Amending the law on pension funds
The purpose of the bill of law is to amend and clarify certain provisions of the law of 8 June, 1999 creating pension funds in the form of pension-savings companies with variable capital (Société d’Epargne-Pension à Capital Variable) SEPCAV and pension-savings associations (Association d’Epargne-Pension) ASSEP, to permit the smooth operation and supervision of pension funds.
The proposed amendments concern, among other things, the authorisation procedure of the ‘asset manager’(Gestionnaire d’Actif) and the ‘liability manager’ (Gestionnaire de Passif) and introduces into the law a definition of the legal mission of the liability manager. The amendments also concern the provisions relating to the publication of the articles and the pension regulations. as well as the procedure for their respective amendments.
Other amendments are of a more technical nature, such as the introduction of the possibility for the contributors to provide seed money in order to permit an appropriate risk spreading immediately upon the creation of the pension fund.
Some changes aim to create a legal basis for the later implementation of a European Union directive, a draft of which has been published by the European Commission.
Finally, certain changes to the law are proposed in line with certain recent amendments to the law of 30 March, 1988 relating to undertakings for collective investment. These concern mainly the provisions relating to the qualification of the auditor, the segregation of assets and liabilities within an umbrella pension fund, as well as the procedure to be followed in case of liquidation.
The main changes resulting from the bill can be summarised as follows:
q The bill introduces the requirement to specify in the articles of incorporation of the pension fund the conditions for amending the pension regulations. The publication of the pension regulations and any amendments are no longer required. It was indeed considered that a publication of the pension regulation and its amendments creates unnecessary administrative burdens.
It will be assured by the supervisory authority (Commission de Surveillance du Secteur Financier (‘CSSF’)) that the pension fund adequately informs its beneficiaries on any changes to the pension regulations. Hence, an amendment to the pension regulation will become effective upon its notification to the beneficiaries and affiliates without the requirement of any publication.
q To permit a more rapid growth of the share capital or in order to assure a better diversification of risk, the bill introduces the possibility for the contributors who are not beneficiaries to contribute seed money in an amount equivalent to the minimum share capital. With respect to the SEPCAV, where in principle the shares are restricted to a defined group of beneficiaries, the shares representing such seed capital are automatically and progressively redeemed once the share capital of the SEPCAV reaches and exceeds E1m.
q With respect to umbrella pension funds, the law provides that the assets attributable to a sub-fund may not be used to meet the liabilities of another sub-fund. This provision is maintained, but the bill permits the articles of incorporation of the pension fund to derogate to this principle.
q The bill introduces the possibility for a foreign company with an object similar to a SEPCAV, to change its nationality and become a Luxembourg company. Also, the bill provides for the possibility for a Luxembourg SEPCAV to change its nationality to a foreign one, subject however to unanimous consent of its shareholders.
q The bill introduces an additional duty of the custodian who is now also responsible for checking whether payments to be made by the contributors are made on a timely basis.
q The bill clarifies that the ‘asset manager’, to which the SEPCAV can delegate the day-to-day management of its assets, can also be a Luxembourg bank or insurance company, in addition to investment managers (Gestionnaire de Fortune) which are specifically referred to in the original law.
Foreign entities may also be appointed as ‘asset manager’ subject to the requirements that (i) they are subject in their home country to a permanent supervision by a supervisory authority instituted by a law aiming to protect investors and (ii) they must be specifically authorised to that effect by the CSSF on the basis of their competence, honorability and financial resources.
q The bill introduces, in relation to the voluntary liquidation of the ASSEP, similar quorum and majority requirements as those applicable in relation to the liquidation of investments funds where a less stringent majority requirement applies if the assets fall below a certain level.
q The rules regarding the appointment and the duties of the ‘liability manager’ of an ASSEP are largely clarified and amended.
The bill entails that insurance companies authorised by the Luxembourg Insurance Commission (Commissariat aux Assurances) are automatically authorised to become liability manager, whereas all other professionals specifically need to be approved to that effect by the CSSF. All entities which are authorised by the CSSF to act as ‘liability manager’ are inscribed on an official list kept by the CSSF.
The ‘liability manager’ must perform all the actuarial calculations in relation to the liabilities of the ASSEP, comprising also the financing plan. Its mission also comprises the valuation of the present liabilities of the ASSEP as well as the rights acquired by each of the beneficiaries. The ‘liability manager’ must, in addition, follow up on all day-to-day events concerning the ASSEP, such as the determination of the payments to be made in case of retirement, death, invalidity or departure of an affiliate. The bill also clarifies in more details the minimum information which must be comprised in the financing plan.
The liability management may not be delegated partially, only the entire delegation by the ASSEP being possible. The fact for an ASSEP to obtain advisory services from a professional actuary is not considered a formal delegation, and, in that case, the ASSEP must give evidence to the CSSF that it is able to perform by itself the liability management functions.
q In relation to the setting up of adequate technical provisions to cover commitments, the bill refers to the possibility for a grand-ducal regulation to define the minimum matching rules and impose, as a function of the kind of commitments entered into by the pension fund, the nature of the assets, the limits within which they are assigned, and their allocation. This provision was already applicable for the ASSEP, but is now also extended to the SEPCAV in anticipation of an EU directive of pension funds. By these means, the rules which may be imposed by the future EU directive may be implemented in Luxembourg by means of a grand-ducal regulation rather than by a further amendment to the law.
q The bill amends Chapter 4 of the law by deleting any reference to the requirement to publish semi-annual reports as it was considered that in relation to pension funds annual reporting is sufficient.
q The provisions relating to the appointment and the duties of the auditor are amended in order to be in line with the rules applicable in that respect to banks and other professionals of the financial sector. An auditor, in order to be eligible as auditor of a pension fund, must bring evidence to the CSSF that he has adequate professional experience and sufficient structural resources to perform its audit functions in relation to pension funds. Finally, the CSSF may instruct the auditor to perform punctual reviews on specific items. The provisions contained in the law on commercial companies regarding the appointment of an auditor (Commissaire aux Comptes) are not applicable to pension funds. The certification issued by the auditor, including any possible qualifications, must be reproduced entirely in the annual report.
q The tax provisions of the law are amended in a manner for the same rules to apply for the ASSEPand the SEPCAV in terms of the obligation for the pension fund to communicate to the Luxembourg tax authorities, for onward transmission to foreign tax authorities, all information necessary for the home country tax treatment to be applied to the beneficiaries, such information being limited to current rights of and payments made to beneficiaries. It is worthwhile reminding that this feature was included in the original law already in order to facilitate the recognition by foreign authorities of Luxembourg pension funds.
The bill has been deposited with the parliament on 3rd October, 2000. As of this date, only the Chamber of Commerce has issued their report and confirmed their approval without suggesting any amendments to the present bill. The opinions from a number of professional associations still need to be issued and, most importantly, the Council of State (Conseil d’Etat) has not yet issued its opinion which is required before parliament votes on the bill. It can however be reasonably expected that the bill will be voted upon by parliament and become a law by middle of this year.
Jacques Elvinger is a partner at the lawfirm of Elvinger, Hoss & Prussen in Luxembourg