for the IORPs, the necessity to develop new monitoring tools and the obligation to set up appropriate and detailed risk management.
What will the impacts be?
If we look at the regulatory text, there is this obligation for a pension fund to appoint a depository which will have a custody and safekeeping role for the Fund assets. This depository bank may be located in a country other than the one where the fund is set up. The pension fund (Anglo-Saxon origin), is an investment fund dedicated to capitalisation pension schemes.
In Luxembourg, the European leader for domiciliation and administration of investment funds with more than €3,000 billion of net assets, pension funds regulation has been in place since 1999. Updated in 2003, it implies that any pension fund must have a depository for the custody of its assets and also an asset and liabilities manager. Luxembourg has today 15 pension funds, entities endowed with a legal entity and intended to cover the services relating to retirement as well as additional services in the event of death and disability. The Luxembourg market currently offers a choice of structures which are particularly suitable for multinational companies and expatriate workers:
a company structure where the beneficiaries are also shareholders in the company - the pension savings company with a variable capital (SEPCAV). When a member retires, the income from the contributions invested will be repaid in the form of a capital sum.
an associative structure whose aim is to guarantee the payment of pensions determined by pension regulation - the Pension Savings Association (ASSEP). This undertakes to pay annuities or capital sums to the members who are the fund's creditors.
These two legal structures are monitored by the Luxembourg regulator (the CSSF).
And the "CAA fund", a pension fund subject to supervisory review by the Commissariat aux Assurances (The Luxembourg Insurance Authority),
With this Directive, pension funds should set up controls and issue additional information for the Regulators. Banks have the expertise as they provide fund administration and custody services within the scope of the current AIFM and UCITS V Directives.