In an earlier article, we looked at key provisions in the latest EU Directive on Institutions for Occupational Retirement Provision (i.e. pension funds). This Directive is commonly referred to as ‘IORP II’ and has a transposition deadline, for implementation in Member States, of January 2019.
Two sets of regulations to implement IORP II have just been published and, in this Alert, we consider the actions that trustees may need to take in response to this new legislation.
Cross-Border Activities Regulations
The first set of regulations transpose changes made by IORP II in relation to the regime and procedure for authorisation and approval for cross-border pension scheme activity ( Broadly, cross-border activity is when an employer in one Member State selects to base their occupational pension scheme in another Member State).
For most schemes, there should be no impact because, despite there being an existing framework for pension schemes to operate ‘cross-border’ in the European Economic Area since 2005, nearly all UK occupational pension schemes generally operate on a national basis only.
The second set of regulations, in direct contrast to those above, will affect the vast majority of UK occupational pension schemes – both defined benefit (DB) and defined contribution (DC) schemes. There are two substantive changes to existing legislation on the management and oversight of workplace pensions –
- Amendments to section 249A of the Pensions Act 2004, imposing a duty on the trustees of an occupational pension scheme to establish and operate an effective system of governance. The changes require that system to be proportionate to the complexity, scale and organisational structure of the scheme, and the nature of the risks to which it is exposed. Also, the system must be assessed by the trustees, in an ‘own-risk assessment’, which is carried out and documented by the trustees.
- A requirement for the Pensions Regulator to issue a Code of Practice relating to the above duty. The regulations also list the particular matters which that Code should address.
Current legislation in the UK already fulfils a substantial part of the IORP II requirements and other domestic developments, such as the Pensions Dashboard, will also assist in meeting our EU obligations (which we will comply with notwithstanding Brexit).
In addition, the Department for Work and Pensions, assisted by an industry working group, has adopted a ‘proportionate’ approach to compliance.
For more information, please contact John Wilson on +44 (0) 131 456 6850 or firstname.lastname@example.org.