A draft report from the European Parliament committee on economic and monetary affairs has threatened the possibility of pot-follows-member legislation being introduced, lawyers have warned.
The report forms part of the Hayes Report, so-called for the Irish MEP who has been appointed rapporteur for the Institutions for Occupational Retirement Provisions directive, a controversial European proposal aimed at bringing regulation of pensions and financial services more widely more in line with the insurance sector’s Solvency II legislation.
Aspects of IORP have already proved controversial. Earlier this year a paper by law firm Eversheds called on the UK pensions industry to oppose the introduction of the “holistic balance sheet”, which could apply funding requirements similar to those of insurance companies on pension schemes.
The Hayes report overall, we think, is a good piece of work, but there are some significant wrinkles and this is one of them
James Walsh, NAPF
Tim Smith, senior associate at Eversheds, said the report contained changes that would prevent the creation of a pot-follows-member system.
In particular, Smith cited amendment 80 in the report, which strengthens the requirement that transfers have prior approval of a majority of members.
This was done by removing the stipulation that transfers require approval “unless national social and labour law on the organisation of pension systems provides otherwise”.
Smith said: “Overall, the [European Parliament] committee’s draft report is positive and it addresses a number of concerns that UK schemes and sponsors have with the [European Commission's] proposed text. However, it doesn’t allow any exception to the rule that you have to get consent, even where member states think that is appropriate.
“That would clearly undermine plans to introduce any kind of pot-follows-member-system… it needs to be addressed as it goes through the European Parliament,” he added.
Further amendments expected
Anne Marie Winton, partner at law firm Nabarro, said the amendment would likely be removed before the directive became law, as existing trust law allows for movement of benefits without approval in certain situations.
“We do have bits of pension legislation that allow member benefits to be transferred without their consent,” she said. “We accept that sometimes we do have to move benefits around.”
She added: “I put my money on trust law giving us the answer here. We’ve realised through years of trust-based [law] that sometimes member consent is not required and the law makes it clear when that is,”
James Walsh, EU and international policy lead at the National Association of Pension Funds, told Pensions Expert he shared the concerns over the report.
“We have a real problem with this amendment,” he said. “The Hayes report overall, we think, is a good piece of work, but there are some significant wrinkles and this is one of them.”
Walsh said there were two other key issues the NAPF would seek amendment for: namely the requirement for defined contribution schemes to appoint a depository and the introduction of the holistic balance sheet.
The original version of this article gave Tim Smith's job title as partner, this has now been corrected
