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Parliament’s Economic and Monetary Affairs Committee gave its approval on Wednesday to a revised text, agreed with member states and Commission which lays out new rules for pension funds engaged in cross-border activities and sets out guidelines for the transfer of pension schemes across national borders.

The text of the "Institutions for Occupational Retirement Provision" (IORPs) Directive, which was agreed by 47 votes to 4 votes, with 6 abstentions, aims to promote the internal market in occupational retirement provision and remove obstacles to cross-border activity.

Portfolio transfer process clarified

Under the proposals, a fund wishing to transfer its portfolio across national borders must first receive approval from a majority of members and beneficiaries, or representatives of the pension scheme.  Only then can it apply for authorisation from the receiving member state. The regulator in the home member state must give consent first, and both regulators -- in the home and receiving member states -- will base their opinion of the transfer on a limited list of criteria.  Where the regulators disagree, the new measures propose a mediation role for the European Insurance and Occupational Pensions Authority.

Across the European Union there are around 125,000 occupational pension funds which hold assets worth €2.5 trillion on behalf of around 75 million Europeans (around 20% of the workforce). Between these funds, there is considerable diversity over funding arrangements. The negotiators explicitly refrained from including Union-wide solvency requirements within the Directive, saying it was unrealistic and not effective "given the diversity of IORPs within and across Member States."


Greater clarity on dealing with underfunding

The negotiators acknowledged that underfunding could occur when pension schemes engage in cross-border activity. Until now, the lack of clarity about what might happen in such an event, has been a major barrier to cross-border operations. Under the new proposals, if this occurred, the regulator of the home member state has been given the authority to "intervene and require the IORP to immediately draw up appropriate measures and implement them without delay."


Brian Hayes (EPP, Ireland), who was responsible for steering the legislation through Parliament, welcomed the agreement struck with EU partners. "We have achieved the right balance between respect for difference but also ambition for new cross-border activity. In changing the rule on how cross-border schemes are established, on how pension schemes are transferred and how schemes can be funded, we have brought certainty to the process," he said.


Increasing protections for members and beneficiaries.

The draft text also enhances the minimum level of protection for members and beneficiaries by increasing the information they have a right to. During the global financial crisis, the failure of some funds led to a cut in some members' benefits. Under the new proposals IORPs must inform their beneficiaries before a benefits cut. The proposal also recommends that fund managers consult beneficiaries before implementing any such decision.

The introduction of a Pension Benefit Statement is also aimed at increased security for beneficiaries by providing them with "relevant and appropriate information" about the scheme. The negotiators also recommend that "as a general principle, where relevant, IORPs shall take into account the aim of having an equitable spread of risks and benefits between generations in their activities."

Environmental, social and governance factors

In a new measure of its kind for a financial services directive, the proposals require IORPs to consider environmental, social and governance factors when making investment decisions. This will include, where relevant, "risks related to climate change, use of resources, the environment, social risks."

The draft text will still need to get final approval from the European Parliament as well as member states.