7 Financial services: occupational pension
funds
| Committee's assessment
| Legally and politically important |
| Committee's decision | Not cleared from scrutiny; further information requested
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| Document details | Draft Directive to consolidate and amend legislation on the activities and supervision of institutions for occupational retirement provision
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| Legal base | Articles 53, 62 and 114(1) TFEU; co-decision; QMV
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| Department | HM Treasury
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| Document numbers | (35944), 8633/14 + ADDs 1-5, COM(14) 167
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Summary and Committee's conclusions
7.1 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.
7.2 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.
7.3 Both we and the Government have been concerned
about the lack of justification for the proposal, subsidiarity
issues and the practical consequences of the measure. When we
last considered the matter, in July, we said that, before considering
the document further we wished 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. Meanwhile the
document remained under scrutiny.
7.4 The Government tells us that there is now a considerably
amended and more flexible Presidency text, that the Presidency
hopes to secure COREPER agreement to a General Approach, that
the Government will not support such a General Approach and that,
in effect, it still hopes to see the proposal aborted. However,
the Government makes no attempt to meet our request for the results
of its consideration, with the UK pensions sector, of the proposal's
possible impacts.
7.5 We are grateful for the information, so far
as it goes, that the Government now gives us. We presume that,
if necessary, the Government will continue to oppose the measure
if it goes to the Council, both on substantive and parliamentary
scrutiny grounds. When it confirms this to us, we should like
also to have the assessment of impacts we requested previously.
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
7.6 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 (£1-96 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.
7.7 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.
7.8 In March the Commission presented this draft
Directive to recast (consolidate and revise) the IORP Directive.
It was confined to new rules on the governance of schemes and
the information that schemes should provide to their beneficiaries.
The Commission set 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.
7.9 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
said that a more mobile EU workforce requires pension benefits
to be easily compared across the EU.
7.10 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.
7.11 When we first considered this proposal, in 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.
7.12 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.[7]
7.13 Later that month we heard that the Government
shared our concerns that the Commission's proposal was not consistent
with the principle of subsidiarity. It also gave us some preliminary
information about its efforts to stymie the Commission proposal.
We asked, before we would consider this matter further, 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.
Meanwhile the document remained under scrutiny.
The Minister's letter of 2 December 2014
7.14 The Economic Secretary to the Treasury (Andrea
Leadsom) writes now about progress with Council consideration
of this draft Directive. She first reminds us that the Government
shared our concerns, namely that the proposal was not consistent
with the principle of subsidiarity and that the case for further
IORP legislation had not been made by the Commission. The Minister
adds that the Government also had very real concerns that the
practical impact of the proposal would be to raise administrative
costs for IORPs without providing any meaningful increase in protection
for IORP members.
7.15 The Minister also recalls that the Government's
intended approach to Council discussion was to focus on high level
issues around the need for this legislation: whether the Commission
had identified real problems that needed addressing, whether further
legislation at EU level was really necessary and whether the Commission's
impact assessment was reliable. She then reports that:
· the
Government received support from a number of Member States for
raising these concerns and Council working group discussions focussed
on these high-level issues for quite some time;
· it seemed
that this proposal would proceed slowly, with no certainty that
a Council agreement could be reached;
· in recent
weeks, however, it has started to become apparent that, while
several Member States share the UK's principled concerns about
this proposal, there is little support in Council for blocking
the proposal outright;
· instead,
concerned Member States began to concentrate on securing substantial
amendments to the proposal to address their practical concerns
about how the legislation would work in practice;
· while
it has not withdrawn its principled reservations on this proposal,
the Government decided it should work closely with other Member
States to explore whether it would be possible to substantially
revise the proposal so that it addressed all of the UK concerns;
and
· if the
proposal could not be withdrawn, it would be important to influence
development of the Presidency compromise so that the new IORP
Directive did not damage UK occupational pension schemes.
7.16 The Minister continues that:
· only
in the last two weeks has it become clear that the Presidency
is determined to reach a Council agreement on the proposal before
the end of its term;
· it is
now also clear that other Member States will almost certainly
support a General Approach based on the latest Presidency compromise,
which has radically amended the original Commission proposal;
· while
the Government remains of the view that a real need for this legislation
has not been established, the Presidency compromise would lead
to an EU IORP regime which still leaves very significant flexibility
with Member States and which would not damage UK IORPs or the
UK supervision of IORPs; and
· by moving
the proposal away from its original maximum-harmonisation approach
to a principles-based minimum-harmonisation framework, the proposal
also addresses much of the concern around subsidiarity.
7.17 The Minister tells us that the key amendments
made by the Presidency compromise address the Government's concerns
as follows:
· all
powers for the Commission to make Delegated Acts, or for the European
Insurance and Occupational Pensions Authority (EIOPA) to develop
technical standards or guidelines, have been removed;
· there
is now no possibility of the Commission or EIOPA increasing EU
competence further through implementing measures;
· the
Pension Benefit Statement (PBS) is now principles-based and leaves
flexibility with Member States on the detailed content and format
of statements;
· this
is no longer a maximum harmonised approach to the information
that IORP members should receive, but a more modest requirement
that members should receive basic information about their pension
on an annual basis;
· the
mandated elements for the PBS are now high-level and are compatible
with information already required in the UK;
· while
there is a requirement for members to receive information about
pension projections, this does not have to be included in the
PBS so UK IORPs could continue with their current approach;
· the
format of statements is also left to Member States; which should
help minimise any increase in administrative costs that flow from
the PBS;
· the
requirement for all defined contribution IORP schemes to appoint
depositaries now exempts Member States using equivalent protection,
including the UK's trustee obligations;
· the
Government was concerned that this would significantly increase
costs for no meaningful increase in protection of IORP assets
and, in particular, could undermine the low-cost model necessary
for auto-enrolment of lower paid workers in the UK;
· Member
States that already have equivalent protections in place, such
as the UK's fiduciary duties owed by IORP trustees, are now exempted
from this requirement;
· the
risk evaluation which IORPs must perform is also principles-based
with a very high level of flexibility left to national authorities
on what is required of individual IORPs;
· the
measure now sets out a core list of high-level risks that an IORP
would normally be expected to evaluate, but it is left to Member
States to make the detailed rules on what is required and for
national authorities to decide what is applicable in the circumstances;
· this
will mean that current UK arrangements should meet the requirements
of the Directive, but the provision does represent helpful progress
in that all IORPs will now be required to submit one document
on risk evaluation to the supervisor;
· this
means that administrative costs flowing from the provision should
be minimal;
· all
references to quantitative requirements in risk evaluation, which
could have paved the way towards a standardised EU-wide approach
to the supervision of solvency requirements, have been removed;
· any
legislation which paves the way for EU-wide solvency requirements
for defined benefit IORPs has always been one of the Government's
biggest concerns;
· there
is now nothing in this proposal which could extend EU competence
over quantitative requirements for IORPs;
· requirements
around IORP governance and functions are now much less prescriptive;
· stripping
out the detail on how IORPs should be governed and how key functions
must be discharged means that current UK arrangements should now
meet these more high-level requirements;
· in particular,
the revised governance requirements will allow the current UK
system of trustees to continue, with the ability to include social
partners in governance arrangements through the appointment of
lay trustees left intact;
· prudential
supervision requirements are now high-level with significant flexibility
for Member States;
· many
of the detailed requirements have been removed leaving core elements
that supervisors would normally be expected to review;
· this
should enable the UK Pension Regulator to continue with its risk-based
approach, focusing supervision resources where they are needed
most;
· there
are now much more substantial safeguards in place around the operation
of cross-border IORPs and the transfer of liabilities across borders;
and
· the
safeguards introduced effectively bring in a national supervisor
veto to prevent cross border activity where a supervisor is concerned
that this is not in the interest of IORP members.
7.18 Asserting that these changes are a radical departure
from the Commission's original proposal, the Minister says that
it is on this basis that the Presidency looks likely to achieve
a large majority of Member States in support of General Approach
at the meeting of COREPER in the week beginning 8 December. She
says that, while the Presidency compromise appears to meet the
Government's concerns about the impact that a new IORP Directive
would have on the UK IORP system, it will not support a General
Approach at the COREPER meeting for three key reasons:
· first,
the principled concern about whether there is a real need for
this legislation has not been addressed;
· secondly,
the Government does not see why Council consideration of this
proposal should be rushed — very significant amendments
have been made to the proposal in recent weeks and it thinks it
would be sensible to allow time for Member States to perform thorough
checks on the revised text; and
· finally,
the new Commission has made its intention known to review pending
proposals that do not represent best practice on better regulation
— it is not known if this proposal will be a candidate for
this review, but the Government believes that Council should give
the new Commission an opportunity to consider this before concluding
Council discussions.
7.19 Noting that in the circumstances she is not
asking us for a waiver, in terms of the scrutiny reserve resolution,
for the COREPER meeting, the Minister says that:
· the
Government will make it clear that we and the Lords European Union
Committee continue to hold this proposal under scrutiny; and
· she
will inform us of the outcome of IORP discussions under the Italian
Presidency and how the Government will approach this proposal
following the COREPER discussion.
Previous Committee Reports
Fiftieth Report HC 83-xlv (2013-14), chapter 6 (14
May 2014), First Report HC 219-i (2014-15), chapter 13 (4 June
2014) and Sixth Report HC 219-vi (2014-15), chapter 3 (9 July
2014).
7 For the letters see http://www.parliament.uk/documents/commons-committees/european-scrutiny/Sefcovic%2035944.1.pdf. Back
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