Report from the Commission On some key aspects concerning Directive 2003/41/EC on the activities and supervision of institutions for occupational retirement provision (IORP Directive)
Date: 2009-04-30
Institutions: European Commission
Subjects: financial institution, pension scheme, report, supplementary pension

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 30.4.2009 
COM(2009) 203 final 

REPORT FROM THE COMMISSION 

On some key aspects concerning Directive 2003/41/EC on the activities and supervision 
of institutions for occupational retirement provision (IORP Directive) 

(presented by the Commission) 

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REPORT FROM THE COMMISSION 

On some key aspects concerning Directive 2003/41/EC on the activities and supervision 
of institutions for occupational retirement provision (IORP Directive) 

(Text with EEA relevance) 

1. 

INTRODUCTION 

The  IORP  Directive  (Directive  2003/41/EC  on  the  activities  and  supervision  of 
institutions  for  occupational  retirement  provision)  was  published  in  the  Official 
Journal on 23 September 2003 and had to be implemented by Member States by 23 
September  2005.  As  of  2007  all  Member  States  had  notified  their  implementation 
measures,  although  two  infringement  procedures  for  incorrect  implementation  are 
still open. 

The IORP Directive explicitly sets out reporting requirements for the Commission on 
four key aspects. Article 15(6) requires a regular report at least every two years on 
the  rules  regarding  the  calculation  of  technical  provisions.  Article  21(4)  requires  a 
one-off report within four years of the entry into force of the IORP Directive on the 
application  of  investment  rules  (point  (a)),  progress  achieved  in  the  adaptation  of 
national supervisory systems (point (a)) and cross-border custodianship (point (b)). 

Although  the  IORP  Directive  required  the  Commission  to  issue  the  first  regular 
report  on  technical  provisions  and  the  one-off  report  on  the  other  three  aspects  in 
September 2007, the late implementation by a large number of Member States made 
it  difficult  for  the  Commission  to  report  on  practical  experience  with  these  four 
provisions  within  the  timeframe  foreseen.  It  was  therefore  agreed  with  Member 
States  during  the  meeting  of  the  European  Insurance  and  Occupational  Pensions 
Committee  (EIOPC)  of  5  April  2006  to  carry  out  the  required  reporting  in  2008, 
following  prior  examination  of  key  implementation  issues  by  the  Committee  of 
European Insurance and Occupational Pensions Supervisors (CEIOPS). 

Moreover, although there has been a notable increase in the number of cross-border 
pension  arrangements  over  the  past  few  years,  the  level  of  cross-border  cases  still 
remains relatively low. A recent survey carried out by CEIOPS shows that at the end 
of June 2008 there were 70 cases of cross-border activity in the European Economic 
Area (EEA), with 21 states acting as host states.1 

At the request of the Commission, the Occupational Pensions Committee (OPC) of 
CEIOPS  engaged  in  an  extensive  fact-finding  exercise  concerning  the  actual 
implementation  of  the  IORP  Directive  by  Member  States.  It  needs  to  be  borne  in 
mind in this context that the IORP Directive provides for minimum harmonisation, 

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CEIOPS  "2008  Report  on  Market  Developments"  of  11  November  2008,  available  at: 
http://www.ceiops.eu/media/docman/public_files/publications/reports/OPC-Report-Market-
Developments2008.pdf  

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thus  leaving  in  a  number  of  areas  some  leeway  to  Member  States  in  its 
implementation.  The  result  of  the  work  of  the  OPC  is  summarised  in  the  Report 
entitled  "Initial  Review  of  Key  Aspects  of  the  Implementation  of  the  IORP 
Directive" (OPC Report) of 31 March 2008.2  

The  OPC  Report  includes,  but  is  not  limited  to,  the  key  aspects  on  which  the 
Commission  is  required  to  report.  The  OPC  Report  finds  that  although  there  is 
considerable diversity in the way these key aspects of the IORP Directive have been 
interpreted  and  implemented  by  Member  States,  there  is  little  evidence  of  major 
problems arising from these differences. Given this, and given the limited experience 
with the application the IORP Directive, the OPC Report finds no reason at this stage 
for legislative changes to the IORP Directive. 

CEIOPS  submitted  the  OPC  Report  to  the  Commission  on  2  April  2008,  and  the 
Report was subsequently discussed by the EIOPC during its meetings of 27 June and 
26 November 2008. The discussion showed that Member States broadly agree with 
the  conclusions  of  the  OPC  Report,  and  the  Commission  services  took  note  of  the 
fact that the vast majority of Member States agreed with CEIOPS' recommendation 
not to envisage a legislative revision of the IORP Directive at this stage.3 

Building  on  the  work  carried  out  so  far,  and  with  a  view  to  fulfilling  the 
Commission’s reporting requirements set out in the IORP Directive, the remainder of 
this report sets out the Commission's position on the following key aspects: technical 
provisions,  investment  rules,  adaptation  of  national  supervisory  systems  and 
custodianship. The report is limited to the fulfilment of the Commission’s reporting 
requirement  on  the  four  aspects  set  out  in  the  IORP  Directive  itself.  The  need  for 
possible legislative changes arising from other important issues affecting IORPs, in 
particular solvency rules4, is being examined by the Commission separately from this 
report. 

2. 

TECHNICAL PROVISIONS 

Article 15(6) of the Directive introduces a reporting requirement for the Commission 
in  relation  to  the  calculation  of  technical  provisions  of  IORPs  in  a  cross-border 
context.5 

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documents 

For the full report see CEIOPS' website: 
http://www.ceiops.eu/media/docman/public_files/publications/submissionstotheec/ReportIORPdirective
.pdf  
EIOPC 
http://ec.europa.eu/internal_market/insurance/committee_en.htm  
Further information on this work is available at 
http://ec.europa.eu/internal_market/consultations/2008/occupational_retirement_provision_en.htm  
Article 15(6) requires that "[w]ith 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 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." 
Moreover,  "[t]he  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." 

Commission's 

website: 

the 

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The examination of the calculation of technical provisions of IORPs was started by 
the  OPC  and  subsequently  pursued  in  more  detail  by  the  Solvency  Sub-Committee 
(SSC)  of  CEIOPS.  The  work  of  the  SSC  was  summarised  in  the  "Survey  on  fully 
funded, technical provisions and security mechanisms in the European occupational 
pension sector" (SSC survey) dated 31 March 2008.6 This survey provides a detailed 
and comprehensive review of the valuation assumptions and security mechanisms for 
occupational  pension  funds,  which  exist  in  Member  States.  As  far  as  technical 
provisions are concerned, it underlines that IORPs in the different Member States use 
different  methods  and  assumptions  to  determine  their  technical  provisions.  This 
results in significant variations in the size of technical provisions across countries for 
comparable  defined  benefit  commitments.  Important  factors  that  affect  the  level  of 
technical provisions in the different Member States include the underlying valuation 
assumptions, in particular the assumptions for interest rates and mortality, as well as 
the nature of inflation and salary indexations of pension benefits. 

CEIOPS  submitted  the  SSC  survey  to  the  Commission  on  7  April  2008.  The 
Commission welcomes the finding of the SSC report. It has served as a good basis 
for the public consultation on the harmonisation of solvency rules for IORPs subject 
to Article 17 of the IORP Directive and IORPs operating on a cross-border basis that 
in  early  September  2008.  The  potential  further 
the  Commission 
harmonisation  of  the  rules  regarding  the  calculation  of  technical  provisions  from  a 
cross-border perspective is one of the areas explicitly addressed in this consultation. 
The consultation period ended at the end of November 2008. In order to draw first 
lessons from this public consultation, the Commission has scheduled a public hearing 
in Brussels on 27 May 2009. 

launched 

The outcome of the consultation and of the public hearing will assist the Commission 
in deciding whether or not to come forward with a proposal to further harmonise the 
rules  for  the  calculation  of  technical  provisions  in  the  context  of  cross-border 
activities. As is normally the case, any proposal from the Commission would, in line 
with the Better Regulation approach, be subject to a rigorous impact assessment. 

3. 

INVESTMENT RULES 

Article  21(4)(a)  of  the  IORP  Directive  requires  the  Commission  to  "issue  a  report 
reviewing  the  application  of  Article  18  […]",  which  contains  the  qualitative  and 
quantitative  investment  rules  for  IORPs.  The  examination  carried  out  identified  a 
number of issues. 

First, the OPC Report finds that the introduction of the 'prudent person' rule referred 
to in Article 18(1) has had an impact on the regulatory framework in many Member 
States  and  that,  although  quantitative  investment  limits  still  play  an  important  role, 
more attention was being paid now to qualitative aspects of the investment rules. 

Second, the OPC Report also points to a lack of common understanding of the scope 
of the single issuer rule, which aims at preventing excessive reliance on a particular 

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http://www.ceiops.eu/media/docman/public_files/publications/submissionstotheec/ReportonFu

ndSecMech.pdf  

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asset,  issuer  or  group  (Article  18(1)(e)).7  In  addition,  promoting  convergence  in 
single issuer rules is especially relevant in a cross-border context, given the explicit 
exemption from home state investment rules which host states can impose on "guest-
IORPs"  within  certain  quantitative  and  qualitative  limits  (Article  18(7)(b)  of  the 
IORP Directive). As regards quantitative limits, it was confirmed that host states can 
apply these to guest-IORPs only if the investment rules applied to IORPs located in 
the host state itself are equally strict or even stricter. Therefore, it was not possible to 
apply  higher  limits  in  this  context  than  the  ones  explicitly  spelt  out  in  the  IORP 
Directive.  As  regards  qualitative  limits,  i.e.  the  categories  of  assets  covered  by 
Article 18(7)(b) of the IORP Directive, it might be useful to refer to other pieces of 
EU  legislation  such  as  the  MiFID  Directive8,  which  provides  for  definitions  of 
'financial instruments', 'transferable securities' and 'money-market instrument'.9 

Third,  there  is  a  lack  of  common  understanding  of  the  term  ‘risk  capital  markets’, 
relevant  to  Article  18(5)(c)  which  prohibits  Member  States  from  preventing  IORPs 
located  in  their  territory  from  investing  in  such  markets.  In  line  with  the 
recommendations  of  the  OPC  Report,  and  following  input  from  the  Commission, 
further attempts of clarification have been undertaken with a view to possible "level 
3-guidance"  by  CEIOPS  on  this  issue.  This  further  work  has  demonstrated  that  the 
different definitions across Europe depend on the purpose and context in which the 
concept  of  risk  capital  is  applied  (competition  or  internal  market  rules,  closed  or 
open definitions, including or excluding quasi-equity instruments) and that the issue 
has  not  yet  had  cross-border  relevance  in  practice.  Rather  that  issuing  abstract 
guidance, the matter should be kept under review. 

Fourth, six Member States use the possibility provided by Article 18(7) of the IORP 
Directive to impose as a host country additional investment limits.10 

The findings of the OPC suggest that despite some differences in the application of 
investment  rules,  these  do  not  seem  to  hinder  the  convergence  process  towards  an 
internal market and cross-border activities of IORPs. The Commission supports this 
conclusion, and encourages CEIOPS to continue its analysis in relation to risk capital 
markets and the single issuer rule. As a special case of the latter, further work may 
also be required for self-investment rules, which limits investment in the sponsoring 
undertaking (Article 18(1)(f)).11 

Ongoing convergence in the application of investment rules should contribute to the 
security,  quality,  liquidity  and  profitability  of  IORPs  portfolios  as  a  whole,  thus 

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Article  18(1)(e)  specifies  that  "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 institution to excessive risk concentration". 
Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in 
financial instruments, Official Journal L 145, 30.4.2004. 
See Articles 4(1)(17), 4(1)(18) and 4(1)(19) of the MiFID Directive. 
Article 18(7) allows Member States to impose additional investment limits on guest IORPs operating in 
their territory. According to the Directive such limits are only acceptable if the same or stricter rules are 
imposed on the IORPs based in their own country. 
This rule has to be complied with by Member States, unless use has been made of the option in Article 
22(4) of the Directive. 

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improving  occupational  retirement  provision  across  the  EU  in  both  qualitative  and 
quantitative terms. 

CEIOPS  and  the  Commission  will  continue  to  monitor  the  operation  of  the 
investment rules also in the light of any lessons to be learnt from the financial crisis. 

4. 

ADAPTATION OF NATIONAL SUPERVISORY SYSTEMS 

Article  21(4)(a)  of  the  IORP  Directive  also  requires  the  Commission  to  "issue  a 
report reviewing […] the progress achieved in the adaptation of national supervisory 
systems". In this context, the provisions of Article 21(1) to (3) of the IORP Directive 
are  also  of  relevance  because  they  provide  for  close  cooperation  between  national 
supervisors and the European Commission in order to ensure a uniform application 
of the IORP Directive and to facilitate supervision of IORPs' operations. 

In  order  to  facilitate  cooperation,  CEIOPS  set  up  the  OPC  in  February  2004.  The 
work of this Committee, in which the Commission participates as an observer, led to 
the agreement of the "Budapest Protocol" in February 2006. 12 This protocol governs 
supervisory  arrangements  and  the  exchange  of  information  between  home  and  host 
state  supervisors  of  cross-border  IORPs.  The  Budapest  Protocol  includes  also 
supervisory  authorities  from  across  the  EU  which  are  not  formally  members  of 
CEIOPS,  thus  offering  a  broad  basis  for  further  development  of  cross-border 
supervision for occupational pensions. 

The Commission welcomes and supports the ongoing work of supervisors not only 
under, but also on the Budapest Protocol, which is currently being reviewed by the 
OPC with a view to a public consultation by CEIOPS of a revised version in the first 
half of 2009. 

5. 

CUSTODIANSHIP 

Article  21(4)(b)  of  the  IORP  Directive  requires  the  Commission  to  report  on  the 
application  of  the  second  sub-paragraph  of  Article  19(2).  This  provision  sets  forth 
that  home  Member  States  are  allowed  to  make  the  appointment  by  an  IORP  of  a 
custodian or depositary compulsory. However, when doing so, they must not restrict 
IORPs  from  appointing  a  duly  authorised  custodian  or  depositary  established  in 
another Member State, as specified in the first sub-paragraph of Article 19(2). 

The OPC Report notes that divergent approaches exist in relation to the appointment 
of a custodian and the kind of body which is appointed to fulfil this role, including 
the  functions  that  it  performs.  There  are  also  differences  in  the  role  of  competent 
authorities, some of whom play a role in the process of the custodian’s appointment. 
The OPC does, however, not consider these divergences of practice to be an issue. At 

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The "Protocol relating to the Collaboration of the Relevant Competent Authorities of the Member States 
of  the  European  Union  in  Particular  in  the  Application  of  the  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 
at 
http://www.ceiops.eu/content/view/19/23/  

(IORPs)  Operating  Cross-Border" 

available 

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the moment it is too early to conclude whether the provisions on custodianship in the 
IORP  Directive  create  issues  for  supervision,  although,  looking  ahead,  the  OPC 
earmarks a number of issues that may require further attention.13 

In particular, the OPC notes that where a custodian or depositary is located in another 
Member State than the IORP, it is useful to enhance the cooperation between IORP 
Supervisory  Authorities  and  foreign  custodian/depositary  Supervisory  Authorities 
(especially  in  the  case  where  the  supervisory  authority  is  not  a  CEIOPS  member), 
mainly  to  guarantee  the  appropriate  application  of  Article  19(3)  of  the  IORP 
Directive in the case of freezing of the assets.14 If enhanced cooperation within the 
current EU legal framework is not possible, the OPC takes the view that this may be 
an issue that could require a legislative change. 

The  Commission  welcomes  this  assessment  and  encourages  further  cooperation 
between supervisory authorities. It stands ready to take up the matter with CEIOPS, 
if necessary. The need for possible future changes will also depend on the outcome 
of the more general work relating to European supervisory arrangements.15 

6. 

CONCLUSION 

As  regards  the  four  key  aspects  on  which  the  IORP  Directive  requires  the 
Commission to report, the Commission considers that there is no immediate need for 
legislative  change.  This  report  is,  however,  limited  to  the  fulfilment  of  the 
Commission’s reporting requirements set out in the IORP Directive itself. The need 
for possible legislative changes arising from other important issues affecting IORPs, 
in particular solvency rules, is being examined by the Commission separately  from 
this report. 

The Commission believes that the IORP Directive has already delivered first results 
in  the  establishment  of  an  internal  market  for  occupational  retirement  provision 
organised  on  a  European  scale.  More  time  is  needed  for  the  full  effects  of  the 
Directive to unfold.  

At the same time, the examination carried out by CEIOPS has indicated that there is 
a  need  to  continue  the  monitoring  of  several  aspects  of  the  IORP  Directive.  The 
possible further harmonisation of the rules on the calculation of technical provisions 
can  be  considered  in  the  context  of  the  Commission's  ongoing  work  on  solvency 
rules  for  IORPs.  In  the  area  of  investment  rules,  there  is  a  need  for  further 
clarification of the definition of risk capital markets and the scope of the single issuer 

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In  addition,  the  Commission  is  currently  reviewing  the  manner  in  which  Member  States  have 
implemented  the  present  principles  in  Directive  85/611/EEC  (UCITS  Directive)  regarding  the 
responsibility  and  liability  of  the  depositary,  as  a  response  to  the  Madoff  case.  Depending  on  the 
outcome  of  this  work,  it  might  also  be  necessary  to  review  the  relevant  provisions  in  the  IORP 
Directive. 
Article  19(3)  requires  that  "[e]ach  Member  State  shall  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 institution's home Member State." 
For further information, see the Report of the High Level Group chaired by Jacques de Larosière of 25 
February 2009 and the Commission Communication on "Driving European Recovery" of 4 March 2009 
(COM(2009) 114 final). 

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rule. The Commission and CEIOPS will also continue to monitor the operation of the 
investment  rules  also  in  the  light  of  the  financial  crisis.  The  Commission  is 
supportive of enhanced cooperation between supervisors and welcomes the planned 
public consultation by CEIOPS on the Budapest Protocol. As regards custodianship, 
the  Commission  encourages  enhanced  cooperation  between  IORP  Supervisory 
Authorities  and  foreign  custodian/depositary  Supervisory  Authorities  and  stands 
ready  to  put  forward  legislative  proposals  if  needed.  The  need  for  possible  future 
changes  will  also  depend  on  the  outcome  of  the  more  general  work  relating  to 
European supervisory arrangements.  

The  Commission  remains  committed  to  the  continued  verification  of  the  correct 
implementation of the IORP Directive by Member States and continues its work in 
this  area.  The  Commission  also  encourages  CEIOPS  to  continue  its  work  on  the 
broader  issues  raised  in  the  OPC  report,  and  will  further  monitor  and  promote  the 
improved cooperation between supervisors in order to ensure a uniform application 
of the IORP Directive. 

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