European Union Pensions Directive:

One Year On

Anne MaherChief Executive

The Pensions Board1 November 2006

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AgendaAgenda Background

Progress

What is now possible?

How is this likely to develop?

Where will these plans locate?

Next steps

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BackgroundBackgroundLegal

EU aim to achieve Single Market for pensions

EU Communication on “The Elimination of tax obstacles to cross-border provision of occupational pensions” (April 2001)

EU Directive 2003/41/EC on “the activities and supervision of Institutions for Occupational Retirement Provision” known as the “Pensions Directive” (September 2003)

The Pensions Directive to be implemented into Member State legislation by 23 September 2005

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BackgroundBackgroundEU Pensions Directive Principles

Sets framework for pension scheme supervision

Effectively sets common minimum level of supervision

Moves towards freedom of investment for pension schemes

Facilitates cross-border pension schemes

Provides possible legal framework for Pan European pension schemes

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ProgressProgress Slow implementation by Member States

• 20 with full notification• 2 with partial notification• 3 with no notification• EU Commission taking legal action to enforce

Tax infringements in 18 Member States• Dividend and/or interest taxation• EU Commission pursuing in European Court

Committee of European Insurance and Pension Supervisors (CEIOPS) supervising implementation

Budapest Protocol agreed between pension supervisors

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What is Now PossibleWhat is Now Possible

Investment pooling cross-border - already possible and happening

Pooling of liabilities

Pooling of administration

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Development of Cross-Border Development of Cross-Border BusinessBusiness

Types of Cross-Border IORPs

Existing plans which relocate

New employer sponsored cross-border plans

New commercial cross-border arrangements

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Development of Cross-Border Development of Cross-Border BusinessBusiness

Who is Interested

Multinational Employers

For pooling or merging

Employers with Existing Pension Plans

For regulatory or financial advantage

Commercial IORPs Providers

Looking to sell pensions cross-border

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Development of Cross-Border Development of Cross-Border BusinessBusiness

Reasons to relocate

Multinational employer Better governance/control Single governance regime Economies of scale/cost savings Facilitate corporate change/culture Accommodate mobile employees

Single employer/single country plan Regulatory/supervisory regime? Financial advantage?

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Development of Cross-Border Development of Cross-Border BusinessBusiness

Drivers

Commercial Beneficiaries

For-profit IORPs providers

Advisers to multinationals

Potential providers of cross-border management and administration services

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Development of Cross-Border Development of Cross-Border BusinessBusiness

Influence on Choice of Location

Tax arrangements

Investment opportunities

Pension tradition/services available

Availability of tried and tested pension skills/resources

Regulatory/compliance structures and environment

Ability to accommodate countries outside EU

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Development of Cross-Border Development of Cross-Border BusinessBusiness

Obstacles Social and Labour Law Tax Defined Benefit Funding Standards Pension Reform Member State attitude Inexperience First mover disadvantage

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Location of Cross-Border BusinessLocation of Cross-Border Business

Any Member State

Attraction of Luxembourg, Ireland, UK, Dutch pooling vehicles?

Belgium

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Location of Cross-Border BusinessLocation of Cross-Border Business

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Ireland Tax arrangements

• Irish law incorporates cross-border tax reliefs Investment opportunities

• Common Contractual Fund (CCF) Pension tradition/services available

• Ireland has long established private pension structure Availability of tried and tested pension skills/resources

• Investment, Actuarial, Accounting, Legal, Benefit consulting, Benefit administration, Compliance skills available in Ireland

Regulatory/compliance regime• Acceptable and balanced regulation by open and accessible

regulators supervisors in Ireland Ability to accommodate countries outside EU

• Global services available in Ireland

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Location of Cross-Border BusinessLocation of Cross-Border Business Ireland

Pan-European Pensions Task Force Examining opportunities in international pensions area

Will facilitate initiatives/changes

Suite of asset pooling vehicles Unit Trust (Fixed Income Investments)

Limited Partnership

UCITS CCF (Equities Investments)

Non-UCITS CCF (Alternative Investments)

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Next StepsNext Steps Implementation of Directive by all EU Member States

Resolution of tax issues

Clarification of some Directive requirements

Protocol in operation between Member State pension supervisors

Consideration and decision on location by pension scheme sponsors and commercial providers

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In ConclusionIn Conclusion Pensions Directive

Is first step in single market for pensions

Provides a framework for change

Investment/asset pooling is happening

Liability pooling and centralised administration are next steps

Full Pan-European Pension Funds Will take time

But WILL come about

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