Europe: What UK schemes need to know about legal changes

The European Parliament’s draft report on the new Institutions for Occupational Retirement Provision directive, and the European Insurance and Occupational Pensions Authority consultation on a single European pensions market, both provide useful indications of the shape future laws will take.  

IORP directive

Last year the European Commission published updated proposals for the new IORP directive, which contained a number of provisions that caused concern in the UK pensions industry.

The recently released draft report suggests that the European Commission’s proposed ‘fit and proper’ requirements for trustees should be replaced with a looser regime applying to trustee boards as a whole.  

This reduces the potential burden of the requirements by removing references to professional qualifications and avoiding requiring trustees to meet the test individually.

The draft report also proposes a reduction in the complexity of the annual benefit statements to be provided under the draft IORP directive.  

On the funding side, the European Parliament reiterates that no capital or solvency requirements should be applied to occupational pension schemes at an EU level and even suggests the removal of the current obligation for cross-border schemes to be fully funded at all times.  

It is proposed that schemes will only have to be fully funded when they are established. While this would mean a much lower burden for cross-border pension schemes, the draft report suggests this requirement would be applied to all occupational pension schemes

Instead it is proposed that schemes will only have to be fully funded when they are established.  

While this would mean a much lower burden for cross-border pension schemes, the draft report suggests this requirement would be applied to all occupational pension schemes.

Depending on the final wording of the directive, this could potentially result in the requirement to be fully funded applying on sectionalisation of a scheme, or even when significant benefit changes are made.

The European Parliament will debate and amend the draft report over autumn 2015.

Single European pensions market

EIOPA has continued to work towards the creation of a single European market for personal pension products, with the opening of a consultation in July.  

Key to this is EIOPA’s proposal for the creation of a new pensions product – the pan-European personal pension, or PEPP.  

Possibly the most significant aspect of the proposed single market is a standalone authorisation regime for PEPP providers, which EIOPA envisages will operate in parallel with national regimes.

It remains to be seen exactly what form this will take, but it will likely cause some concern about additional regulatory complexity.  

EIOPA’s proposals also envisage an internal market for PEPPs, in which providers will be able to offer their products in all EU member states.  

The deadline for responding to the consultation is October 5 2015.

Emir

The third recent major development in European pensions relates to Emir and its requirement for certain over-the-counter derivatives contracts to be cleared centrally.  

Due to the need to provide significant amounts of cash collateral in order to meet margin calls – an inefficient way of holding assets – pension schemes were given a three-year exemption from the OTC central clearing requirement, which was due to expire in August this year. 

However, the European Commission has now extended that exemption by a further two years to August 15 2017.  

This will be of some relief to UK pension scheme trustees and reflects the EC’s acknowledgement of the difficulties the Emir regime causes for them.

Trustees should continue to work with advisers to ensure their compliance with the full Emir regime when the exemption ends.

Maria Rodia is a partner and Thibault Jeakings is a lawyer in the pensions group at CMS