Directive 2003/41/EC of the European Parliament and of the Council of 3 June 2003 on the activities and supervision of institutions for occupational retirement provision
Date: 2003-06-03
Institutions: Council of the European Union, European Parliament
Subjects: investment company, pension scheme, private investment, regulation of investments

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DIRECTIVE 2003/41/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on the activities and supervision of institutions for occupational retirement provision

of 3 June 2003

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE
EUROPEAN UNION,

(6)

Having regard to the Treaty establishing the European
Community, and in particular Article 47(2), Article 55 and
Article 95(1) thereof,

Having regard to the proposal from the Commission (1),

Having regard to the opinion of the European Economic and
Social Committee (2),

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

(7)

Whereas:

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

Major achievements have already been made in the
establishment of this internal market, allowing financial
institutions to operate in other Member States and
ensuring a high level of protection for the consumers of
financial services.

communication from the Commission ‘Imple-
The
menting the framework for financial markets: action
identifies a series of actions that are needed in
plan’
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 imple-
mentation of this action plan by 2005.

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.

(8)

(9)

(1)

(2)

(3)

(4)

(5)

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
rule as the underlying principle for capital
person’
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.

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 effi-
cient management of occupational pension schemes.

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

regardless of whether

requirements,

In accordance with the principle of subsidiarity, Member
States should retain full responsibility for the organisa-
tion 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 responsi-
bility for the role and functions of the various institu-
tions 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.

are

coming

social-security

Since
under
systems
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.

(1) OJ C 96 E, 27.3.2001, p. 136.
(2) OJ C 155, 29.5.2001, p. 26.
(3) Opinion of the European Parliament of 4 July 2001 (OJ C 65 E,
14.3.2002, p. 135), Council common position of 5 November
2002 (not yet published in the Official Journal) and decision of the
European Parliament of 12 March 2003 (not yet published in the
Official Journal) and decision of the Council of 13 May 2003.

(10) National

rules concerning the participation of

self-
employed persons in institutions for occupational retire-
ment provision differ. In some Member States, institu-
tions 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
including those imposed by social and
requirements,
labour law, are met.

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(11)

(12)

Institutions managing social-security schemes, which are
already coordinated at Community level, should be
excluded from the scope of
this Directive. Account
should nevertheless be taken of the specificity of institu-
in a single Member State, manage both
tions which,
pension
social-security
schemes.

occupational

schemes

and

Financial
from a
institutions which already benefit
Community legislative framework should in general be
excluded from the scope of this Directive. However, as
these institutions may also in some cases offer occupa-
tional 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 occupa-
tional 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.

(13) When aiming at ensuring financial security in retire-
ment, 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.

(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 impor-
tant 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.

(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 func-
tioning 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 port-
investment
folio and the
managers and custodians established in another Member
State and duly authorised.

custody of

assets

their

(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.

(17)

institu-
In order to protect members and beneficiaries,
tions for occupational retirement provision should limit
their activities to the activities, and those arising there-
from, referred to in this Directive.

(18)

(19)

(20)

(21)

(22)

In the event of the bankruptcy of a sponsoring under-
taking, 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.

for

retirement

occupational

provision
Institutions
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 insur-
ance entities and other financial entities to manage insti-
tutions for occupational retirement provision.

Institutions for occupational retirement provision are
financial service providers which bear a heavy responsi-
bility for the provision of occupational retirement bene-
fits and therefore should meet certain minimum pruden-
tial standards with respect to their activities and condi-
tions of operation.

The huge number of
institutions in certain Member
States means a pragmatic solution is necessary as regards
prior authorisation of institutions. However, if an institu-
tion 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.

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 infor-
mation for members and beneficiaries of a scheme and
the competent authorities. In particular, they enable the
competent authorities to monitor the financial sound-
ness of an institution and assess whether the institution
is able to meet all its contractual obligations.

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(23)

(24)

(25)

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.

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 invest-
It should be made available to the
ment principles.
competent authorities and on request also to members
and beneficiaries of each pension scheme.

To fulfil their statutory function, the competent authori-
ties should be provided with adequate rights to informa-
tion and powers of intervention with respect to institu-
tions 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
these
outsourced functions in order to check whether those
activities are carried out in accordance with the super-
visory rules.

to cover

(26) A prudent calculation of technical provisions is an essen-
tial condition to ensure that obligations to pay retire-
ment 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
continue to be paid and reflect the commitments that
arise out of members' accrued pension rights.

to beneficiaries

(27)

(28)

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.

Sufficient and appropriate assets to cover the technical
provisions protect the interests of members and benefici-
aries of the pension scheme if the sponsoring under-
taking 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.

(29)

(30)

(31)

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 (1).

in some cases,

the institution itself

In many cases, it could be the sponsoring undertaking
and not
that either covers any
biometric risk or guarantees certain benefits or invest-
ment performance. However,
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 circum-
stances, 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.

in order

Furthermore,

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 retire-
ment benefits.
to protect
adequately the rights of members and beneficiaries, insti-
tutions should be able to opt for an asset allocation that
suits the precise nature and duration of their liabilities.
These aspects call
supervision and an
for efficient
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.

(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 not restrict the free move-
ment of capital, unless justified on prudential grounds.

(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 risk capital markets within prudent limits.
They can also benefit from the advantages of interna-
tional diversification. Investments in shares, risk capital
markets and currencies other than those of the liabilities
should therefore not be restricted except on prudential
grounds.

(1) OJ L 283, 28.10.1980, p. 23. Directive as last amended by Directive
2002/74/EC of the European Parliament and of the Council (OJ L
270, 8.10.2002, p. 10).

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(34) 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.

(35)

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

institutions

(36) Without prejudice to national social and labour legisla-
tion on the organisation of pension systems, including
compulsory membership and the outcomes of collective
bargaining agreements,
should have the
possibility of providing their services in other Member
States. They should be allowed to accept sponsorship
from undertakings located in other Member States and
to operate pension schemes with members in more than
one Member State. This would potentially lead to signifi-
cant economies of scale for these institutions, improve
the competitiveness of
the Community industry and
facilitate labour mobility. This requires mutual recogni-
tion of prudential standards. Proper enforcement of these
prudential standards should be supervised by the compe-
tent authorities of the home Member State, unless speci-
fied otherwise.

(37)

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 occupa-
tional pensions, for example the definition and payment
of retirement benefits and the conditions for transfer-
ability of pension rights.

of views between national competent authorities, and to
promote the consistent implementation of this Directive.

(40)

Since the objective of the proposed action, namely to
create a Community legal framework covering institu-
tions 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 Community, the Community
may adopt measures, in accordance with the principle of
subsidiarity as set out in Article 5 of the Treaty.
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,

HAVE ADOPTED THE FOLLOWING DIRECTIVE:

Article 1

Subject

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

Article 2

Scope

This Directive shall apply to institutions for occupational
1.
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 those
authorised entities responsible for managing them and acting
on their behalf.

to paragraph 2,

(38) When a scheme is ring-fenced, the provisions of this

Directive apply individually to that scheme.

2.

This Directive shall not apply to:

(39)

is

important

to make provision for cooperation
It
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 provi-
sions of the Directive. The Commission has indicated its
intention to set up a committee of supervisors in order
to encourage cooperation, coordination and exchanges

(a) institutions managing social-security schemes which are
covered by Regulation (EEC) No 1408/71 (1) and Regulation
(EEC) No 574/72 (2);

(1) Council Regulation (EEC) No 1408/71 of 14 June 1971 on the
application of social-security schemes to employed persons, to self-
employed persons and to members of their families moving within
the Community (OJ L 149, 5.7.1971, p. 2). Regulation as last
amended by Regulation (EC) No 1386/2001 of the European Parlia-
ment and of the Council (OJ L 187, 10.7.2001, p. 1).

(2) Council Regulation (EEC) No 574/72 of 21 March 1972 fixing the
procedure for implementing Regulation (EEC) No 1408/71 on the
application of social-security schemes to employed persons, to self-
employed persons and to members of their families moving within
the Community (OJ L 74, 27.3.1972, p. 1). Regulation as last
amended by Commission Regulation (EC) No 410/2002 (OJ L 62,
5.3.2002, p. 17).

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(b) institutions which are covered by Directive 73/239/EEC (1),
Directive 85/611/EEC (2), Directive 93/22/EEC (3), Directive
2000/12/EC (4) and Directive 2002/83/EC (5);

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

(d) institutions where employees of the sponsoring undertak-
ings have no legal rights to benefits and where the spon-
soring undertaking can redeem the assets at any time and
not necessarily meet its obligations for payment of retire-
ment 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 and (EEC) No 574/72 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

Home Member States may choose to apply the provisions of
Articles 9 to 16 and Articles 18 to 20 of this Directive to the
occupational-retirement-provision business of insurance under-
takings which are covered by Directive 2002/83/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 insurance undertakings, without any
possibility of transfer.

In such case, and only as far as their occupational retirement
provision business is concerned, insurance undertakings shall
not be subject to Articles 20 to 26, 31 and 36 of Directive
2002/83/EC.

(1) First Council Directive 73/239/EEC of 24 July 1973 on the coordi-
nation of laws, regulations and administrative provisions relating to
the taking-up and pursuit of the business of direct insurance other
than life assurance (OJ L 228, 16.8.1973, p. 3). Directive as last
amended by Directive 2002/13/EC of the European Parliament and
of the Council (OJ L 77, 20.3.2002, p. 17).

(2) Council Directive 85/611/EEC of 20 December 1985 on the coordi-
nation of laws, regulations and administrative provisions relating to
undertakings for collective investment
in transferable securities
(UCITS) (OJ L 375, 31.12.1985, p. 3). Directive as last amended by
the
Directive 2001/108/EC of
Council (OJ L 41, 13.2.2002, p. 35).

the European Parliament and of

(3) Council Directive 93/22/EEC of 10 May 1993 on investment
services in the securities field (OJ L 141, 11.6.1993, p. 27). Direc-
tive as last amended by Directive 2000/64/EC of the European
Parliament and of the Council (OJ L 290, 17.11.2000, p. 27).

(4) Directive 2000/12/EC of

the European Parliament and of

the
Council of 20 March 2000 relating to the taking-up and pursuit of
the business of credit institutions (OJ L 126, 26.5.2000, p. 1). Direc-
tive as amended by Directive 2000/28/EC (OJ L 275, 27.10.2000,
p. 37).

(5) Directive 2002/83/EC of

the
Council of 5 November 2002 concerning life assurance (OJ L 345,
19.12.2002, p. 1).

the European Parliament and of

The home Member State shall ensure that either the competent
authorities, or the authorities responsible for supervision of
insurance undertakings covered by Directive 2002/83/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, Member States may choose
not to apply this Directive, in whole or in part, to any institu-
tion 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 nevertheless be given the
right to apply this Directive on a voluntary basis. Article 20
may be applied only if all the other provisions of this Directive
apply.

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

Article 6

Definitions

For the purposes of this Directive:

(a) ‘institution for occupational retirement provision’, or ‘insti-
tution’, 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 occupa-
tional 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;

(c) ‘sponsoring undertaking’ means any undertaking or other
body, regardless of whether it includes or consists of one or
more legal or natural persons, which acts as an employer
or in a self-employed capacity or any combination thereof
and which pays contributions into an institution for occu-
pational retirement provision;

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(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, indi-
gence 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;

(i) ‘home Member State’ means the Member State in which the
institution has its registered office and its main administra-
tion or,
its main
if it does not have a registered office,
administration;

(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 spon-
soring undertaking and members.

Article 7

Activities of an institution

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

When, in accordance with Article 4, an 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 opera-
tions and activities directly arising therefrom.

Article 8

Article 9

Conditions of operation

Each Member State shall, in respect of every institution

1.
located in its territory, ensure that:

(a) the institution is registered in a national register by the
competent supervisory authority or authorised; in the case
of cross-border activities referred to in Article 20,
the
register shall also indicate the Member States in which the
institution is operating;

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

(c) 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;

(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 compe-
tent authorities of the home Member State;

(e) where the sponsoring undertaking guarantees the payment
of the retirement benefits, it is committed to regular finan-
cing;

(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.

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 contri-
butions as additional benefits be offered to members
if
employers and employees, or their respective representatives,
so agree.

Legal separation between sponsoring undertakings and
institutions for occupational retirement provision

Each Member State shall ensure that there is a legal separation
between a sponsoring undertaking and an institution for occu-
pational 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.

3.
A Member State may make the conditions of operation of
an institution located in its territory subject to other require-
ments, with a view to ensuring that the interests of members
and beneficiaries are adequately protected.

A Member State may permit or

4.
require institutions
located in its territory to entrust management of these institu-
tions, in whole or in part, to other entities operating on behalf
of those institutions.

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In the case of cross-border activity as referred to in
5.
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.

Each beneficiary shall receive, on retirement or when
5.
other benefits become due, the appropriate information on the
benefits which are due and the corresponding payment
options.

Article 10

Annual accounts and annual reports

Each Member State shall require that every institution located
in its territory draw up annual accounts and annual reports
taking into account each pension scheme operated by the insti-
tution and, where applicable, annual accounts and annual
reports for each pension scheme. The annual accounts and the
annual reports shall give a true and fair view of the institution's
assets,
liabilities and financial position. The annual accounts
and information in the reports shall be consistent, comprehen-
sive, fairly presented and duly approved by authorised persons,
according to national law.

Article 11

Information to be given to the members and beneficiaries

Depending on the nature of the pension scheme estab-
1.
lished, each Member State shall ensure that every institution
located in its territory provides at least the information set out
in this Article.

2. Members and beneficiaries and/or, where applicable, their
representatives shall receive:

(a) on request, the annual accounts and the annual reports
referred to in Article 10, and, where an institution is
responsible for more than one scheme, those relating to
their particular pension scheme;

(b) within a

reasonable

time,

any

relevant

information

regarding changes to the pension-scheme rules.

3.
The statement of investment policy principles, referred to
in Article 12, shall be made available to members and benefici-
aries and/or, where applicable,
representatives on
request.

to their

Each member shall also receive, on request, detailed and

4.
substantial information on:

Article 12

Statement of investment policy principles

Each Member State shall ensure that every institution located in
its territory prepares and, at least every three years, reviews a
written statement of investment-policy principles. This state-
ment is to be revised without delay after any significant change
in the investment policy. Member States shall provide that this
statement contains, at least, such matters as the investment risk
measurement methods, the risk-management processes imple-
mented and the strategic asset allocation with respect to the
nature and duration of pension liabilities.

Article 13

Information to be provided to the competent authorities

Each Member State shall ensure that the competent authorities,
in respect of any institution located in its territory, have the
necessary powers and means:

(a) to require the institution, the members of its board of direc-
tors and other managers or directors or persons controlling
the institution to supply information about all business
matters or forward all business documents;

(b) to supervise relationships between the institution and other
companies or between institutions, when institutions
transfer functions to those other companies or institutions
the
(outsourcing),
institution or being in a material way relevant for effective
supervision;

influencing the financial situation of

(c) to obtain regularly the statement of investment-policy prin-
ciples, the annual accounts and the annual reports, and all
the documents necessary for the purposes of supervision.
These may include documents such as:

(i) internal interim reports;

(a) the target level of the retirement benefits, if applicable;

(ii) actuarial valuations and detailed assumptions;

(b) the level of benefits in case of cessation of employment;

(iii) asset-liability studies;

(c) where the member bears the investment risk, the range of
investment options, if applicable, and the actual investment
portfolio as well as information on risk exposure and costs
related to the investments;

(d) the arrangements relating to the transfer of pension rights
to another institution for occupational retirement provision
in the event of termination of the employment relationship.

Members shall receive every year brief particulars of the
situation of the institution as well as the current level of
financing of their accrued individual entitlements.

(iv) evidence of consistency with the investment-policy

principles;

(v) evidence that contributions have been paid in as

planned;

(vi) reports by the persons responsible for auditing the

annual accounts referred to in Article 10;

(d) to carry out on-site inspections at the institution's premises
and, where appropriate, on outsourced functions to check
if activities are carried out in accordance with the super-
visory rules.

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Article 14

Article 15

Powers of

intervention and duties of

the competent

authorities

Technical provisions

1.
The competent authorities shall require every institution
located in their territories to have sound administrative and
accounting procedures and adequate internal control mechan-
isms.

2.
The competent authorities shall have the power to take
any measures including, where appropriate, those of an admin-
istrative or financial nature, either with regard to any institu-
tion located in their territories or against the persons running
the institution, which are appropriate and necessary to prevent
or remedy any irregularities prejudicial to the interests of the
members and beneficiaries.

They may also restrict or prohibit the free disposal of the insti-
tution's assets when, in particular:

(a) the institution has failed to establish sufficient technical
provisions in respect of the entire business or has insuffi-
cient assets to cover the technical provisions;

(b) the institution has failed to hold the regulatory own funds.

In order to safeguard the interests of members and benefi-
3.
the competent authorities may transfer the powers
ciaries,
which the persons running an institution located in their terri-
tories hold in accordance with the law of the home Member
State wholly or partly to a special representative who is fit to
exercise these powers.

4.
The competent authorities may prohibit or restrict the
activities of an institution located in their territories in parti-
cular if:

(a) the institution fails to protect adequately the interests of

members and beneficiaries;

(b) the institution no longer fulfils the conditions of operation;

(c) the institution fails seriously in its obligations under the

rules to which it is subject;

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 invest-
ment performance or a given level of benefits, establish suffi-
cient technical provisions in respect of the total range of these
schemes.

The calculation of technical provisions shall take place
3.
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 certifi-
cation or the report shall reflect the adjusted development of
the technical provisions and changes in risks covered.

The calculation of

the technical provisions

shall be
4.
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 recog-
nised 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 liabil-
ities shall also be chosen prudently taking account,
if
applicable, of an appropriate margin for adverse deviation;

(d) in the case of cross-border activity, the institution does not
respect the requirements of social and labour law of the
host Member State relevant to the field of occupational
pensions.

(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:

Any decision to prohibit the activities of an institution shall be
supported by precise reasons and notified to the institution in
question.

— the yield on the corresponding assets held by the insti-

tution and the future investment returns and/or

— the market yields of high-quality or government bonds;

5. Member States shall ensure that decisions taken in respect
of an institution under laws, regulations and administrative
provisions adopted in accordance with this Directive are subject
to the right to apply to the courts.

(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
the expected
and the pension schemes,
changes in the relevant risks;

in particular

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23.9.2003

(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.

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 assump-
technical provisions — the
tions influencing the level of
Commission shall, every two years or at
the request of a
Member State, issue a report on the situation concerning the
development in cross-border activities.

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.

Article 16

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 para-
to the
graph 1 are met again. The plan shall be subject
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 repre-
sentatives 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 this paragraph, the institution
the home
shall

inform the competent authorities of

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 proce-
dure shall be made available to members or, where applic-
able, to their representatives in accordance with the prin-
ciple of confidentiality.

In the event of cross-border activity as referred to in
3.
Article 20, the technical provisions shall at all times be fully
funded in respect of the total range of pension schemes oper-
ated. If these conditions are not met, the competent authorities
of the home Member State shall intervene in accordance with
Article 14. To comply with this requirement the home Member
State may require ring-fencing of the assets and liabilities.

Article 17

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 perfor-
mance 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 antici-
pated and the actual expenses and profits.

2.
For the purposes of calculating the minimum amount of
the additional assets, the rules laid down in Articles 27 and 28
of Directive 2002/83/EC shall apply.

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.

Article 18

Investment rules

1. Member States shall require institutions located in their
territories to invest in accordance with the ‘prudent person’ rule
and in particular in accordance with the following rules:

(a) the assets shall be invested in the best interests of members
and beneficiaries.
In the case of a potential conflict of
interest, the institution, or the entity which manages its
portfolio, shall ensure that the investment is made in the
sole interest of members and beneficiaries;

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(b) the assets shall be invested in such a manner as to ensure
the security, quality, liquidity and profitability of the port-
folio as a whole.

Assets held to cover the technical provisions shall also be
invested in a manner appropriate to the nature and dura-
tion of the expected future retirement benefits;

(c) the assets shall be predominantly invested on regulated
markets. Investment in assets which are not admitted to
trading on a regulated financial market must in any event
be kept to prudent levels;

(d) investment

in derivative instruments

shall be possible
insofar as they contribute to a reduction of investment risks
or facilitate efficient portfolio management. They must be
valued on a prudent basis, taking into account the under-
lying asset, and included in the valuation of the institution's
assets. The institution shall also avoid excessive risk expo-
sure to a single counterparty and to other derivative opera-
tions;

(e) the assets shall be properly diversified in such a way as to
avoid excessive reliance on any particular asset, issuer or
group of undertakings and accumulations of risk in the
portfolio as a whole.

Investments in assets issued by the same issuer or by issuers
belonging to the same group shall not expose the institu-
tion to excessive risk concentration;

(f) investment in the sponsoring undertaking shall be no more
than 5 % of the portfolio as a whole and, when the spon-
soring undertaking belongs to a group, investment in the
undertakings belonging to the same group as the spon-
soring undertaking shall not be more than 10 % of the
portfolio.

When the institution is sponsored by a number of under-
takings, investment in these sponsoring undertakings shall
be made prudently, taking into account the need for proper
diversification.

to apply the requirements
Member States may decide not
referred to in points (e) and (f) to investment in government
bonds.

2.
The home Member State shall prohibit the institution
from borrowing or acting as a guarantor on behalf of third
parties. However, Member States may authorise institutions to
carry out some borrowing only for liquidity purposes and on a
temporary basis.

3. Member States shall not require institutions located in
their territory to invest in particular categories of assets.

4. Without prejudice to Article 12, Member States shall not
subject the investment decisions of an institution located in
their territory or its investment manager to any kind of prior
approval or systematic notification requirements.

In accordance with the provisions of paragraphs 1 to 4,
5.
Member States may, for the institutions located in their terri-
tories,
including quantitative
rules, provided they are prudentially justified, to reflect the total
range of pension schemes operated by these institutions.

lay down more detailed rules,

In particular, Member States may apply investment provisions
similar to those of Directive 2002/83/EC.

However, Member States shall not prevent institutions from:

(a) investing up to 70 % of the assets covering the technical
provisions or of the whole portfolio for schemes in which
the members bear the investment risks in shares, negotiable
securities treated as shares and corporate bonds admitted to
trading on regulated markets and deciding on the relative
weight of
these securities in their investment portfolio.
Provided it is prudentially justified, Member States may,
however, apply a lower limit to institutions which provide
retirement products with a long-term interest rate guar-
antee, bear the investment risk and themselves provide for
the guarantee;

(b) investing up to 30 % of the assets covering technical provi-
sions in assets denominated in currencies other than those
in which the liabilities are expressed;

(c) investing in risk capital markets.

Paragraph 5 shall not preclude the right

6.
for Member
States to require the application to institutions located in their
territory of more stringent investment rules also on an indivi-
dual basis provided they are prudentially justified, in particular
in the light of the liabilities entered into by the institution.

7.
In the event of cross-border activity as referred in Article
20, the competent authorities of each host Member State may
require that the rules set out in the second subparagraph apply
to the institution in the home Member State. In such case, these
rules shall apply only to the part of the assets of the institution
that corresponds to the activities carried out in the particular
host Member State. Furthermore, they shall only be applied if
the same or stricter rules also apply to institutions located in
the host Member State.

The rules referred to in the first subparagraph are as follows:

(a) the institution shall not invest more than 30 % of these
assets in shares, other securities treated as shares and debt
securities which are not admitted to trading on a regulated
market, or the institution shall invest at least 70 % of these
assets in shares, other securities treated as shares, and debt
securities which are admitted to trading on a regulated
market;

(b) the institution shall invest no more than 5 % of these assets
in shares and other securities treated as shares, bonds, debt
securities and other money and capital-market instruments
issued by the same undertaking and no more than 10 % of
these assets in shares and other securities treated as shares,
bonds, debt securities and other money and capital market
instruments issued by undertakings belonging to a single
group;

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23.9.2003

(c) the institution shall not invest more than 30 % of these
assets in assets denominated in currencies other than those
in which the liabilities are expressed.

To comply with these requirements, the home Member State
may require ring-fencing of the assets.

(b) the name of the sponsoring undertaking;

(c) the main characteristics of the pension scheme to be oper-

ated for the sponsoring undertaking.

Article 19

Management and custody

restrict

shall not

1. Member States
from
appointing, for the management of the investment portfolio,
investment managers established in another Member State and
duly authorised for this activity, in accordance with Directives
85/611/EEC, 93/22/EEC, 2000/12/EC and 2002/83/EC, as well
as those referred to in Article 2(1) of this Directive.

institutions

restrict

shall not

2. Member States
from
appointing, for the custody of their assets, custodians estab-
lished in another Member State and duly authorised in accor-
dance with Directive 93/22/EEC or Directive 2000/12/EC, or
accepted as a depositary for the purposes of Directive 85/611/
EEC.

institutions

The provision referred to in this paragraph shall not prevent
the home Member State from making the appointment of a
depositary or a custodian compulsory.

Each Member State shall

3.
take the necessary steps to
enable it under its national law to prohibit, in accordance with
Article 14, the free disposal of assets held by a depositary or
custodian located within its territory at the request of the insti-
tution's home Member State.

Article 20

Cross-border activities

1. Without prejudice to national social and labour legislation
on the organisation of pension systems, including compulsory
membership and the outcomes of collective bargaining agree-
ments, Member States shall allow undertakings located within
their territories to sponsor institutions for occupational retire-
ment provision authorised in other Member States. They shall
also allow institutions for occupational retirement provision
authorised in their territories to accept sponsorship by under-
takings located within the territories of other Member States.

An institution wishing to accept sponsorship from a
2.
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 located within
their territories and proposing to be sponsored by an under-
taking 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);

4. Where a competent authority of the home Member State
is notified under paragraph 2, and unless it has reason to doubt
that the administrative structure or the financial situation of
the institution or the good repute and professional qualifica-
tions or experience of the persons running the institution are
compatible with the operations proposed in the host Member
State, it shall within three months of receiving all the informa-
tion referred to in paragraph 3 communicate that information
to the competent authorities of the host Member State and
inform the institution accordingly.

5.
Before the institution starts to operate a pension scheme
for a sponsoring undertaking in another Member State, the
competent authorities of the host Member State shall, within
two months of receiving the information referred to in para-
graph 3,
the home
inform the competent authorities of
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
the home
Member State shall communicate this information to the insti-
tution.

this Article. The competent authorities of

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,
to
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.

the institution may start

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

8.
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 operation of the
pension scheme sponsored by an undertaking in the host
Member State and in any rules that have to be applied in accor-
dance with Article 18(7) and with paragraph 7 of this Article.

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The institution shall be subject to ongoing supervision by
9.
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 compe-
tent 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
the host
coordination with the competent authorities of
Member State, take the necessary measures to ensure that the
institution puts a stop to the detected breach of social and
labour law.

If, despite the measures taken by the competent authori-
10.
ties 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 appro-
priate measures to prevent or penalise further irregularities,
including, insofar as is strictly necessary, preventing the institu-
tion from operating in the host Member State for the spon-
soring undertaking.

Cooperation between Member States and the Commission

Article 21

in an appropriate manner,
1. Member States shall ensure,
the uniform application of
this Directive through regular
exchanges of information and experience with a view to devel-
oping best practices in this sphere and closer cooperation, and
by so doing, preventing distortions of competition and creating
the
cross-border
membership.

for unproblematic

conditions

required

2.
The Commission and the competent authorities of the
Member States shall collaborate closely with a view to facili-
tating supervision of the operations of institutions for occupa-
tional retirement provision.

3.
Each Member State shall inform the Commission of any
major difficulties to which the application of this Directive
gives rise.

The Commission and the competent authorities of the Member
States concerned shall examine such difficulties as quickly as
possible in order to find an appropriate solution.

Four years after the entry into force of this Directive, the

4.
Commission shall issue a report reviewing:

(a) the application of Article 18 and the progress achieved in

the adaptation of national supervisory systems, and

(b) the application of

the second subparagraph of Article
19(2),
in particular the situation prevailing in Member
States regarding the use of depositaries and the role played
by them where appropriate.

The competent authorities of the host Member State may
5.
ask the competent authorities of the home Member State to
decide on the ring-fencing of the institution's assets and liabil-
ities, as provided for in Article 16(3) and Article 18(7).

Article 22

Implementation

1. Member States shall bring into force the laws, regulations
and administrative provisions necessary to comply with this
Directive before 23 September 2005. They shall
forthwith
inform the Commission thereof.

When Member States adopt these measures, they shall contain
a reference to this Directive or shall be accompanied by such
reference on the occasion of their official publication. The
methods of making such reference shall be laid down by
Member States.

2. Member States shall communicate to the Commission the
text of the main provisions of national law which they adopt in
the field governed by this Directive.

3. Member States may postpone until 23 September 2010
the application of Article 17(1) and (2) to institutions located
in their territory which at the date specified in paragraph 1 of
this Article do not have the minimum level of regulatory own
funds required pursuant to Article 17(1) and (2). However,
institutions wishing to operate pension schemes on a cross-
border basis, within the meaning of Article 20, may not do so
until they comply with the rules of this Directive.

4. Member States may postpone until 23 September 2010
the application of Article 18(1)(f) to institutions located in their
institutions wishing to operate pension
territory. However,
schemes on a cross-border basis, within the meaning of Article
20, may not do so until they comply with the rules of this
Directive.

Article 23

Entry in force

This Directive shall enter into force on the day of its publica-
tion in the Official Journal of the European Union.

Article 24

Addressees

This Directive is addressed to the Member States.

Done at Luxembourg, 3 June 2003.

For the European Parliament

The President

P. COX

For the Council

The President

N. CHRISTODOULAKIS