Key features of IORPs
The directive has espoused the prudent man principle with a few minor restrictions on cross-border funds. Member states can choose to retain quantitative rules. Some specific quantitative restrictions can be imposed by a member state not only on its domestic pensions funds but also on pension funds from another state whose assets cover liabilities in the host country. Investment restrictions include:
o a maximum of 5% of DB technical provisions/DC assets in either the sponsoring company or in one issuer;
o a maximum of 30% in assets listed on ‘unregulated’ markets;
o a maximum of 30% invested in assets denominated in a currency outside the Euro-zone.
Also, when the sponsor is part of a group, investment in assets associated with the overall group is not to exceed 10%.
“The home member state shall require every institution to have sufficient and appropriate assets to cover the technical provisions,” according to Article 16.1.
Domestic schemes are to be run according to the member state’s legislation. For cross-border schemes, Ecofin accepted the Parliament’s recommendation of ‘home state control’ and IORPs need authorisation from the home country authority. This requires mutual recognition of member states’ supervisory bodies
Funds are expected to produce a tri-annual disclosure of investment principles and an annual calculation of technical provisions. Home member states may allow a calculation once every three years if the institution provides members or the relevant authority with certification or a report of adjustments for the intervening years.
Funds will enjoy the freedom to appoint investment managers and custodians.
Ecofin chose not to follow amendments made by the Parliament and harmonising certain aspects of social policy. It chose not to endorse:
o a compulsory biometric risk option;
o a compulsory option for guaranteed redemption of contributions;
o compulsory governance requirements for pension funds.
The directive covers institutions of occupational retirement provision (IORP) operating on a funded basis. It excludes social security schemes, life insurance companies, PAYG and schemes with less than 100 members.