Cross-border: Pensions

The Inland Revenue has issued Practice Notes extending the circumstances in which it will permit a member of a UK pension scheme seconded overseas to retain his membership of the UK scheme.

The Inland Revenue has revised its requirements as to when an employee seconded overseas will be permitted to remain a member of the UK employer's approved pension scheme.

The European Commission has published a draft Directive on the harmonisation of the regulation of occupational pension schemes within the EU.

The European Court of Justice has ruled that a member state cannot give less favourable tax relief on contributions made voluntarily to a pension provider in another member state than it gives on similar contributions to a pension provider in the member state itself.

The European Parliament has approved a proposed directive designed to promote pan-European pension provision.

The Privy Council has held that retrospective amendments to a superannuation scheme were valid.

The EU Directive on occupational retirement provision came into force on 23 September 2003 and must be implemented into UK law within two years.

On 15 September 2005 the Committee of European Insurance and Occupational Pensions Supervisors published its first progress report setting out its achievements to date at helping to bring about supervisory consistency in the context of insurance and occupational pensions. The report is addressed to the Council's Financial Services Committee, which in July 2004 invited all three "Level 3" committees (CEIOPS, CESR and CEBS) to report regularly on their achivements in supervisory convergence. CEIOPS's main work stream has been assisting the Commission on the development of a framework directive for Solvency II. The Solvency II issues that CEIOPS has been advising on will form the basis for convergence in the prudential supervision of insurance undertakings. Clearly national supervisors are working very closely (for example in developing common approaches to assessment of internal control and risk management) and gaining an understanding of each other's regulatory regimes and concerns. In addition the report outlines other work aimed at facilitating more consistent implementation of current EU legislation and encouraging more convergence in supervision of: (1) insurance groups (including work on the Insurance Groups Directive and establishment of Coordination Committees made up of national supervisors); (2) insurance intermediaries (CEIOPS work on a Protocol to be concluded for regulating reciprocal duties and procedures under the Insurance Mediation Directive); and (3

The Occupational Pension Schemes (Cross-border Activities) Regulations came into force on 30 December 2005.

The Employment Committee of the European Parliament has endorsed a proposed directive on improving the portability of supplementary pension rights within and across member states of the European Union. The proposed directive sets minimum standards in accordance with which workers must acquire pension entitlements, preserved benefits and the right to transfer entitlements. Member states will be required to implement the proposed directive by 1 July 2008.

The Council of the European Union has endorsed the Financial Services Committee report on the implications of ageing populations for financial markets. The Council stresses the need for member states to consider additional solutions to increase participation in non-statutory pension schemes, and to address lack of access to suitable pension products. Additionally, the Council urges member states to encourage the financial services industry to enhance the supply of pension products, improve the standards of advice individuals receive, and ensure an appropriate correlation between the individual's wishes and the type of investment product concerned. (See Council conclusions, FSC report on the implications of ageing populations for financial markets, 8 May 2007.)

On 30 May 2007, the Council of the European Union considered the draft directive on improving the portability of supplementary pension rights (see Legal update, Portability of supplementary pension rights moves closer). The purpose of the meeting was to agree a general approach in advance of the draft directive's first reading in the European Parliament. But the Council concluded that there was no prospect of reaching unanimity on the proposed text, and the matter was postponed until the first reading has taken place. See Press release: 2803rd meeting of the Council of the European Union (Employment, Social Policy, Health and Consumer Affairs), 30 May 2007.

The Pensions Regulator has updated its guidance on cross-border activities undertaken by occupational pension schemes that have their main place of administration in the UK.

In a recent speech in Dublin, Charlie McCreevy, European Commissioner for Internal Markets and Services, outlined the Commission's plans on several topical issues relevant to the pensions sector. Key points arising from the speech include: The proposal that institutions for occupational retirement provision (IORPs), particularly defined benefit schemes, should be subject to a capital adequacy requirement similar to that due to come into effect for insurance companies under Solvency II. The Commission intends to proceed cautiously, given the special nature of occupational pensions. For background information, see Practice note, Solvency II. The possibility of extending the IORP directive to areas relevant to cross-border activity that are currently beyond its remit. The main examples are discriminatory tax treatment between member states, and differing social and labour law. Progress in agreeing the proposed portability directive. The Council of Ministers decided to concentrate on removing obstacles to pension rights (such as minimum age restrictions) and preserving deferred pensions. It deleted the proposed Article 6, relating to the transferability of pension rights, because of the technical difficulties involved in transferring rights between schemes in different member states. The Commission will prepare a revised proposal after the directive's first reading in the European Parliament on 20 June 2007. See Press release: Charlie McCreevy, Commission policies of

The European Financial Services Round Table (EFR), a working group comprising the chairmen and chief executives of leading banks and insurers, has published its latest pensions report. The EFR urges EU member states to remove obstacles in their national legislation that currently prevent the creation of pan-European pension plans (EPPs). In preparing its report, the EFR analysed the pensions legislation of five member states (the Czech Republic, France, Germany, Italy, and the Netherlands). It concluded that there are key differences between national laws in several areas, including the transferability of pension rights, disclosure requirements, rules about asset allocation, regulatory oversight and, to some extent, tax laws. The EFR believes that an EPP framework can be developed that overcomes these obstacles by building on the best rules or practices currently in force in member states. Interestingly, the EFR considers that tax differences are not the most significant hurdle to the creation of EPPs. The report proposes that to qualify as an EPP, a product would need to meet basic standard criteria, including requirements that providers are authorised and supervised in their home state, that tax incentives are available (on the so-called EET basis, where contributions and investment gains are tax-deductible), and that vested rights are portable between member states. See Press release: European bankers and insurers advocate that Pan-European pension plans shou

PLC Employment has published a legal update about a report on the Acquired Rights Directive (ARD) prepared by the European Commission. In paragraph 3.4, the report notes that employees' rights to old age, disability or survivors' benefits in private pension schemes are excluded from business transfers that fall within the ARD's scope. The treatment of these rights varies between member states, and question 2.3 of Annex I to the report includes a useful summary of the treatment of these rights by different member states. In total, 13 member states allow these rights to transfer. The report also notes in passing that the proposed portability directive is the subject of discussion among the EU institutions. For more about the current position on the draft directive, see Legal update, Portability directive: European Parliament adopts report on first reading. See Legal update, European Commission report on the Acquired Rights Directive.

The Organisation for Economic Co-operation and Development (OECD) and the International Organisation of Pension Supervisors (IOPS) have issued draft guidelines on the licensing of pension schemes. The guidelines are intended to assist national regulatory authorities in improving the running of occupational and personal private pension arrangements, and set out a series of minimum standards that entities should meet. The areas covered include funding and investment policy, governance and risk management. The guidelines are accompanied by a comparative study of the private pension system in over 30 OECD counties, including the UK. Interestingly, the UK does not satisfy many of the points highlighted in the analysis (such as a "fit and proper" requirement for those setting up a pension scheme). See Draft OECD-IOPS guidelines on the licensing of pension entities, OECD-IOPS, July 2007 and The licensing of pension entitites in private pension systems, OECD-IOPS, July 2007.

On 9 October 2007, the European Commission published an amended version of what was previously known as the portability directive. The European Parliament had called for significant amendments to the Commission's original proposals in June 2007. The amended version, referred to as a proposed directive "on minimum requirements for enhancing worker mobility by improving the acquisition and preservation of supplementary pension rights", incorporates most of the Parliament's amendments. In particular, the proposal to enhance transferability of pension rights between member states (contained in the original article 6) has been deleted.

In a speech given to the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) on 20 November 2007, the European Commissioner for the internal market, Charlie McCreevy, has commented on the relationship between Solvency II and the IORP directive. Mr McCreevy referred to the Commission's review of implementation of the IORP directive, due to take place in 2008, on which CEIOPS is due to publish a report. He announced that this review will also include consideration of how occupational pension schemes may be affected by Solvency II, and disclosed that the Commission has asked CEIOPS to undertake a fact-finding exercise, by examining the existing solvency rules for pension funds in the member states. Mr McCreevy commented that there would need to be a "strong business case" for any revisions to the IORP directive. The commissioner has previously alluded to the possibility of extending the IORP directive to areas relevant to cross-border activity that are currently beyond its remit, such as discriminatory tax treatment between member states, and differing social and labour law (see Legal update, European Commissioner reiterates proposal to extend Solvency II capital adequacy requirements to occupational pension schemes). For background about Solvency II requirements, see Practice note, Solvency II. See Charlie McCreevy, Closing address, CEIOPS conference 2007, 20 November 2007.

The Organisation for Economic Co-operation and Development (OECD) has published the fourth edition of "Pension markets in focus", a paper that examines trends in the development of funded pension plans in the OECD member states. Key points covered in the paper include: In 2006, the total asset value in OECD funded pensions (covering occupational and personal arrangements) was US$24.6 trillion. Of this, over 66% was held in pension funds. Total assets in defined benefit (DB) and defined contribution (DC) schemes are roughly equal. But there are significant differences between national markets, ranging from entirely DB systems, such as Finland or France, to entirely DC systems, such as Hungary or Switzerland. Over 2004 to 2006, the highest rate of growth in pension assets was recorded in Latin America and the BRIC countries (Brazil, Russia, India and China) at 26.9% and 23.3% respectively. Assets managed by sovereign pension funds (such as Norway's) are growing more rapidly than those of pension funds. Total assets in sovereign pension funds in 2006 amounted to US$4.1 trillion. Bonds and shares remain the most popular investment class. As in the previous year, the authors record a slight shift in favour of bonds, although the allocation varies substantially between states. The increasing diversification of funds' investment portfolios, and growth in the popularity of alternative investments (such as hedge funds and private equity). The authors caution that funds sho

The proposed directive on the treatment of supplementary pension rights in the EU has been delayed again. What was originally known as the portability directive when it was first published in 2005 was watered down following various objections from member states, and repackaged in October 2007 as a draft directive on "minimum requirements for enhancing worker mobility by improving the acquisition and preservation of supplementary pension rights" (see Legal update, Portability Directive renamed: European Commission puts forward revised proposals). The October 2007 version removed earlier provisions which would have enhanced transferability of pension rights between member states. The European Council has now announced that the required unanimity cannot be reached on the draft directive in the light of various objections, particularly about the duration of the vesting period for pension rights. The draft provided that vesting periods should not exceed one year for workers over age 25, and five years for workers under age 25. Further discussions will apparently continue during 2008. See Press release: 2837th European Council meeting, Employment, social policy, health and consumer affairs, 5 to 6 December 2007.

The European Commission has published two new studies showing that supplementary pension schemes pose obstacles to mobility of workers across Europe. The first study, examining supplementary schemes in nine EU countries, shows that: Many pension schemes do not impose a vesting period, the amount of time required for workers to accumulate pension rights. But 32% of defined benefit (DB) schemes do require workers to contribute to a scheme for more than two years before acquiring a right to a pension. A quarter of DB schemes give no revaluation of workers' dormant pension benefits when they move jobs. The second study looks into how long people spend in their jobs, when they expect to move and career length of workers across the EU. It shows, amongst other things, that nearly 40% of workers change jobs within 5 years and so are potentially disadvantaged by long vesting periods in supplementary pension schemes. The EU has been trying to introduce a directive to improve people's access to supplementary pension rights when changing jobs or working in another EU country for the last two years. Known as the portability directive on first publication in 2005, the directive was repackaged in October 2007 with a different title. The EU failed to get agreement on this draft, see Legal update, EU directive on supplementary pension rights delayed again. In light of the new studies, the Commission now aims to move ahead and find agreement on the directive that will reduce curr

The Organisation for Economic Co-operation and Development (OECD) and the International Organisation of Pension Supervisors (IOPS) have published the results of their joint consultation on draft guidelines for licensing pension entities in OECD member states. The draft guidelines were published in July 2007 and remained open to public consultation until October 2007 (see Legal update, OECD and IOPS issue guidelines for licensing pension entities). They detail minimum standards that those setting up occupational and personal private pension arrangements should be expected to meet, in areas such as funding and investment policy, governance and risk management. Responses to the consultation came from several national bodies. The Australian Corporate Super Association queried the capital requirements contained in the draft, particularly in the context of schemes established under trust. In response, the OECD noted that trustees would only need to have "access to adequate financial resources" (presumably from the employer), rather than uncommitted capital of their own. Generally, minimal changes to the draft guidelines are likely to result from the consultation: these will include a revised definition of "pension entity" and a new provision confirming that national authorities must observe proper confidentiality requirements in the licensing process. A final version of the guidelines will be published shortly. See OECD-IOPS guidelines on the licensing of pension entit

On 26 February 2008, the European Commission published an amended Solvency II framework directive proposal. The Commission's original adopted Solvency II directive proposal was published on 10 July 2007. The directive proposal introduces a new solvency regime for life, non-life and reinsurance business. It also consolidates a large number of articles in most of the existing insurance directives. For more information on Solvency II, see Practice note, Solvency II. The Commission has decided to adopt the amended Solvency II directive proposal to ensure that the following European developments are incorporated in the Solvency II framework directive: The directive on mergers and acquisitions in the financial services sector (2007/44/EC), which came into force on 21 September 2007. The political agreement reached in December 2007 between the European Parliament and the Council of the European Union (known as the Rome I Regulation), which deals with the law applicable on contractual obligations. Concerns have been expressed about whether Solvency II will apply to occupational pension funds. In November 2007, the European Commissioner for the internal market, Charlie McCreevy, announced that the forthcoming review of the IORP directive will examine this issue (see Legal update, European Commissioner comments on relationship of Solvency II and IORP directive). See Amended proposal for a directive of the European Parliament and of the Council on the taking-up and the p

The Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) has published two reports ahead of the European Commission's report on implementation of the IORP directive, expected later in 2008. The first report examines progress made by the various workstreams CEIOPS established in 2004 to consider the directive's implementation: the workstreams assessed areas where implementation may have given rise to differing approaches between member states. The key finding so far is that implementation has not given rise to major difficulties, although CEIOPS identifies several areas where clarification is needed from the Commission, including in relation to cross-border activity and ring-fencing of assets. Additionally, CEIOPS has published a survey on the funding mechanisms used across the EEA. The survey reveals significant differences of approach between member states. The CEIOPS reports follow a survey published by the European Federation for Retirement Provision in November 2007, which found that member states had generally welcomed the directive, but believed that the Commission's review was premature (see Legal update, EFRP publishes survey on the impact of the IORP directive and expresses concerns about Solvency II). See Initial review of key aspects of the implementation of the IORP directive, CEIOPS, 31 March 2008 and Survey on fully funded, technical provisions and security mechanisms in the European occupational pensions sector, CEIOPS

The Department for Work and Pensions (DWP) has published a response to its review of the implementation in the UK of the cross-border aspects of the IORP directive. The DWP issued a consultation paper in October 2007 (see Legal update, DWP consults on the success of the cross-border regulations). Several key concerns arose from the consultation responses. Respondents asked for the Pensions Regulator's processes to be simplified in relation to granting authorisation and approval to operate cross-border. More generally, some respondents considered that the regulations have discouraged cross-border activity, primarily owing to the onerous full funding requirements and limited duration of recovery periods. Equally, concerns were expressed about the onerous nature of the requirement for schemes operating in the EEA to comply with the social and labour law of the host member state. The DWP notes that it took extensive legal advice on the correct interpretation of the IORP directive before implementing it in the UK, but acknowledges that methods of implementation have varied between member states. Once the Commission has published its report on implementation, expected later in 2008, the DWP indicates that there may be scope for amending the current regime. Additionally, the Commission is attempting to collate details of each state's social and labour law online, which may go some way in addressing this difficulty. The DWP would consult on any further legislative change

The Organisation for Economic Co-operation and Development (OECD) has published a working paper examining pension fund governance in member states and selected non-OECD countries. The authors note that there are persistent governance weaknesses in some jurisdictions and highlights the widespread absence of governance requirements for defined contribution schemes. Recommendations for improving governance include enhancing trustees' expertise through training or the greater use of independent trustees, implementing codes of conduct for addressing conflicts of interest and achieving higher levels of member representation in states where there are no legal requirements in this area (or where the requirements are not complied with). The paper contains a useful table providing comparative data on "fit and proper" requirements across OECD member states. Recent developments in the area are summarised, such as the introduction in Australia in July 2006 of a licensing regime for pension trustees, including an assessment that they meet "fit and proper" criteria. The authors also report that the regulatory authorities in the Republic of Ireland are considering making trustee training compulsory. See Stewart F and J Yermo (2008) "Pension Fund governance: challenges and potential solutions", OECD working paper on insurance and private pensions No. 18 OECD.

The European Commission has published a consultation document proposing to harmonise the solvency rules for institutions for occupational retirement provision (IORPs), ahead of introducing the Solvency II directive in 2012. The Commission is consulting in two areas. The first relates to undertakings affected by Article 17 of the 2003 IORP directive, the so-called "regulatory own funds". These are undertakings which underwrite risks linked to death, disability and longevity or provide an investment guarantee without recourse to the sponsoring employer. There are very few such schemes in the UK. The proposal is that these undertakings should hold additional assets according to the rules for the life assurance sector under the Solvency II directive. The consultation asks several key questions, including: What the impact of applying Solvency II would be for these IORPS. Whether there would be any competitive distortions arising if Solvency II is not applied to them. What the risks would be for the future provision of defined benefit schemes. The other relates to Cross-border schemes. The main questions for consultation here are: The extent to which differences in the solvency regime between member states causes internal market difficulties. Whether harmonisation in valuing technical provisions is possible or necessary for schemes operating cross-border. The consultation period runs until 28 November 2008. See Consultation on the harmonisation of solvency rules appl

The National Association of Pension Funds (NAPF) has published a research report comparing pensions regulations in the UK with the system in several other OECD member states.

A new report considers a survey about the nature and extent of outsourcing by institutions for occupational retirement provision (IORPs) in the European Economic Area.

We have created a new search tool for the PLC Cross-border multi-jurisdictional guides.

An update about the NAPF's response to the consultation exercise conducted by the European Commission on harmonising solvency rules for occupational pension funds in the EU.

The European Commission has revised its decision establishing the Committee of European Insurance and Occupational Pensions Supervisors.

PLC Global Finance highlights regulatory and financial market developments worldwide.

A public hearing following the European Commission's consultation on harmonising the solvency rules applying to IORPs will take place on 27 May 2009.

We have published a new practice note on seeking a reference to the European Court of Justice, written by Lucy McLynn of Bates, Wells & Braithwaite LLP and PLC Public Sector.

A summary of the new legislation in force from 1 April 2009 regarding the "new look" Local Government Pension Scheme in Scotland.

The European Parliament has approved the proposed Solvency II directive.

The European Commission has published its review of the operation of certain parts of the 2003 IORP directive.

The European Commission has announced plans to reform the supervisory architecture for the financial system in the European Union.

The Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) has published its spring 2009 financial stability report.

On 23 September 2009, the European Commission adopted draft legislative proposals to strengthen the supervision of the EU financial sector.

The Committee of European Insurance and Occupational Pensions Supervisors has published a survey on host member state law applicable to guest IORPs.

On 10 November 2009, the Council of the European Union announced that it had adopted the Solvency II directive.

The Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) has published its annual report for 2009 and work programme for 2010.

On 7 July 2010 the European Commission launched a Europe-wide public debate on adequate pension provision with the publication of its green paper, "Towards adequate, sustainable and safe European pension systems".

CEIOPS has published its 2010 report on market developments.

A reminder about using our materials to help train new joiners.

The Advocate General has published an opinion in Association Belge des Consommateurs Test-Achats ASBL and others (Case C-236/09). 

Advocate General Kokott has given an opinion in the matter of Maurits Casteels v British Airways plc (C-379/09). The ECJ delivered its judgment on 10 March 2011, for more information see Legal update, Casteels v BA: ECJ confirms pension rules can restrict freedom of movement. 

The decision of the ECJ in Association Belge des Consommateurs Test-Achats ASBL and others (Case C-236/09) will be published on 1 March 2011.

An Ask the team item explaining the ongoing debate around pensions regulation and funding at a European level.

The European Commission has referred France to the Court of Justice of the European Union in relation to the taxation of foreign pension and investment funds.

The European Insurance and Occupational Pensions Authority (EIOPA) has published its 2011 report on market developments in cross-border pensions activity.

The European Insurance and Occupational Pensions Authority (EIOPA) has published a draft response following the European Commission's call for advice in connection with its planned review of the IORP directive.

HM Treasury and HMRC have published draft clauses for the Finance Bill 2012 and draft secondary legislation, alongside tax policy updates. (Free access.)

The European Commission has announced it will publish its pensions white paper on 16 February 2012. (Free access.)

The DWP has published a consultation document, Workplace Pension Reform - Automatic Enrolment and European Employers. (Free access.)

The EU Commissioner for the Internal Market spoke at the opening of a public hearing into the revision of the 2003 pensions directive.

The sixth edition of the Outsourcing multi-juridictional guide has been published by PLC Cross-border. The guide brings together a wide range of information on topical cross-border issues, including pensions. It provides detailed country-specific Q&A guides and identifies recommended outsourcing lawyers and law firms around the world.

The Pensions Regulator has published its corporate plan for 2012 to 2015.

The Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) (No. 2) Regulations 2012 (SI 2012/1477) have been laid before Parliament.

HM Treasury has published a response to its consultation exercise on the implementation of the ECJ judgment in the Test-Achats case in the UK. (free access)

The draft Occupational Pension Schemes (Miscellaneous Amendment) Regulations 2013 have been published for consultation.

HMRC has updated its guidance on drawdown pensions to reflect the ECJ decision in Test-Achats.

EIOPA has launched a Qualitative Impact Study to analyse the impact of its Advice on the Review of the IORP Directive.

The European Insurance and Occupational Pensions Authority has published a consultation paper, Draft Implementing Technical Standards, on reporting of national provisions of a prudential nature relevant to occupational pension schemes.

A guide to using our materials to help train new pensions lawyers.