CROSS-BORDER PENSIONS / PENSIONS MARKET IN IRELAND Anne Maher 16 November, 2005 Chief Executive Cologne The Pensions Board Ireland EUROFORUM

2 Agenda  Cross-Border pensions Requirements Who might use them Influences  Ireland  Implementation of EU Pensions Directive  Pension supervision  As pensions location  Next Steps

3 Cross-Border Pensions  Member States must allow: Undertakings in their territories to sponsor IORPs located in other Member States IORPs in their territories to accept sponsorship from undertakings located in other Member States which is ‘cross-border’ activity

4 Cross-Border Pensions Regulatory Requirements  Separate legal entity  Meet information to members, funding, diversification and security of assets, freedom of investment requirements of Directive  Recognition by home country supervisor  Special conditions Authorisation in home country “Fully funded” at all times Prudential rules: home country of IORP Social and labour laws: host country of beneficiaries

5 Cross-Border Pensions Regulatory Requirements (continued)  Each host state may prescribe additional investment constraints relating to its “section” provided such constraints not greater than those imposed on local schemes in that state  Each host state may require information requirements as imposed on local schemes in that state  In practice may require ring fencing of each section’s assets

6 Cross-Border Pensions Protocol  Agreement between supervisors to co-operate in supervising cross-border IORPS  Not yet agreed  Currently out for 2 nd consultation period  Target is to get signed in February 2006

7 Cross-Border Pensions Protocol Sets out  Aims  General principles  Aspirations  General matters (e.g. language) Covers  Exchange of information  Ongoing supervision  Respective roles

8 Cross-Border Pensions For Whom?  Single employer/single country scheme might consider relocation  Multinational employer might consider Pooling investments Pooling services Merging schemes in one location

9 Cross-Border Pensions Reasons to relocate  Single employer/single country scheme  Regulatory/supervisory regime?  Multinational employer  Better governance/control  Single governance regime  Economies of scale/cost savings  Corporate change/culture  Accommodate mobile employees

10 Cross-Border Pensions Influences on choice of location  Tax arrangements  Pension tradition/services available  Availability of tried and tested pension skills/resources  Regulatory/compliance regime  Ability to accommodate countries outside EU

11 Ireland – Implementation of EU Pensions Directive  Social Welfare and Pensions Act 2005  Statutory Regulations and Instruments (September 2005) on: investments trustees funding Standard professional Guidance preservation of benefits disclosure of information cross border

12 Ireland – Implementation of EU Pensions Directive  Social and Labour Law includes Preservation of benefits Pensions Ombudsman Disclosure of information and remittance of contributions No reduction in payable benefits because of Social Welfare pension increases

13 Ireland – Pension Supervision Supervisory Players in Pensions  The Pensions Board  The Financial Regulator  Revenue Commissioners  Pensions Ombudsman  Professionals (actuaries, auditors, administrators, custodians, investment managers)

14 Ireland – Pension Supervision Principles of Pension Regulation  To maintain balance between necessary regulation and unnecessary cost  Voluntary nature of plans  Trust-based system – role of trustees (but open to other vehicles)  Duty on trustees to comply  Information disclosure  Promotion of pension security  Securing compliance without recourse to legal action unless necessary

15 Ireland – Pension Supervision Regulatory Powers  Power to investigate  Power to prosecute  Power to remove trustees  Power to restore assets  Power to dispose of assets

16 Ireland – Pension Supervision Regulatory/Supervisory Activities  Scheme registration – schemes required to register with Pensions Board  Funding Standard – requirement to submit an Actuarial Funding Certificate (AFC) at specific times  Disclosure Compliance – conduct random audits of schemes  Ongoing discussions with relevant parties (e.g. trustees, advisers, providers)  Investigations – regular or arising from whistleblow reports  Prosecutions

17 Ireland as Pensions Location  Tax arrangements  Irish law incorporates cross border tax reliefs  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

18 Ireland as Pensions Location  Pan-European Pensions Task Force Examining opportunities in international pensions area  Suite of asset pooling vehicles Unit Trust (Fixed Income Investments) Limited Partnership UCITS CCF (Equities Investments) Non-UCITS CCF (Alternative Investments)

19 Ireland as Pensions Location Common Contractual Fund (CCF)  Specialised transparent fund structure facilitating the pooling of pension fund assets  Investors treated as if they own a proportion of underlying investments thus being considered the direct holder, while investments are co-mingled in larger pool. In this way Pension Fund benefits from a larger scale of operations while retaining all individual rights.  CCF can be set up as a single fund or as an umbrella fund with multiple sub funds

20 Ireland as Pensions Location Common Contractual Fund (CCF)  Use of sub-funds allows investor to weigh investment in various funds to best match their profile  Available in UCITS structure facilitating cross border investment in Equities without additional penalties  Also available in non-UCITS format allowing wider variety of assets to be considered (Derivatives, Hedge Funds, Property)

21 Ireland as Pensions Location Advantages of using CCF  Facilitates investment in Equities  Tax transparency – income treated as accruing to each investor  Allows for wider risk spreading  No subscription tax or VAT generally applicable  Exemption on tax from income and gains  Investors benefit from home country tax treaty benefits as a result of transparent status  Single v’s Multi Manager Structures  Legal Structure combined with Tax Transparency enable the benefits of pension pooling to be achieved

22 Ireland as Pensions Location Why Ireland for Pooling  Ireland has available a suite of Pension Pooling investment vehicles, e.g. Unit Trusts, Common Contractual Funds (CCF) etc.  Experienced International Legal Firms  Big Four Accountancy Firms providing tax advice  12.5% Corporation Tax Rate on all Trading Activities  Prudent but Progressive Regulatory Environment for Funds  World-class Pool of Service Providers  Significant investment in the infrastructure required to service the pooling of assets  Pension pooling already happening

23 Next Steps  Clarification of some Directive requirements  Finalisation of Protocol between Member State pension supervisors  Consideration and decision on location by pension scheme sponsors and those managing schemes

24 In Conclusion  Pensions Directive  Is a first step  Provides a framework for change  Investment/asset pooling is 1 st step  Liability pooling – centralised administration are next steps  Full Pan-European Pension Funds  Will take time  But WILL come about