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Impact Investing

IPE special report May 2018

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Holds no fears

Like their UK and Dutch counterparts, Irish pension funds worried about the potential of a proscriptive pan-European Pensions Directive laying down rules where previously the prudent person pension fund management principle had worked well for decades.
However, in a speech concerning the practical implications of the directive for Ireland, Anne Maher, head of the Irish Pensions Board, noted that the final aims of the directive in ensuring the security of pensions while removing the barriers for pension investment, fitted relatively comfortably with how Irish pension schemes operated.
Maher elaborated that the eventual approach of the EU in seeking to avoid proscriptive interference in the national organisation of different member state pension systems, while avoiding any sticky questions of national taxation, posed no real problems to Ireland. Neither, she said, did the transposition of the directive into law and the treatment of cross-border pension schemes differently from national pensions schemes – although she noted that the directive didn’t go as far as the Irish had hoped in some areas.
In Ireland, she noted that the scope of the directive would apply to both DB and DC plans, but that neither would be overly affected by the information provisions of the directive including adequate information, annual reports, clarity on the financial position of the fund or on the benefit entitlements of members.
The only area where she conceded there may be work for Irish pension schemes was in the area of investment principles, where the directive requires pension schemes to produce a clear statement of intent – much like the system in the UK.
In terms of technical provisions, Ireland is also broadly in line with the directive, Maher noted, singling out areas such as prudent calculation of technical provisions and permitted underfunding of domestic schemes – provided an agreed recovery plan is in place. The only area where the directive diverges from current Irish practice is in the prohibition of underfunding for cross-border schemes.
In terms of investment restrictions, the qualitative criterion finally adopted in the directive pose no problems to Ireland, although Maher expressed some disappointment that there was not a full ‘freedom of investment’ requirement for all member states.
One area where she did raise a question mark, however, was over the potential implicit in cross-border co-operation for Irish employer to set up its pension scheme in another EU country. The regulation and supervision of such arrangements, were they to come to fruition, still need some clarification, particularly as the directive emphasises that the labour law of host states must be applied.
In conclusion, Maher suggested that there could be some increased compliance costs for Irish pension funds implicit in the changes of the directive.
She also questioned whether the first directive might not be a precursor for further pensions directives to follow.
And while heralding the directive as the first step towards a single market for pan-European schemes, she also warned that tax co-ordination could be a catalyst for change. Questioning whether such moves would be a threat or opportunity for Ireland, she noted that there was scope for an Irish Financial Services Centre, an opportunity that was backed earlier this year by new tax legislation for a pensions investment pooling vehicle passed by the Dail, the Irish parliament, as a new category of investment fund.
The Finance Act explicitly states that the vehicle is transparent for tax purposes, with the aim being that a pension fund pooling investments in the Irish vehicle would still be able to access its own jurisdiction’s double taxation treaty (DTA) with the country in which the investments are being made.
The legislation restricts the application of the pooling vehicle to pensions funds or to trustees and custodians holding pensions assets and mirrors the Fonds Commun de Placement (FCP) structure familiar on the continent, which had not been previously included in Irish investment fund laws.
The target of the new funds vehicle is multinational companies looking for tax transparent pooled investment vehicles, effectively putting Dublin on a competitive footing with the already established model in Luxembourg.

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