3 Financial services: occupational pension
funds
| Committee's assessment
| Legally and politically important |
| Committee's decision | Not cleared from scrutiny; further information requested
|
| Document details | Draft Directive to consolidate and amend legislation on the activities and supervision of institutions for occupational retirement provision
|
| Legal base | Articles 53, 62 and 114(1) TFEU; co-decision; QMV
|
| Department | HM Treasury
|
Summary and Committee's conclusions
3.1 Institutions for Occupational Retirement Provision, or IORPs,
more commonly known as occupational pension funds, are collective
schemes which manage financial assets on behalf of employers in
order to provide retirement benefits for their employees. The
IORP Directive, Directive 2003/41/EC, sets out a minimum harmonisation
framework for occupational pension schemes and their supervision,
including rules which oblige occupational pension funds to invest
their assets prudently, in the best interest of members and beneficiaries.
3.2 This draft Directive to recast (revise) the IORP
Directive is confined to new rules on the governance of schemes
and the information that schemes should provide to their beneficiaries.
3.3 The Government responds to our letters to the
Commission, Council and European Parliament about our subsidiarity
concerns and gives us some preliminary information about its efforts
to stymie the Commission proposal. The Government shares our concerns
that the Commission's proposal is not consistent with the principle
of subsidiarity, and believes our letters will be a useful contribution
to debate on these dossiers.
3.4 Before considering this matter further we
should like to hear from the Government about its continued efforts
to forestall the draft Directive, including the results of its
detailed consideration, with the UK pensions sector, of the potential
impact of the proposal.
3.5 Meanwhile the document remains under scrutiny.
Full details of
the documents: Draft Directive on the
activities and supervision of institutions for occupational retirement
provision (recast): (35944), 8633/14, + ADDs 1-5, COM(14) 167.
Background
3.6 Institutions for Occupational Retirement Provision,
or IORPs, more commonly known as occupational pension funds, are
collective schemes which manage financial assets on behalf of
employers in order to provide retirement benefits for their employees.
There are around 125,000 such schemes operating within the EU,
managing assets of around €2.5 trillion (£2 trillion)
for around 75 million beneficiaries. The vast majority of these
schemes are located in just four Member States: Germany, the Republic
of Ireland, the Netherlands and the United Kingdom. Occupational
pension funds do not play a significant part in pension provision
outside of these four Member States.
3.7 The IORP Directive, Directive 2003/41/EC, sets
out a minimum harmonisation framework for occupational pension
schemes and their supervision, including rules which oblige occupational
pension funds to invest their assets prudently, in the best interest
of members and beneficiaries.
3.8 This draft Directive to recast (revise) the IORP
Directive is confined to new rules on the governance of schemes
and the information that schemes should provide to their beneficiaries.
The Commission sets out four key objectives for revision of the
IORP Directive. First, to ensure the soundness of occupational
pensions and better protect pension scheme members and beneficiaries,
the draft Directive would provide for:
· new
governance requirements on the assessment of scheme risk, including
requirements for self-assessment of risk management systems;
· how
audit functions should be carried out;
· rules
that govern the qualifications and remuneration of those responsible
for managing occupational schemes; and
· enhanced
powers for supervisors, including enhanced ability to stress-test
pension schemes.
3.9 Secondly, in relation to better informing pension
scheme members and beneficiaries, the draft Directive would provide
for detailed rules on the content of benefit information which
should be provided to scheme members and would, in particular
introduce a standardised EU Pension Benefit Statement. The Commission
believes that a more mobile EU workforce requires pension benefits
to be easily compared across the EU.
3.10 Next, in order to remove obstacles for cross-border
provision of occupational pension funds so that they can operate
across the single market — the draft Directive would permit
transfers of all or part of a scheme's assets across Member State
borders. Last, to encourage occupational pension funds to provide
long-term investment to the wider EU economy, the draft Directive
would prevent Member States from setting rules which restrict
the investment decisions that schemes can make.
3.11 When we first considered this proposal, on 14
May, we noted the Government's initial view about lack of any
real need or justification for the proposal. We presumed that
its preliminary approach to Council discussion of the proposal
would be simply to have it dropped. So before considering the
matter again we asked to hear about the outcome of the Government's
efforts to stymie the proposal. Meanwhile the document remained
under scrutiny.
3.12 We also said that because of the imminent end
of the Session we were not able to consider the need for a Protocol
No. 2 Reasoned Opinion on subsidiarity in time to meet the deadline
of 30 May, but that we would return to the issue in the new Session.
In June we did return to the matter and authorised our Chairman
to write to the Presidents of the Commission, Council and European
Parliament, as part of the political dialogue, in the terms of
a Reasoned Opinion we would have recommended to the House.[1]
The Minister's letter of 27 June 2014
3.13 The Economic Secretary to the Treasury (Andrea
Leadsom) first responds to our decision to inform the Presidents
of the three institutions of our subsidiarity concerns and to
our other concerns about the proposal, saying that:
· occupational
pensions play a crucial role in the Government's drive to ensure
that individuals save adequately for their retirement, so it is
important that the Commission's proposal receives proper scrutiny;
· our
assessment will form an important part of that scrutiny;
· the
Government shares our concerns that the Commission's proposal
is not consistent with the principle of subsidiarity and seeks
an increase in the competence of EU institutions which is not
warranted in this policy area;
· it notes
that we have identified a number of very specific concerns about
the reliability of the Commission's evidence base in its impact
assessment; and
· the
Government believes our letters to the Commission, Council and
European Parliament setting out these concerns will be a useful
contribution to debate of this dossier and it would like to be
kept informed of our engagement with these institutions.
3.14 Turning to the substance of the draft Directive
the Minister says that:
· the
legislative process is at an early stage — Council negotiations
have not yet commenced;
· but
there have been two Council working group meetings which have
confirmed that concerns with the Commission's proposal are widely
shared across Member States; and
· issues
of subsidiarity and proportionality, the importance of maintaining
Member State flexibility in the design of pension systems and
the need to avoid introducing additional administrative costs
for pension schemes have been prominent in the concerns expressed
by other Member States.
3.15 The Minister tells us that in discussions, the
Government is focussing on high level issues which include:
· the
need to be clear about what the policy challenges are for occupational
pension schemes and whether these really do need addressing through
additional EU legislation and competence;
· whether
the evidence supports the Commission's objectives and the policy
measures the Commission is proposing to achieve them; and
· the
importance of preserving Member State flexibility in the regulation
of IORPs so that national governments and regulators can respond
to the very different pension policy challenges and circumstances
in Member States.
3.16 The Minister continues that:
· the
Government believes it is premature to move to a detailed negotiation
of the measures in the draft Directive;
· Member
States must first determine whether further legislation is needed
in this area at all;
· the
Government has been working to focus discussion on these high
level issues and to subject the Commission's impact assessment
to proper scrutiny;
· it will,
in any case, need time to complete a detailed appraisal of the
Commission's proposal and how it will impact the UK's current
arrangements;
· the
Government will be working internally and closely with the UK
pensions sector to fully understand the implications of the Commission
proposal; and
· the
draft Directive must be given proper consideration and the Government
sees no reason for the legislative process to be rushed.
Previous Committee Reports
Fiftieth Report HC 83-xlv (2013-14), chapter 6 (14
May 2014) and First Report HC 219-i (2014-15), chapter 13 (4 June
2014).
1 For the letters see http://www.parliament.uk/documents/commons-committees/european-scrutiny/Sefcovic%2035944.1.pdf Back
| 
