EXPLANATORY MEMORANDUM

1. Context of the proposal

European society is ageing. Pension systems across the European Union (EU) have to adapt in order to ensure adequate, safe and sustainable pensions. This is not a simple matter. Effectively addressing these challenges requires closely coordinated action by Member States. The proposed revision of Directive 2003/41/EC on the activities and supervision of institutions for occupational retirement provision (IORPs)[1] will make those institutions better governed, more transparent and increasing their cross-border activity, thereby strengthening the internal market.

In a number of respects the Directive's review is long overdue.

First, higher governance standards reflecting best practices at national level following the economic and financial crisis are needed to protect scheme members and beneficiaries, and facilitate safe cross-border provisioning. Some IORPs are large financial institutions, and their failure could impact on financial stability and have significant social consequences. This is particularly relevant as more and more occupational pensions are defined-contribution (DC) schemes. The pensions of the members of these schemes are at risk in case of possible insufficient risk governance or mismanagement.[2]

Second, regulatory divergences, overlapping requirements, and excessively burdensome cross-border procedures must be reduced. Commission's consultations have shown that these are one of the obstacles to develop cross-border occupational pensions markets, and reducing those obstacles would help companies, including SMEs and multinationals, to organise their pension provision on a European scale more efficiently.[3] Cross-border IORPs, such as the pan-European pension fund for mobile researchers[4] or a planned cross-border scheme for Austrian employers[5] are limited today. But the increasing pressure on the occupational pensions sector is likely to grow significantly in view of increasingly limited public pensions systems, and cross-border IORPs have the potential to represent an increasing share in occupational pension provision. In fact, new legislation has been introduced in several Member States aimed at positioning them as locations of choice for cross-border IORPs.[6]

Third, there is evidence of significant gaps in the level of information provided to scheme members and beneficiaries across the EU. Many scheme members are not aware that their pension rights are not guaranteed or even if accrued that they could be cut by IORPs, contrary to other financial contracts.[7] They are also often not aware that charges have a significant impact on pension rights.

This proposal builds on a number of initiatives launched in recent years such as the White Paper on pensions[8] and the Green Paper on long-term financing of the European economy.[9] Following on from this last Paper, the revision of the Directive also aims to strengthen the capacity of IORPs to invest in assets with a long-term economic profile and support the financing of sustainable growth in the real economy.

The IORP sector is being developed in many Member States where occupational pensions so far play a limited role, including by setting up regulatory frameworks. Failing to provide an up-to-date EU regulatory framework now entails the risk that Member States continue to develop diverging solutions, thereby exacerbating regulatory fragmentation. Furthermore, improvements to the performance of occupational pensions require long periods of time to materialise. Failing to act now would lead to lost opportunities in terms of cost savings and investment returns, and inadequate financial planning by millions of Europeans. It would also increase the burden disproportionately for younger generations and undermine inter-generational solidarity.

This proposal does not consider the introduction of new solvency rules, which are in any event not relevant for DC schemes. Moreover, a quantitative impact study[10] conducted by the European Insurance and Occupational Pensions Authority (EIOPA) in 2013 indicated that more complete data on solvency aspects are necessary before a decision can be taken on those aspects.

1.1. Objectives of the proposal

The general objective of this proposal is to facilitate the development of occupational retirement savings. Safer, more efficient occupational pensions will contribute to pension adequacy and sustainability by enhancing the contribution of complementary retirement savings to retirement incomes. It will also reinforce IORPs' role as institutional investors in the EU’s real economy and enhance the capacity of the European economy to channel long-term savings to growth-enhancing investment.

This proposal has four specific objectives: (1) removing remaining prudential barriers for cross-border IORPs, notably by requiring that the rules on investment and disclosure of information to members and beneficiaries are those of the home Member State, as well as by clarifying procedures for cross-border activities and clearly defining the scope of action of home and host Member State; (2) ensuring good governance and risk management; (3) providing clear and relevant information to members and beneficiaries; and (4) ensuring that supervisors have the necessary tools to effectively supervise IORPs.

1.2. Consistency with other policies and objectives of the Union

The objectives of this proposal are consistent with the policies and objectives pursued by the Union. The Treaty on the Functioning of the European Union (TFEU) provides for action to ensure the establishment and functioning of the internal market with a high level of consumer protection, as well as the freedom to provide services.

This proposal is in line with the White Paper on pensions. At the same time it is consistent with the Europe 2020 strategy, which calls for fiscal consolidation and long-term financial sustainability to go hand in hand with structural reform of pension systems in Member States.[11] Finally, this proposal is consistent with other initiatives in the field of financial services, such as Solvency II[12], AIFMD[13] and MiFID II[14]. As such it falls well within the scope of the Commission's agenda towards a stronger financial sector to support growth.[15]

The proposal promotes human rights by protecting retirement provision. It is in line with Article 25 of the Charter of Fundamental Rights of the EU which calls for recognition and respect for the rights of the elderly to lead a life of dignity and independence. The proposed actions would have a positive impact on consumer protection under Article 38 and freedom to conduct business under Article 16, in particular by ensuring a higher level of transparency of retirement provisioning, informed personal financial and retirement planning as well as facilitating cross-border business of IORPs and their sponsors. The general objective justifies certain limitations on the freedom to conduct a business (Article 16) as the proposal aims at ensuring the market integrity and stability.

2. Results of consultation with interested parties and impact assessment

This proposal builds on multiple public consultations regarding requirements on quantitative aspects, governance and information disclosures. Given the specific nature of the IORP activities, the consultations consistenly included the social partners (employers and trade unions). In July 2010, the Commission consulted on its Green Paper on pensions in which it outlined a number of its ideas regarding this review.[16] The consultation drew almost 1700 responses from across the EU, including 350 from Member States, national parliaments, business and trade union organisations, civil society and industry representatives.[17]

Taking into account the feedback on the Green Paper on pensions, the Commission Services asked EIOPA in April 2011 to provide technical advice on how to change the Directive. EIOPA recommended that - taking into account the principle of proportionality - the governance framework set out in the Solvency II Directive should apply to IORPs. The publication of the draft advice[18] was followed by an extensive consultation.[19] EIOPA delivered its final advice in February 2012, on the basis of which Directorate-General for Internal Market and Services organised an exchange of views amongst stakeholders during a public hearing on 1 March 2012. Subsequently, the Commission Services conducted a Quantitative Impact Study on the quantitative requirements, as well as a study on administrative burden for aspects relating to governance and information disclosures. Both studies built on the contributions from the industry and social partners.

This proposal is accompanied by an impact assessment report that considers a range of policy options and sub-options. The report was first submitted to the Impact Assessment Board on 4 September 2013. The Board asked for resubmission with additional information on the views of the different stakeholder groups, problem definition, subsidiarity and proporionality aspects, options and expected impacts. The report was revised accordingly and the main changes were: (i) a more comprensive description of the views of the Member States and different stakeholder categories; (ii) a more detailed explanation of the problems being addressed by the proposed action; (iii) as regards subsidiarity, a more detailed description of the case for EU action; (iv) a clarification that further harmonisation of supervisory reporting is not being proposed; (v) a new section on the impact of the initiative on small and medium-sized enterprises; and (vi) a more detailed description of the assumptions used in the calculation of the expected benefits and costs of the various options. The impact assessment was resubmitted on 16 October 2013. On 6 November the Board stated it could not issue a positive opinion and requested some further amendments.

3. Legal elements of the proposal

3.1. Legal basis

This proposal recasts Directive 2003/41/EC. It simultaneously codifies its unchanged provisions and amends it. The legal bases of Directive 2003/41/EC are ex-Articles 47(2), 55 and 95 EC (currently Articles 53, 62 and 114(1) TFEU).

The proposal maintains the legal bases of the Directive. It seeks both to establish the internal market by means of freedom to provide services and freedom of establishment when regulating the taking-up and pursuit of activities as self-employed persons and when establishing a high level of protection for consumers.

Directive 2003/41/EC regulates areas such as the conditions of operations of IORPs, including a common approach to registration or authorisation, rules and procedures to be followed when IORPs wish to offer their services in other Member States, quantitative solvency rules, investment rules based on the prudent person principle, requirements on the effective management, including fit and proper requirements, the use of internal audit and actuarial services, risk management requirements, the use of depositories, information to be disclosed to members and beneficiaries and supervisory powers and reporting obligations.

This proposal further builds on these elements. As to the information to be disclosed by the IORP it, for example, introduces an EU-wide pension benefit statement. With regard to effective management of IORPs it lays down more detailed rules on fit and proper and key functions including risk management. The proposal also aims to facilitate cross-border activity.

The two objectives of Directive 2003/41/EC are retained. Neither of the objectives is secondary or indirect in relation to the other. For example, the professionalization of IORP management by defining the tasks and responsibilities of key management staff and the introduction of a forward-looking self-risk assessment strengthens consumer protection. Conversely, better information through the pension benefit statement empowers members and beneficiaries to hold IORP management more accountable. A higher level of harmonisation of those requirements facilitates cross-border activity by reducing transaction costs and stimulating market innovation.

3.2. Subsidiarity and proportionality

EU level action in this field adds value because action by Member States alone will not: (i) remove obstacles to cross-border activities of IORPs; (ii) ensure a higher EU-wide minimum level of consumer protection; (iii) lead to scale economies, risk diversification and innovation inherent to cross-border activity; (iv) avoid regulatory arbitrage between financial services sectors; (v) avoid regulatory arbitrage between Member States; and (vi) take into account the interests of cross-border workers.

Under the proposed action, Member States retain full responsibility for the organisation of their pension systems. The revision does not call this prerogative into question. Neither does the revision cover issues of national social and labour, fiscal or contract legislation.

The proposal complies with the principle of proportionality, as enshrined in Article 5(4) of the Treaty on European Union (TEU). The selected policy options seek to strike a balance between public interest, the protection of members and beneficiaries, as well as the costs for institutions, sponsors and supervisors. The options have been carefully considered, crafted as minimum standards and tailored taken into account different business models. This is why, overall, the proposal will stimulate occupational retirement provision.

3.3. References to other directives

This proposal is a recast exercise and refers to Directives 2003/41/EC, 2009/138/EC, 2010/78/EU[20], 2011/61/EU and 2013/14/EU[21]. Directive 2003/41/EC will be repealed by this Directive.

3.4. Detailed explanation of the proposal

As this is a recast of Directive 2003/41/EC, the detailed explanation below focusses solely on new provisions or provisions that are to be amended.

Title I – GENERAL PROVISIONS

Article 6 now includes new and/or clarified definitions of "sponsoring undertaking", "home Member State", "host Member State", "transferring" and "receiving" institutions, "regulated market", "multilateral trading facility", "organised trading facility", "durable medium" and "key functions".

Article 9, in conjunction with Article 10, no longer list the conditions of operation separately but give responsibility to Member States to ensure that every institution is registered or authorised and that they have properly constituted rules for the pension scheme.

Article 12 is amended in three ways. First, it specifies that an institution carries out cross-border activity when it operates a pension scheme that is subject to the social and labour law of another Member State, including in situations where the institution and the sponsoring undertaking are located in the same Member State.[22] Second, paragraph 4 requires a reasoned decision by a competent authority of the home Member State, should the authority ban cross-border activity. Moreover, where a competent authority of the home Member State does not notify a competent authority of the host Member State, it shall give reasons for its refusal. Third, the host Member State may no longer impose additional information requirements on institutions carrying out cross-border activities. This is because the proposal introduces a standardised pension benefit statement (see Articles 40 to 54).

Article 13 lays down new rules for the cross-border transfer of pension schemes which must be subject to prior authorisation by a competent authority of the home Member State of the receiving institution. Unless national social and labour law on the organisation of pension systems provides otherwise, the transfer and its conditions shall be subject to prior approval by members and beneficiaries concerned or, where applicable, their representatives. Article 13 also includes rules on exchange of information concerning the applicable social and labour law under which the pension scheme must be operated. Should, following the transfer, the receiving institution carry out a cross-border activity, Article 12(8) and (9) apply. The institution will operate the pension scheme in accordance with the social and labour law of the host Member State[23], thereby not changing the level of protection of the members and beneficiaries concerned by the transfer.

Title II – QUANTITATIVE REQUIREMENTS

Article 20 on investment rules is modified in three ways. First, the host Member State may no longer impose additional investment rules on institutions carrying out cross-border activities. This facilitates the organisation of investment management, in particular for defined contribution schemes. This does not undermine the protection of members and beneficiaries because it is matched by strenthened governance and supervisory rules. Second, Article 20(6)(a) has been updated to reflect the terminology used in Regulation (EU) No …/… [MiFIR]. Third, it replaces the ambiguous term 'risk capital markets' (Article 20(6) (c)) with a terminology that better reflects the original meaning of this provision, namely that Member States cannot restrict institutions from investing in long-term instruments that are not traded on regulated markets. Moreover, investment rules should not restrict investment in non-listed assets that finance low carbon and climate resilient infrastructure projects.

A further harmonisation of rules relating to the financial solvency situation of the institution is not being proposed.

Title III – CONDITIONS GOVERNING ACTIVITIES

For small IORPs, the proposal maintains the possibility for Member States to exclude institutions managing schemes which together have less than 100 members in total. For other IORPs, specific measures, for instance on the key functions and risk evaluation, ensure that governance requirements are proportionate.

CHAPTER 1 – System of governance

Except for Articles 31 and 32 (ex Articles 10 and 12), this Title is new to the Directive and lays down new detailed governance requirements for IORPs.

Article 21 sets out that the administrative, management or supervisory body of the IORP is ultimately responsible for the IORP's compliance with the laws, regulations and administrative provisions adopted pursuant to this Directive. The rules on governance of IORPs are without prejudice to the role of social partners in their management.

Article 22 establishes that institutions need to have in place an effective system of governance which provides for sound and prudent management of their activities. This system shall be proportionate to the nature, scale and complexity of the activities of the IORPso as to ensure that the governance requirements will not be too burdensome for example for small institutions.

Article 23 requires IORPs to ensure that all persons who effectively run the IORP or have key functions have professional qualifications, knowledge and experience which are adequate to enable sound and prudent management of the IORP or to properly perform their key functions (fit) and that they are of good repute and integrity (proper).

Article 24 sets out that institutions must have a sound remuneration policy and that this policy is disclosed publicly. The article also proposes to empower the Commission to adopt a delegated act.

Article 25 sets out the general principles on key functions. IORPs may allow a single person or organisational unit to carry out more than one key function, but shall at all times allocate the risk management function to a different person or organisational unit than the internal audit function.

Article 26 states that IORPs need to have in place an effective risk-management system which is necessary to identify, monitor, manage and report on a continuous basis all risks, including those related to outsourced or subsequently re-outsourced activities, to which they are or could be exposed, and their interdependencies. The risk management should be proportionate to the size, internal organisation and the nature, scope and complexity of the institution's activities.

Article 27 provides for an effective internal audit function which evaluates the adequacy and effectiveness of the internal control system and other elements of its system of governance, including outsourced or subsequently re-outsourced activities. The internal audit function is to be assumed by at least one independent person, inside or outside of the institution.

Article 28 requires an effective actuarial function to co-ordinate and oversee the calculation of technical provisions as well as to assess the appropriateness of the methodologies and underlying models, where members and beneficiaries do not bear all the risks.

Article 29 sets out that institutions need to produce a risk evaluation for pensions regularly and without delay following any significant change in the institution's risk profile. The evaluation needs to demonstrate the compatibility of a number of elements in line with national requirements. The evaluation should include new or emerging risks relating to climate change, use of resources and the environment. The risk evaluation for pensions should be proportionate to the size, internal organisation and the nature, scope and complexity of the institution's activities.

Article 30 proposes to empower the Commission to adopt a delegated act with regard to the risk evaluation for pensions.

CHAPTER 2 – Outsourcing and investment management

Article 33 lays down the rules for contracting to third parties (outsourcing), including re-outsourced activities.

CHAPTER 3 – Depositary

Articles 35 to 37 set out that IORPs need to appoint a single depositary for safe-keeping of assets and oversight duties if members and beneficiaries fully bear the investment risk.

Title IV – INFORMATION TO BE GIVEN TO THE PROSPECTIVE MEMBERS, MEMBERS AND BENEFICIARIES

CHAPTER 1 – General provisions

This Chapter lays down the details of the information to be provided to members, prospective members, and after retirement, beneficiaries and building on former Article 11.

Article 38 sets out the general principle for information disclosures.

Article 39 lays down the type of information that members (and beneficiaries) need to receive, such as the rights and obligations of the parties, the risks and investment options and whether these are default or not. The conditions of the particular pension scheme must be published on a website by the institution concerned.

Article 40 places an obligation on IORPs to provide, every twelve months, a pension benefit statement (‘PBS’) for the individual in the clearest possible way, also as a basis to feed information into a potential pension tracking service as described in the White Paper on pensions.[24] Where Member States already provide for comprehensive information to individuals covering one or more pension pillars, they will maintain the flexibility to design their pension information systems, as long as they comply with the requirements of this proposal.

CHAPTER 2 – Pension Benefit Statement

Articles 40 to 44 lay down general provisions for the PBS - which is intended for active members of the pension scheme. The idea of the PBS is based on EIOPA’s Advice to the European Commission on the review of the IORP Directive, draws on national best practices in several Member States and international work developed by the OECD[25]. The PBS ensures comparability with information required by legislation in other financial sectors such as the key investor document for open investment funds (UCITS), while taking into account the specificites of the occupational pensions sector. Moreover, the PBS leaves sufficient leeway for Member States to introduce more specific requirements and integrated systems allowing for comparability between different pillars of the pension system.

The standardisation of the PBS should enable automatisation of the regular production of the PBS and its potential outsourcing, thereby keeping costs low in particular for smaller institutions.

Articles 46 to 53 lay down the components of the PBS which shall be read together with Article 45. The compenents are as follows:

· personal details of the member;

· identification of the institution;

· guarantees;

· balance, contributions and costs;

· pension projections;

· investment profile;

· past performance; and

· supplementary information.

Article 54 proposes to empower the Commission to adopt a delegated act with regard to the PBS.

CHAPTER 3 – Other information and documents to be provided

This Chapter relates to information that should be provided by IORPs to members and beneficiaries in different pension stages such as just before enrolment, just before retirement or during the pay-out phase.

Article 55 lays down specific rules for IORP to provide information to prospective members prior to joining the IORP 's pension scheme.

Article 56 lays down the information to be given to members before retirement. This should be provided in addition to the PBS, at least two years before retirement, whether that is predefined or not.

Article 57 details the information to be given to beneficiaries during the pay-out phase. This information to beneficiaries should replace the PBS.

Article 58 lays down information to be given on request by members and beneficiaries.

Title V - PRUDENTIAL SUPERVISION

CHAPTER 1 – General rules on prudential supervision

Article 59 designates the protection of scheme members and beneficiaries as the main objective of prudential supervision.

Article 60 defines which areas are to be understood as belonging to prudential supervision in the context of this Directive. This Article takes away the legal uncertainty for IORPs caused by differences in scope of Member States’ prudential regulation.

Article 61 sets out the general principles of prudential supervision. It, for example, lays down that the competent authority of the home Member State has the sole responsibility for the prudential supervision of all IORPs authorised or registered in its jurisdiction. The article furthermore establishes the principle that supervision of IORPs needs to be prospective and risk-based, as well as timely and proportionate.

Article 63 introduces the supervisory review process which aims to identify IORPs with financial, organisational or other features susceptible to producing a higher risk profile.

Article 64 ensures that all the new requirements introduced by this prosposal are reflected in the power attributed to competent authorities with regard to the provision of information.

Article 65 sets out that competent authorities need to conduct their tasks in a transparent and accountable manner.

CHAPTER 2 – Professional secrecy and exchange of information

Articles 66 to 71 make provisions and lay down the conditions for the exchanges of information between competent authorities and authorities and bodies which help to strengthen the stability of the financial system.

Title VI – FINAL PROVISIONS

Articles 73 to 81 lay down cooperation and reporting obligations, conditions for the processing of the personal data. They include evaluation and review of the Directive, amendment of the Solvency II Directive 2009/138/EC, the implementation deadline of the Directive, repeals and addressees.

4. Budgetary implications

Specific budgetary implications are assessed in the legislative financial statement and relate to tasks allocated to EIOPA.

ê 2003/41/EC

2014/0091 (COD)

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on the activities and supervision of institutions for occupational retirement provision

(recast)

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Communityon the Functioning of the European Union, and in particular Article 5347(2), Article 6255 and Article 114(1)95(1) thereof,

Having regard to the proposal from the European Commission,

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After transmission of the draft legislative act to the national Parliaments,

ê 2003/41/EC

Having regard to the opinion of the European Economic and Social Committee,

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After consulting the European Data Protection Supervisor,

ê 2003/41/EC

Acting in accordance with the ordinary legislative procedure laid down in Article 251 of the Treaty(3),

Whereas:

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(1) Directive 2003/41/EC of the European Parliament and of the Council[26] has been substantially amended several times[27]. Since further amendments are to be made, it should be recast in the interests of clarity.

ê 2003/41/EC recital 1

A genuine internal market for financial services is crucial for economic growth and job creation in the Community.

ê 2003/41/EC recital 2 (adapted)

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(2) Major achievements have already been made in the establishment of Thethis internal market, allowing ð should allow ï financial institutions to operate in other Member States and ensureensuring a high level of protection for ð members and beneficiaries of occupational retirement schemes ï the consumers of financial services.

ê 2003/41/EC recital 3 (adapted)

The communication from the Commission "Implementing the framework for financial markets: action plan" identifies a series of actions that are needed in order to complete the internal market for financial services, and the European Council, at its meeting in Lisbon on 23 and 24 March 2000, called for the implementation of this action plan by 2005.

ê 2003/41/EC recital 4 (adapted)

The action plan for financial services stresses as an urgent priority the need to draw up a directive on the prudential supervision of institutions for occupational retirement provision, as these institutions are major financial institutions which have a key role to play in ensuring the integration, efficiency and liquidity of the financial markets, but they are not subject to a coherent Community legislative framework allowing them to benefit fully from the advantages of the internal market.

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(3) Directive 2003/41/EC represented a first legislative step on the way to an internal market for occupational retirement provision organised on a European scale. A genuine internal market for occupational retirement provision remains crucial for economic growth and job creation in the European Union and for tackling the challenge of an ageing European society. The Directive, dating from 2003, has not been substantially amended to introduce a modern risk-based governance system also for institutions for occupational retirement provision.

ê 2003/41/EC recital 5 (adapted)

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(4) ð Action is needed to further develop complementary private retirement savings such as occupational pensions. This is important since social-security systems are coming under increasing pressure, which means that citizens will increasingly rely on occupational retirement pensions as a complement in the future. ï Since social-security systems are coming under increasing pressure, occupational retirement pensions will increasingly be relied on as a complement in future. Occupational retirement pensions should therefore be developed, without, however, calling into question the importance of social-security pension systems in terms of secure, durable and effective social protection, which should guarantee a decent standard of living in old age and should therefore be at the centre of the objective of strengthening the European social model.

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(5) This Directive respects the fundamental rights and observes the principles recognised by the Charter of Fundamental Rights of the European Union, notably, the right to protection of personal data, the right to conduct a business and the right to a high level of consumer protection, in particular by ensuring a higher level of transparency of retirement provisioning, informed personal financial and retirement planning as well as facilitating cross-border business of insitutions for occupational retirement provision and businesses. This Directive must be implemented in accordance with these rights and principles.

(6) Despite the entry into force of Directive 2003/41/EC important prudential barriers remain which make it more expensive for institutions to operate pension schemes across borders. Moreover, the current minimum level of protection for members and beneficiaries needs to be increased. This is all the more important as the number of Europeans relying on schemes that shift longevity and market risks from the institution or the undertaking offering the occupational scheme ("sponsoring undertaking") to the individual has increased significantly. In addition, the current minimum level of information provision to members and beneficiaries needs to be increased. Those developments warrant an amendment of the Directive.

ê 2003/41/EC recital 7

(7) The prudential rules laid down in this Directive are intended both to guarantee a high degree of security for future pensioners through the imposition of stringent supervisory standards, and to clear the way for the efficient management of occupational pension schemes.

ê 2003/41/EC recital 8

(8) Institutions which are completely separated from any sponsoring undertaking and which operate on a funded basis for the sole purpose of providing retirement benefits should have freedom to provide services and freedom of investment, subject only to coordinated prudential requirements, regardless of whether these institutions are considered as legal entities.

ê 2003/41/EC recital 9

(9) In accordance with the principle of subsidiarity, Member States should retain full responsibility for the organisation of their pension systems as well as for the decision on the role of each of the three "pillars" of the retirement system in individual Member States. In the context of the second pillar, they should also retain full responsibility for the role and functions of the various institutions providing occupational retirement benefits, such as industry-wide pension funds, company pension funds and life-assurance companies. This Directive is not intended to call this prerogative into question.

ê 2003/41/EC recital 10

(10) National rules concerning the participation of self-employed persons in institutions for occupational retirement provision differ. In some Member States, institutions for occupational retirement provision can operate on the basis of agreements with trade or trade groups whose members act in a self-employed capacity or directly with self-employed and employed persons. In some Member States a self-employed person can also become a member of an institution when the self-employed person acts as employer or provides his professional services to an undertaking. In some Member States self-employed persons cannot join an institution for occupational retirement provision unless certain requirements, including those imposed by social and labour law, are met.

ê 2003/41/EC recital 11

(11) Institutions managing social-security schemes, which are already coordinated at CommunityUnion level, should be excluded from the scope of this Directive. Account should nevertheless be taken of the specificity of institutions which, in a single Member State, manage both social-security schemes and occupational pension schemes.

ê 2003/41/EC recital 12

(12) Financial institutions which already benefit from a CommunityUnion legislative framework should in general be excluded from the scope of this Directive. However, as these institutions may also in some cases offer occupational pension services, it is important to ensure that this Directive does not lead to distortions of competition. Such distortions may be avoided by applying the prudential requirements of this Directive to the occupational pension business of life-assurance companies. The Commission should also carefully monitor the situation in the occupational pensions market and assess the possibility of extending the optional application of this Directive to other regulated financial institutions.

ê 2003/41/EC recital 13

(13) When aiming at ensuring financial security in retirement, the benefits paid by institutions for occupational retirement provision should generally provide for the payment of a lifelong pension. Payments for a temporary period or a lump sum should also be possible.

ê 2003/41/EC recital 14

(14) It is important to ensure that older and disabled people are not placed at risk of poverty and can enjoy a decent standard of living. Appropriate cover for biometrical risks in occupational pension arrangements is an important aspect of the fight against poverty and insecurity among elderly people. When setting up a pension scheme, employers and employees, or their respective representatives, should consider the possibility of the pension scheme including provisions for the coverage of the longevity risk and occupational disability risks as well as provision for surviving dependants.

ê 2003/41/EC recital 15

(15) Giving Member States the possibility to exclude from the scope of national implementing legislation institutions managing schemes which together have less than 100 members in total can facilitate supervision in some Member States, without undermining the proper functioning of the internal market in this field. However, this should not undermine the right of such institutions to appoint for the management of their investment portfolio and the custody of their assets investment managers and custodians established in another Member State and duly authorised.

ê 2003/41/EC recital 16

(16) Institutions such as "Unterstützungskassen" in Germany, where the members have no legal rights to benefits of a certain amount and where their interests are protected by a compulsory statutory insolvency insurance, should be excluded from the scope of the Directive.

ê 2003/41/EC recital 17

(17) In order to protect members and beneficiaries, institutions for occupational retirement provision should limit their activities to the activities, and those arising therefrom, referred to in this Directive.

ê 2003/41/EC recital 18

(18) In the event of the bankruptcy of a sponsoring undertaking, a member faces the risk of losing both his/her job and his/her acquired pension rights. This makes it necessary to ensure that there is a clear separation between that undertaking and the institution and that minimum prudential standards are laid down to protect members.

ê 2003/41/EC recital 19

(19) Institutions for occupational retirement provision operate and are supervised with significant differences in Member States. In some Member States, supervision can be exercised not only over the institution itself but also over the entities or companies which are authorised to manage these institutions. Member States should be able to take such specificity into account as long as all the requirements laid down in this Directive are effectively met. Member States should also be able to allow insurance entities and other financial entities to manage institutions for occupational retirement provision.

ê 2003/41/EC recital 20

(20) Institutions for occupational retirement provision are financial service providers which bear a heavy responsibility for the provision of occupational retirement benefits and therefore should meet certain minimum prudential standards with respect to their activities and conditions of operation.

ê 2003/41/EC recital 21

(21) The huge number of institutions in certain Member States means a pragmatic solution is necessary as regards prior authorisation of institutions. However, if an institution wishes to manage a scheme in another Member State, a prior authorisation granted by the competent authority of the home Member State should be required.

ê 2003/41/EC recital 36 (adapted)

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(22) Without prejudice to national social and labour legislation on the organisation of pension systems, including compulsory membership and the outcomes of collective bargaining agreements, institutions should have the possibility of providing their services in other Member States ð upon receipt of the authorisation from the competent authority of the insitution's home Member State ï. InstitutionsThey should be allowed to accept sponsorship from undertakings located in ð any ï other Member States and to operate pension schemes with members in more than one Member State. This would potentially lead to significant economies of scale for these institutions, improve the competitiveness of the UnionCommunity industry and facilitate labour mobility. This requires mutual recognition of prudential standards. Proper enforcement of these prudential standards should be supervised by the competent authorities of the home Member State, unless specified otherwise.

ê 2003/41/EC recital 37

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(23) The exercise of the right of an institution in one Member State to manage an occupational pension scheme contracted in another Member State should fully respect the provisions of the social and labour law in force in the host Member State insofar as it is relevant to occupational pensions, for example the definition and payment of retirement benefits and the conditions for transferability of pension rights. ð The scope of prudential rules should be clarified in order to ensure legal certainty for the cross-border activities of the insitutions. ï

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(24) Institutions should be able to transfer pension schemes to other institutions across borders within the Union in order to facilitate the organisation of occupational retirement provision on a Union scale, subject only to authorisation from the competent authority in the home Member State of the institution receiving the pension scheme (the "receiving insitution"). Unless national social and labour law on pension systems provides otherwise, the transfer and its conditions should be subject to prior approval by members and beneficiaries concerned or, where applicable, their representatives.

ê 2003/41/EC recital 26

(25) A prudent calculation of technical provisions is an essential condition to ensure that obligations to pay retirement benefits can be met. Technical provisions should be calculated on the basis of recognised actuarial methods and certified by qualified persons. The maximum interest rates should be chosen prudently according to any relevant national rules. The minimum amount of technical provisions should both be sufficient for benefits already in payment to beneficiaries to continue to be paid and reflect the commitments that arise out of members' accrued pension rights.

ê 2003/41/EC recital 27

(26) Risks covered by institutions vary significantly from one Member State to another. Home Member States should therefore have the possibility of making the calculation of technical provisions subject to additional and more detailed rules than those laid down in this Directive.

ê 2003/41/EC recital 28

(27) Sufficient and appropriate assets to cover the technical provisions protect the interests of members and beneficiaries of the pension scheme if the sponsoring undertaking becomes insolvent. In particular in cases of cross-border activity, the mutual recognition of supervisory principles applied in Member States requires that the technical provisions be fully funded at all times.

ê 2003/41/EC recital 29

(28) If the institution does not work on a cross-border basis, Member States should be able to permit underfunding provided that a proper plan is established to restore full funding and without prejudice to the requirements of Council Directive 80/987/EEC of 20 October 1980 on the approximation of the laws of the Member States relating to the protection of employees in the event of the insolvency of their employer.[28]

ê 2003/41/EC recital 30

(29) In many cases, it could be the sponsoring undertaking and not the institution itself that either covers any biometric risk or guarantees certain benefits or investment performance. However, in some cases, it is the institution itself which provides such cover or guarantees and the sponsor's obligations are generally exhausted by paying the necessary contributions. In these circumstances, the products offered are similar to those of life-assurance companies and the institutions concerned should hold at least the same additional own funds as life-assurance companies.

ê 2003/41/EC recital 31

(30) Institutions are very long-term investors. Redemption of the assets held by these institutions cannot, in general, be made for any purpose other than providing retirement benefits. Furthermore, in order to protect adequately the rights of members and beneficiaries, institutions should be able to opt for an asset allocation that suits the precise nature and duration of their liabilities. These aspects call for efficient supervision and an approach towards investment rules allowing institutions sufficient flexibility to decide on the most secure and efficient investment policy and obliging them to act prudently. Compliance with the "prudent person" rule therefore requires an investment policy geared to the membership structure of the individual institution for occupational retirement provision.

ê 2003/41/EC recital 6 (adapted)

(31) This Directive thus represents a first step on the way to an internal market for occupational retirement provision organised on a European scale. By setting the "prudent person" rule as the underlying principle for capital investment and making it possible for institutions to operate across borders, the redirection of savings into the sector of occupational retirement provision is encouraged, thus contributing to economic and social progress.

ê 2003/41/EC recital 32 (adapted)

(32) Supervisory methods and practices vary among Member States. Therefore, Member States should be given some discretion on the precise investment rules that they wish to impose on the institutions located in their territories. However, these rules must Ö should Õ not restrict the free movement of capital, unless justified on prudential grounds.

ê 2003/41/EC recital 33 (adapted)

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(33) As very long-term investors with low liquidity risks, institutions for occupational retirement provision are in a position to invest in non-liquid assets such as shares as well as in ð instruments that have a long-term economic profile and are not traded on regulated markets, multilateral trading facilities or organised trading facilities ï risk capital markets within prudent limits. They can also benefit from the advantages of international diversification. Investments in shares, risk capital markets and Ö in Õ currencies other than those of the liabilities ð and in instruments that have a long-term economic profile and are not traded on regulated markets, multilateral trading facilities or organised trading facilities ï should therefore not be restricted except on prudential grounds.

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(34) The understanding of what constitutes instruments with a long-term economic profile is broad. These instruments are non-transferable securities and therefore do not have access to the liquidity of secondary markets. They often require fixed term commitments which restrict their marketability. These instruments should be understood to include participations, debt instruments in non-listed undertakings and loans provided to them. Non-listed undertakings include infrastructure projects, unlisted companies seeking growth, real estate or other assets that could be suitable for long term investment purposes. Low carbon and climate resilient infrastructure projects are often non-listed assets and rely on long term credits for project financing.

ê 2003/41/EC recital 34 (adapted)

However, if the institution works on a cross-border basis, it may be asked by the competent authorities of the host Member State to apply limits for investment in shares and similar assets not admitted to trading on a regulated market, in shares and other instruments issued by the same undertaking or in assets denominated in non-matching currencies provided such rules also apply to institutions located in the host Member State.

ê 2003/41/EC recital 35 (adapted)

Restrictions regarding the free choice by institutions of approved asset managers and custodians limit competition in the internal market and should therefore be eliminated.

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(35) Institutions should be allowed to invest in other Member States in accordance with the rules of their home Member States in order to reduce the cost of cross-border activity. Therefore the host Member States should not be allowed to impose additional investment requirements on institutions located in other Member States.

(36) Some risks cannot be reduced through quantitative requirements reflected in the technical provisions and funding requirements but can only be properly addressed through governance requirements. Ensuring an effective system of governance is therefore essential for the adequate management of risk. Those systems should be proportionate to the nature, scale and complexity of the activities.

(37) Remuneration policies which encourage excessive risk-taking behaviour can undermine sound and effective risk management of institutions. Principles and disclosure requirements for remuneration policies applicable to other types of financial institutions in the Union should be made applicable also to institutions, bearing in mind, however, the particular governance structure of institutions in comparison to other types of financial institutions and the need to take account of the size, nature, scope and complexity of the activities of institutions.

(38) A key function is an internal capacity to undertake particular governance tasks. Institutions should have sufficient capacity to have a risk-management function, an internal audit function and, where applicable, an actuarial function. The identification of a particular key function does not prevent the institution from freely deciding how to organise that key function in practice save where otherwise specified in this Directive. This should not lead to unduly burdensome requirements because account should be taken of the nature, scale and complexity of the activities of the institution.

(39) All persons that perform key functions should be fit and proper. However, only the key function holders should be subject to notification requirements to the competent authority.

(40) Furthermore, with the exception of the internal audit function, in smaller and less complex institutions it should be possible for a single person or organisational unit to carry out more than one key function. However, the person or unit performing a key function should be different from the one performing a similar key function in the sponsoring undertaking; although the competent authority should be authorised to grant an exemption taking into account the size, nature, scope and complexity of the activities of institutions.

(41) It is essential that institutions improve their risk management so that potential vulnerabilities in relation to the sustainability of the pension scheme can be properly understood and discussed with the competent authorities. Institutions should, as part of their risk management system, produce a risk evaluation for their activities relating to pensions. That risk evaluation should also be made available to the competent authorities. In that evaluation institutions should provide among others a qualitative description of key elements determining their funding position in accordance with national law, the effectiveness of their risk-management system and the ability to comply with the requirements regarding technical provisions. This risk evaluation should include new or emerging risks, such as risks related to climate change, resource use or the environment.

ê 2003/41/EC recital 22

(42) Each Member State should require that every institution located in its territory draw up annual accounts and annual reports taking into account each pension scheme operated by the institution and, where applicable, annual accounts and annual reports for each pension scheme. The annual accounts and annual reports, reflecting a true and fair view of the institution's assets, liabilities and financial position, taking into account each pension scheme operated by an institution, and duly approved by an authorised person, are an essential source of information for members and beneficiaries of a scheme and the competent authorities. In particular, they enable the competent authorities to monitor the financial soundness of an institution and assess whether the institution is able to meet all its contractual obligations.

ê 2003/41/EC recital 24

(43) The investment policy of an institution is a decisive factor for both security and affordability of occupational pensions. The institutions should therefore draw up and, at least every three years, review a statement of investment principles. It should be made available to the competent authorities and on request also to members and beneficiaries of each pension scheme.

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(44) Institutions should be allowed to entrust their management, in whole or in part, to other entities operating on their behalf. Institutions should remain fully responsible for discharging all of their obligations under this Directive when they outsource key functions or any other activities.

(45) The safe-keeping and oversight duties related to the assets of institutions should be strengthened by clarifying the depositary’s roles and duties. Only institutions operating schemes where members and beneficiaries bear all the risks should be required to appoint a depositary.

ê 2003/41/EC recital 23 (adapted)

Proper information for members and beneficiaries of a pension scheme is crucial. This is of particular relevance for requests for information concerning the financial soundness of the institution, the contractual rules, the benefits and the actual financing of accrued pension entitlements, the investment policy and the management of risks and costs.

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(46) Institutions should provide clear and adequate information to prospective members, members and beneficiaries to support their decision-making about their retirement and ensure a high level of transparency throughout the various phases of a scheme comprising pre-enrolment, membership (including pre-retirement) and post-retirement. In particular, information concerning accrued pension entitlements, projected levels of retirement benefits, risks and guarantees, and costs should be given. Where members bear an investment risk, additional information on the investment profile, any available options and past performance are also crucial.

(47) Before joining a scheme, prospective members should be given all the necessary information to make an informed choice such as possibilities to opt out, contributions, costs and investment options, where applicable.

(48) For the institution's members that have not yet retired, institutions should draw up a standardised pension benefit statement containing key personal and generic information about the pension scheme. The pension benefit statement should have a standard format in order to facilitate the understanding of pension entitlements over time and across schemes and serve labour mobility.

(49) Institutions should inform members sufficiently in advance before retirement about their pay-out options. Where the retirement benefit is not paid out as a lifetime annuity, members that approach retirement should receive information about the benefit payment products available, in order to faciliate financial planning for retirement.

(50) During the phase when retirement benefits are paid, beneficiaries should continue to receive information on their benefits and corresponding payment options. This is particularly important when a significant level of investment risk is borne by beneficiaries in the pay-out phase.

(51) The competent authority should exercise its powers having as its prime objective the protection of members and beneficiaries.

(52) The scope of prudential supervision differs between Member States. This can cause problems where an institution needs to comply with the prudential regulation of its home Member State whilst simultaneously comply with the social and labour law of its host Member State. Clarifying which areas are considered to be part of prudential supervision for the purpose of this Directive reduces legal uncertainty and the associated transaction costs.

(53) An internal market for institutions requires mutual recognition of prudential standards. The institution's adherence to those standards should be supervised by the competent authorities of the institution’s home Member State. Member States should attribute to competent authorities the necessary powers to use preventive or corrective measures if institutions breach any of the requirements of this Directive.

ê 2003/41/EC recital 25 (adapted)

To fulfil their statutory function, the competent authorities should be provided with adequate rights to information and powers of intervention with respect to institutions and the persons who effectively run them. Where an institution for occupational retirement provision has transferred functions of material importance such as investment management, information technology or accounting to other companies (outsourcing), it should be possible for the rights to information and powers of intervention to be enlarged so as to cover these outsourced functions in order to check whether those activities are carried out in accordance with the supervisory rules.

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(54) In order to ensure effective supervision of outsourced activities, including all subsequent re-outsourcing activities, it is essential that the competent authorities have access to all relevant data held by the service providers to whom activities have been outsourced, regardless of whether the latter is a regulated or unregulated entity, and have the right to conduct on-site inspections. In order to take account of market developments and to ensure continuous compliance with the conditions for outsourcing, institutions should inform competent authorities prior to the outsourcing of critical or important activities.

(55) Provision should be made for exchanges of information between the competent authorities, other authorities and bodies tasked with strengthening of financial stability and the termination of pension schemes. It is therefore necessary to specify the conditions under which those exchanges of information should be possible. Moreover, where information may be disclosed only with the express agreement of the competent authorities, those authorities should be able, where appropriate, to make their agreement subject to compliance with strict conditions.

(56) Directive 95/46/EC of the European Parliament and of the Council[29] governs the processing of personal data carried out in the Member States in the context of this Directive and under the supervision of the competent authorities. Regulation (EC) No 45/2001 of the European Parliament and of the Council[30], governs the processing of personal data carried out by the European Supervisory Authorities pursuant to this Directive and under the supervision of the European Data Protection Supervisor. Any processing of personal data carried out within the framework of this Directive, such as the exchange or transmission of personal data by the competent authorities should be in accordance with national rules which implement Directive 95/46/EC, and any exchange or transmission of information by the European Supervisory Authorities should be in accordance with Regulation (EC) No 45/2001.

(57) In order to ensure the smooth functioning of the internal market for occupational retirement provision organised on a European scale, the Commission should, after consulting EIOPA, review and report on the application of this Directive and should submit that report to the European Parliament and to the Council four years after the entry into force of this Directive. That review should assess in particular the application of the rules regarding the calculation of the technical provisions, the funding of technical provisions, regulatory own funds, solvency margins, investment rules and any other aspect relating to the financial solvency situation of the insitution.

(58) In order to ensure fair competition between institutions, the transitional period allowing insurance undertakings subject to Directive 2009/138/EC of the European Parliament and of the Council[31] to operate their occupational-retirement-provision-business under the rules referred to in Article 4 of Directive 2009/138/EC should be extended until 31 December 2022. Directive 2009/138/EC should therefore be amended accordingly.

(59) In order to specify the requirements set out in this Directive, the power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission in respect of clarifying the remuneration policy, the risk evaluation for pensions and the pension benefit statement. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level. The Commission, when preparing and drawing up delegated acts, should ensure a simultaneous, timely and appropriate transmission of relevant documents to the European Parliament and to the Council.

ê 2003/41/EC recital 38 (adapted)

When a scheme is ring-fenced, the provisions of this Directive apply individually to that scheme.

ê 2003/41/EC recital 39 (adapted)

It is important to make provision for cooperation between the competent authorities of the Member States for supervisory purposes and between those authorities and the Commission for other purposes. For the purposes of carrying out their duties and of contributing to the consistent and timely implementation of this Directive, competent authorities should provide each other with the information necessary to apply the provisions of the Directive. The Commission has indicated its intention to set up a committee of supervisors in order to encourage cooperation, coordination and exchanges of views between national competent authorities, and to promote the consistent implementation of this Directive.

ê 2003/41/EC recital 40

(60) Since the objective of the proposed action, namely to create a UnionCommunity legal framework covering institutions for occupational retirement provision, cannot be sufficiently achieved by the Member States and can therefore, by reason of the scale and effects of the action, be better achieved by the UnionCommunity, the UnionCommunity may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective.

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(61) In accordance with the Joint Political Declaration of Member States and the Commission of 28 September 2011 on explanatory documents[32], Member States have undertaken to accompany, in justified cases, the notification of their transposition measures with one or more documents explaining the relationship between the components of a directive and the corresponding parts of national transposition instruments. With regard to this Directive, the legislator considers the transmission of such documents to be justified.

(62) The obligation to transpose this Directive into national law should be confined to those provisions which represent a substantive amendment as compared with the earlier Directives. The obligation to transpose the provisions which are unchanged arises under the earlier Directives.

(63) This Directive should be without prejudice to the obligations of the Member States relating to the time-limits for transposition into national law and application of the Directives set out in Annex I, Part B,

ê 2003/41/EC

HAVE ADOPTED THIS DIRECTIVE:

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Title I

GENERAL PROVISIONS

ê 2003/41/EC (adapted)

Article 1

Subject Ö Subject matter Õ

This Directive lays down rules for the taking-up and pursuit of activities carried out by institutions for occupational retirement provision.

Article 2

Scope

1. This Directive shall apply to institutions for occupational retirement provision. Where, in accordance with national law, institutions for occupational retirement provision do not have legal personality, Member States shall apply this Directive either to those institutions or, subject to paragraph 2, to those authorised entities responsible for managing them and acting on their behalf.

2. This Directive shall not apply to:

ê 2003/41/EC (adapted)

(a) institutions managing social-security schemes which are covered by Regulations (EEC) No 1408/71[33]883/2004[34] and Regulation (EEC) No 574/72[35]987/2009 Ö of the European Parliament and of the Council Õ [36];

ê 2011/61/EU Art. 62.1

(b) institutions which are covered by Directives 73/239/EEC[37], Directive 85/611/EEC[38], Directive 93/22/EEC[39], Directive 2000/12/EC[40] and Directive 2002/83/EC[41] 2004/39/EC[42], 2009/65/EC[43], 2009/138/EC, 2011/61/EU[44] and 2013/36/EU[45];

ê 2003/41/EC

(c) institutions which operate on a pay-as-you-go basis;

(d) institutions where employees of the sponsoring undertakings have no legal rights to benefits and where the sponsoring undertaking can redeem the assets at any time and not necessarily meet its obligations for payment of retirement benefits;

(e) companies using book-reserve schemes with a view to paying out retirement benefits to their employees.

Article 3

Application to institutions operating social-security schemes

Institutions for occupational retirement provision which also operate compulsory employment-related pension schemes which are considered to be social-security schemes covered by Regulations (EEC) No 1408/71 883/2004 and (EEC) No 574/72 987/2009 shall be covered by this Directive in respect of their non-compulsory occupational retirement provision business. In that case, the liabilities and the corresponding assets shall be ring-fenced and it shall not be possible to transfer them to the compulsory pension schemes which are considered as social-security schemes or vice versa.

Article 4

Optional application to institutions covered by Directive 2002/83/EC 2009/138/EC

ê 2003/41/EC (adapted)

Home Member States may choose to apply the provisions of Articles 9 to16 and Articles 18 to 20 Ö 9 to 15, Articles 20 to 24(2), Articles 25 to 29, Articles 31 to 53 and Articles 55 to 71 Õ of this Directive to the occupational retirement provision business of Ö life Õ insurance undertakings which are covered by Directive 2002/83/EC 2009/138/EC. In that case, all assets and liabilities corresponding to the said business shall be ring-fenced, managed and organised separately from the other activities of the Ö life Õ insurance undertakings, without any possibility of transfer.

In such case, and only as far as their occupational retirement provision business is concerned, Ö life Õinsurance undertakings shall not be subject to Articles 20 to 26, 31 and 36 Ö 76 to 86, Article 132, Article 134(2), Article 173, Article 185(5), Article 185(7) and (8) and Article 209 Õ of Directive 2002/83/EC 2009/138/EC.

The home Member State shall ensure that either the competent authorities, or the authorities responsible for supervision of Ö life Õ insurance undertakings covered by Directive 2002/83/EC 2009/138/EC, as part of their supervisory work, verify the strict separation of the relevant occupational retirement provision business.

Article 5

Small pension institutions and statutory schemes

With the exception of Article 19 Ö Articles 34 to 37 Õ, Member States may choose not to apply this Directive, in whole or in part, to any institution located in their territories which operates pension schemes which together have less than 100 members in total. Subject to Article 2(2), such institutions should Ö shall Õ nevertheless be given the right to apply this Directive on a voluntary basis. Article 20 12 may be applied only if all the other provisions of this Directive apply.

Member States may choose not to apply Articles 9 to 17 Ö 1 to 8, Article 12, Article 20 and Articles 34 to 37 Õ to institutions where occupational retirement provision is made under statute, pursuant to legislation, and is guaranteed by a public authority. Article 20 12 may be applied only if all the other provisions of this Directive apply.

ê 2003/41/EC

Article 6

Definitions

For the purposes of this Directive:

(a)‘institution for occupational retirement provision’, or ‘institution’, means an institution, irrespective of its legal form, operating on a funded basis, established separately from any sponsoring undertaking or trade for the purpose of providing retirement benefits in the context of an occupational activity on the basis of an agreement or a contract agreed:

– individually or collectively between the employer(s) and the employee(s) or their respective representatives, or

– with self-employed persons, in compliance with the legislation of the home and host Member States,

and which carries out activities directly arising therefrom;

(b)‘pension scheme’ means a contract, an agreement, a trust deed or rules stipulating which retirement benefits are granted and under which conditions;

ê 2003/41/EC (adapted)

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(c)‘sponsoring undertaking’ means any undertaking or other body, regardless of whether it includes or consists of one or more legal or natural persons, acts as an employer or in a self-employed capacity or any combination thereof and which pays contributions into an institution for occupational retirement provision ð which under national legislation is legally obliged or voluntarily commits to offering a pension scheme; ï

ê 2003/41/EC

(d)‘retirement benefits’ means benefits paid by reference to reaching, or the expectation of reaching, retirement or, where they are supplementary to those benefits and provided on an ancillary basis, in the form of payments on death, disability, or cessation of employment or in the form of support payments or services in case of sickness, indigence or death. In order to facilitate financial security in retirement, these benefits usually take the form of payments for life. They may, however, also be payments made for a temporary period or as a lump sum.

(e) ‘member’ means a person whose occupational activities entitle or will entitle him/her to retirement benefits in accordance with the provisions of a pension scheme;

(f) ‘beneficiary’ means a person receiving retirement benefits;

(g) ‘competent authorities’ means the national authorities designated to carry out the duties provided for in this Directive;

(h) ‘biometrical risks’ mean risks linked to death, disability and longevity;

ê 2003/41/EC (adapted)

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(i) ‘home Member State’ means the Member State ð in which the institution has been authorised or registered and in which its main administration is located. The place of main administration refers to a place where the main strategic decisions of the institution’s decision making body are made; ï in which the institution has its registered office and its main administration or, if it does not have a registered office, its main administration;

ê 2003/41/EC (adapted)

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(j) ‘host Member State’ means the Member State whose social and labour law relevant to the field of occupational pension schemes is applicable to the relationship between the sponsoring undertaking and members ð or beneficiaries ï;.

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(k) ‘transferring institution’ means an institution transferring all or a part of a pension scheme to an institution in another Member State;

(l) ‘receiving institution’ means an institution receiving all or a part of a pension scheme from an institution in another Member State;

(m) 'regulated market' means a multilateral system in the Union within the meaning of Article 2(1)(5) of Regulation (EU) No …/… [MiFIR];

(n) 'multilateral trading facility' means a multilateral system in the Union within the meaning of Article 2(1)(6) of Regulation (EU) No …/… [MiFIR];

(o) 'organised trading facility' means a system or facility in the Union referred to in Article 2(1)(7) of Regulation (EU) No …/… [MiFIR];

(p) 'durable medium' means an instrument which enables a member or a beneficiary to store information addressed personally to that member or beneficiary in a way that is accessible for future reference for a period of time adequate for the purposes of the information and which allows the unchanged reproduction of the information stored;

(q) 'key function', within a system of governance, means an internal capacity to undertake practical tasks; a system of governance includes the risk management function, the internal audit function, and where the institution enters into financial commitments or establishes technical provisions, also the actuarial function.

ê 2003/41/EC (adapted)

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Article 7

Activities of an institution

Each Member States shall require institutions located within its territorytheir territories to limit their activities to retirement-benefit related operations and activities arising therefrom.

When, in accordance with Article 4, an Ö life Õ insurance undertaking manages its occupational retirement provision business by ring-fencing its assets and liabilities, the ring-fenced assets and liabilities shall be restricted to retirement-benefit related operations and activities directly arising therefrom.

Article 8

Legal separation between sponsoring undertakings and institutions for occupational retirement provision

Each Member States shall ensure that there is a legal separation between a sponsoring undertaking and an institution for occupational retirement provision in order that the assets of the institution are safeguarded in the interests of members and beneficiaries in the event of bankruptcy of the sponsoring undertaking.

Article 9

Conditions of operation ð Registration or authorisation ï

1. Each Member States shall, in respect of every institution located in its territory their territories, ensure that:

ê 2010/78/EU Art. 4.1(a) (adapted)

(a) the institution is registered in a national register by the competent authority or authorised Ö by it Õ ; in the case of cross-border activities referred to in Article 1220, the register shall also indicate the Member States in which the institution is operating; that information shall be communicated to the European Supervisory Authority (European Insurance and Occupational Pensions Authority (hereinafter ‘EIOPA’), established by Regulation (EU) No 1094/2010 of the European Parliament and of the Council [46] which shall publish it on its website;.

ê 2003/41/EC (adapted)

(b) the institution is effectively run by persons of good repute who must themselves have appropriate professional qualifications and experience or employ advisers with appropriate professional qualifications and experience ;

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Article 10

Pension scheme rules

ê 2003/41/EC

(c) Member States shall, in respect of every institution located in their territories, ensure that properly constituted rules regarding the functioning of any pension scheme operated by the institution have been implemented and members have been adequately informed of these rules;.

ê 2003/41/EC (adapted)

(d) all technical provisions are computed and certified by an actuary or, if not by an actuary, by another specialist in this field, including an auditor, according to national legislation, on the basis of actuarial methods recognised by the competent authorities of the home Member State;

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Article 11

Commitment of regular financing and additional benefits

ê 2003/41/EC

(e)1. Member States shall, in respect of every institution located in their territories, ensure that where the sponsoring undertaking guarantees the payment of the retirement benefits, it is committed to regular financing;.

ê 2003/41/EC (adapted)

(f) the members are sufficiently informed of the conditions of the pension scheme, in particular concerning:

(i) the rights and obligations of the parties involved in the pension scheme;

(ii) the financial, technical and other risks associated with the pension scheme;

(iii) the nature and distribution of those risks.

ê 2003/41/EC

2. In accordance with the principle of subsidiarity and taking due account of the scale of pension benefits offered by the social-security regimes, Member States may provide that the option of longevity and disability cover, provision for surviving dependants and a guarantee of repayment of contributions as additional benefits be offered to members if employers and employees, or their respective representatives, so agree.

ê 2003/41/EC (adapted)

3. Member States may make the conditions of operation of institutions located subject to other requirements, with a view to ensuring that the interests of members and beneficiaries are adequately protected.

ê 2010/78/EU Art. 4.1(a) (adapted)

5. In the case of cross-border activity as referred to in Article 20, the conditions of operation of the institution shall be subject to a prior authorisation by the competent authorities of the home Member State. When giving such authorisation, Member States shall immediately inform EIOPA.

ê 2003/41/EC (adapted)

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Article 2012

Cross-border activities ð and procedures ï

1. Without prejudice to national social and labour law on the organisation of pension systems, including compulsory membership and the outcomes of collective bargaining agreements, Member States shall allow undertakings located within their territories to sponsor institutions ð which propose to or carry out cross-border activity ï for occupational retirement provision authorised in other Member States. They shall also allow institutions Ö authorised in their territories Õ for occupational retirement provision authorised in their territories ð to carry out cross-border activity ïto accept Ö by accepting Õ sponsorship by undertakings located within the territories of other ð any ï Member States.

2. An institution Ö proposing Õ wishing ð to carry out cross-border activity andï to accept sponsorship from a sponsoring undertaking located within the territory of another Member State shall be subject to a prior authorisation by the competent authorities of its home Member State, as referred to in Article 9(5). It shall notify its intention to accept sponsorship from a sponsoring undertaking located within the territory of another Member State to the competent authorities of the home Member State where it is authorised.

3. Member States shall require institutions ð authorised or registered in ï located within their territories and proposing to be sponsored Ö receive sponsorship Õ by an undertaking located in the territory of another Member State to provide the following information when effecting a notification under paragraph 2:

(a) the host Member State(s);

(b) the name ð and the location of the administration ï of the sponsoring undertaking;

(c) the main characteristics of the pension scheme to be operated for the sponsoring undertaking.

ê 2003/41/EC (adapted)

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4. Where a competent authority of the home Member State is notified under paragraph 2, and unless it has reason to doubt ð it has issued a decision ï that the administrative structure or the financial situation of the institution or the good repute or professional qualifications or experience of the persons running the institution are ð not ï compatible with the Ö proposed Õ operations proposed in the host Member State, it shall within three months of receiving all the information referred to in paragraph 3 communicate that information to the competent authorities of the host Member State and inform the institution accordingly.

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The decision referred to in the first subparagraph shall be reasoned.

Where the competent authority of the home Member State refuses to communicate the information referred in the first subparagraph to the competent authorities of the host Member State, it shall give the reasons for its refusal to the institution concerned within three months of receiving all the information referred to in paragraph 3. That refusal or a failure to act shall be subject to a right to apply to the courts in the home Member State.

ê 2003/41/EC (adapted)

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5. Before the institution starts to operate Ö carry out a cross-border activity Õ a pension scheme for a sponsoring undertaking in another Member State, the competent authorities of the host Member State shall, within two ð one ï months of receiving the information referred to in paragraph 3, inform the competent authorities of the home Member State, if appropriate, of the requirements of social and labour law relevant to the field of occupational pensions under which the pension scheme sponsored by an undertaking in the host Member State must be operated and any rules that are to be applied in accordance with Article 18(7) and with paragraph 7 of this Article. The competent authorities of the home Member State shall communicate this information to the institution.

6. On receiving the communication referred to in paragraph 5, or if no communication is received from the competent authorities of the home Member State on expiry of the period provided for in paragraph 5, the institution may start to Ö carry out a cross-border activity Õ operate the pension scheme sponsored by an undertaking in the host Member State in accordance with the host Member State's requirements of social and labour law relevant to the field of occupational pensions, and any rules that are to be applied in accordance with Article 18(7) and with paragraph 7 of this Article.

ê 2003/41/EC (adapted)

7. In particular, an institution sponsored by an undertaking located in another Member State shall also be subject, in respect of the corresponding members, to any information requirements imposed by the competent authorities of the host Member State on institutions located in that Member State, in accordance with Article 11.

ê 2003/41/EC

ð new

87. The competent authorities of the host Member State shall inform the competent authorities of the home Member State of any significant change in the host Member State's requirements of social and labour law relevant to the field of occupational pension schemes which may affect the characteristics of the pension scheme insofar as it concerns the ð cross-border activity ï operation of the pension scheme sponsored by an undertaking in the host Member State and in any rules that have to be applied in accordance with Article 18(7) and with paragraph 7 of this Article.

98. The institution shall be subject to on-going supervision by the competent authorities of the host Member State as to the compliance of its activities with the host Member State's requirements of labour and social law relevant to the field of occupational pension schemes referred to in paragraph 5. and with the information requirements referred to in paragraph 7 Should this supervision bring irregularities to light, the competent authorities of the host Member State shall inform the competent authorities of the home Member State immediately. The competent authorities of the home Member State shall, in coordination with the competent authorities of the host Member State, take the necessary measures to ensure that the institution puts a stop to the detected breach of social and labour law.

ê 2003/41/EC

109. If, despite the measures taken by the competent authorities of the home Member State or because appropriate measures are lacking in the home Member State, the institution persists in breaching the applicable provisions of the host Member State's requirements of social and labour law relevant to the field of occupational pension schemes, the competent authorities of the host Member State may, after informing the competent authorities of the home Member State, take appropriate measures to prevent or penalise further irregularities, including, insofar as is strictly necessary, preventing the institution from operating in the host Member State for the sponsoring undertaking.

ò new

10. Member States shall ensure that an institution carrying out cross-border activity shall not be subject to any requirements concerning information to members and beneficiaries imposed by the competent authorities of the host Member State in respect of the members which that cross-border activity concerns.

Article 13

Cross-border transfers of pension schemes

1. Member States shall allow institutions authorised or registered in their territories to transfer all or a part of their pension schemes to receiving institutions authorised or registered in other Member States.

2. The transfer of all or part of a pension scheme between transferring and receiving institutions authorised or registered in different Member States shall be subject to prior authorisation by the competent authority of the home Member State of the receiving institution. The application for authorisation of the transfer shall be submitted by the receiving institution.

3. Unless national social and labour law on the organisation of pension systems provides otherwise, the transfer and its conditions shall be made subject to prior approval by the members and beneficiaries concerned or, where applicable, their representatives. In any event, information on the conditions of the transfer shall be made available to the members and beneficiaries concerned or, where applicable, their representatives at least four months before the application referred to in paragraph 2 is submitted.

4. The application referred to in paragraph 2 shall contain the following information:

a) the written agreement between the transferring and the receiving institutions setting out the conditions of the transfer, including the main characteristics of the pension scheme and the description of the transferred assets and, where applicable, the corresponding liabilities;

b) the name and the seat of the transferring institution;

c) the location of the administration of the sponsoring undertaking and the name of the sponsoring undertaking;

d) the host Member State or the host Member States, if there are more than one.

5. Where a competent authority of the home Member State of the receiving institution receives the application referred to in paragraph 2, and it has not issued a decision stating that the administrative structure or the financial situation of the receiving institution, or the good repute or the professional qualifications or experience of the persons running the receiving institutionare are not compatible with the operations proposed in the home Member State of the receiving institution, it shall within three months of receiving all the information referred to in paragraph 4 communicate its decision authorising the transfer to the receiving institution and to the competent authority of the home Member State of the transferring institution. The competent authority of the home Member State of the transferring institution shall inform the transferring institution of that decision.

The decisions referred to in the first subparagraph shall be reasoned. Where the competent authority of the home Member State of the receiving institution refuses to communicate the information referred to in the first subparagraph to the competent authorities of the home Member State of the transferring institution, it shall give reasons for its refusal to the institution concerned within three months of receiving all the information referred to in paragraph 4. That refusal or a failure to act shall be subject to a right of the receiving institution to apply to the courts in the home Member State of the receiving institution.

6. The competent authority of the home Member State of the transferring institution shall, within one month of receiving the information referred to in paragraph 5, inform the competent authority of the home Member State of the receiving institution of the requirements of social and labour law relevant to the field of occupational pensions of the host Member State under which the pension scheme must be operated. The competent authority of the home Member State of the receiving institution shall communicate this information to the receiving institution.

7. Upon receiving the communication referred to in paragraph 6, or if no communication is received from the competent authority of the home Member State of the receiving institution on expiry of the period laid down in paragraph 6, the receiving institution may start to operate the pension scheme in accordance with the requirements of social and labour law relevant to the field of occupational pensions of the host Member State.

8. Where the receiving institution carries out a cross-border activity, Article 12(8) and (9) shall apply.

Title II

QUANTITATIVE REQUIREMENTS

ê 2003/41/EC

Article 15 14

Technical provisions

1. The home Member State shall ensure that institutions operating occupational pension schemes establish at all times in respect of the total range of their pension schemes an adequate amount of liabilities corresponding to the financial commitments which arise out of their portfolio of existing pension contracts.

2. The home Member State shall ensure that institutions operating occupational pension schemes, where they provide cover against biometric risks and/or guarantee either an investment performance or a given level of benefits, establish sufficient technical provisions in respect of the total range of these schemes.

3. The calculation of technical provisions shall take place every year. However, the home Member State may allow a calculation once every three years if the institution provides members and/or the competent authorities with a certification or a report of adjustments for the intervening years. The certification or the report shall reflect the adjusted development of the technical provisions and changes in risks covered.

4. The calculation of the technical provisions shall be executed and certified by an actuary or, if not by an actuary, by another specialist in this field, including an auditor, according to national legislation, on the basis of actuarial methods recognised by the competent authorities of the home Member State, according to the following principles:

(a) the minimum amount of the technical provisions shall be calculated by a sufficiently prudent actuarial valuation, taking account of all commitments for benefits and for contributions in accordance with the pension arrangements of the institution. It must be sufficient both for pensions and benefits already in payment to beneficiaries to continue to be paid, and to reflect the commitments which arise out of members' accrued pension rights. The economic and actuarial assumptions chosen for the valuation of the liabilities shall also be chosen prudently taking account, if applicable, of an appropriate margin for adverse deviation;

(b) the maximum rates of interest used shall be chosen prudently and determined in accordance with any relevant rules of the home Member State. These prudent rates of interest shall be determined by taking into account:

(i) the yield on the corresponding assets held by the institution and the future investment returns and/or

(ii) the market yields of high-quality or government bonds;

(c) the biometric tables used for the calculation of technical provisions shall be based on prudent principles, having regard to the main characteristics of the group of members and the pension schemes, in particular the expected changes in the relevant risks;

(d) the method and basis of calculation of technical provisions shall in general remain constant from one financial year to another. However, discontinuities may be justified by a change of legal, demographic or economic circumstances underlying the assumptions.

5. The home Member State may make the calculation of technical provisions subject to additional and more detailed requirements, with a view to ensuring that the interests of members and beneficiaries are adequately protected.

2010/78/EU Art. 4.4

6. With a view to further harmonisation of the rules regarding the calculation of technical provisions which may be justified – in particular the interest rates and other assumptions influencing the level of technical provisions – the Commission, drawing on advice from EIOPA, shall, every 2 years or at the request of a Member State, issue a report on the situation concerning the development in cross-border activities.

ê 2003/41/EC

The Commission shall propose any necessary measures to prevent possible distortions caused by different levels of interest rates and to protect the interest of beneficiaries and members of any scheme.

ê 2003/41/EC (adapted)

Article 16 15

Funding of technical provisions

1. The home Member State shall require every institution to have at all times sufficient and appropriate assets to cover the technical provisions in respect of the total range of pension schemes operated.

2. The home Member State may allow an institution, for a limited period of time, to have insufficient assets to cover the technical provisions. In this case the competent authorities shall require the institution to adopt a concrete and realisable recovery plan in order to ensure that the requirements of paragraph 1 are met again. The plan shall be subject to the following conditions:

(a) the institution shall set up a concrete and realisable plan to re-establish the required amount of assets to cover fully the technical provisions in due time. The plan shall be made available to members or, where applicable, to their representatives and/or shall be subject to approval by the competent authorities of the home Member State;

(b) in drawing up the plan, account shall be taken of the specific situation of the institution, in particular the asset/liability structure, risk profile, liquidity plan, the age profile of the members entitled to receive retirement benefits, start-up schemes and schemes changing from non-funding or partial funding to full funding;

(c) in the event of termination of a pension scheme during the period referred to above in Ö in the first sentence of Õ this paragraph, the institution shall inform the competent authorities of the home Member State. The institution shall establish a procedure in order to transfer the assets and the corresponding liabilities to another financial institution or a similar body. This procedure shall be disclosed to the competent authorities of the home Member State and a general outline of the procedure shall be made available to members or, where applicable, to their representatives in accordance with the principle of confidentiality.

3. In the event of cross-border activity as referred to in Article 1220, the technical provisions shall at all times be fully funded in respect of the total range of pension schemes operated. If these conditions are not met, the competent authorities of the home Member State shall intervene in accordance with Article 6214. To comply with this requirement the home Member State may require ring-fencing of the assets and liabilities.

Article 17 16

Regulatory own funds

1. The home Member State shall ensure that institutions operating pension schemes, where the institution itself, and not the sponsoring undertaking, underwrites the liability to cover against biometric risk, or guarantees a given investment performance or a given level of benefits, hold on a permanent basis additional assets above the technical provisions to serve as a buffer. The amount thereof shall reflect the type of risk and asset base in respect of the total range of schemes operated. These assets shall be free of all foreseeable liabilities and serve as a safety capital to absorb discrepancies between the anticipated and the actual expenses and profits.

ê 2009/138/EC Art. 303.1 (adapted)

2. For the purposes of calculating the minimum amount of additional assets, the rules laid down in Articles 17a to 17d17, 18 and 19 shall apply.

2003/41/EC

3. Paragraph 1 shall, however, not prevent Member States from requiring institutions located in their territory to hold regulatory own funds or from laying down more detailed rules provided that they are prudentially justified.

ê 2009/138/EC Art. 303.2 (adapted)

Article 17a 17

Available solvency margin

1. Each Member States shall require of every institution referred to in Article 17 16(1) which are is located in their territories its territory an adequate available solvency margin in respect of its entire business at all times which is at least equal to the requirements in this Directive.

2. The available solvency margin shall consist of the assets of the institution free of any foreseeable liabilities, less any intangible items, including:

(a) the paid-up share capital or, in the case of an institution taking the form of a mutual undertaking, the effective initial fund plus any accounts of the members of the mutual undertaking which fulfil the following criteria:

(i) the memorandum and articles of association must stipulate that payments may be made from those accounts to members of the mutual undertaking only in so far as this does not cause the available solvency margin to fall below the required level or, after the dissolution of the undertaking, where all the undertaking's other debts have been settled;

(ii) the memorandum and articles of association must stipulate, with respect to any payments referred to in point (i) for reasons other than the individual termination of membership in the mutual undertaking, that the competent authorities must be notified at least one month in advance and can prohibit the payment within that period; and

(iii) the relevant provisions of the memorandum and articles of association may be amended only after the competent authorities have declared that they have no objection to the amendment, without prejudice to the criteria stated in points (i) and (ii);

(b) reserves (statutory and free) not corresponding to underwriting liabilities;

(c) the profit or loss brought forward after deduction of dividends to be paid; and

(d) in so far as authorised under national law, profit reserves appearing in the balance sheet where they may be used to cover any losses which may arise and where they have not been made available for distribution to members and beneficiaries.

The available solvency margin shall be reduced by the amount of own shares directly held by the institution.

3. Member States may provide that the available solvency margin may also comprise:

(a) cumulative preferential share capital and subordinated loan capital up to 50 % of the lesser of the available solvency margin and the required solvency margin, no more than 25 % of which shall consist of subordinated loans with a fixed maturity, or fixed-term cumulative preferential share capital, provided that binding agreements exist under which, in the event of the bankruptcy or liquidation of the institution, the subordinated loan capital or preferential share capital ranks after the claims of all other creditors and is not to be repaid until all other debts outstanding at the time have been settled;

(b) securities with no specified maturity date and other instruments, including cumulative preferential shares other than those referred to in point (a), to a maximum of 50 % of the available solvency margin, or the required solvency margin, whichever the lesser, for the total of such securities, and the subordinated loan capi