The first steps in EU pre-emptive regulation of Member States' pension arrangements culminated in the publication, on 23 September 2003, of Directive 2003/41/EC ("the Pensions Directive"). The Pensions Directive represents a tentative move by Europe's legislators to harmonize cross-border provision and regulation of financial services in the pension sector. National priorities and significant differences in domestic fiscal arrangements for pension provision rendered tax harmonization for pensions through unanimity unattainable at this point in the Union's development. Instead, the Pensions Directive, adopted pursuant to Articles 47(2), 55 and 95 of the EU Treaty, represents a political compromise to minimize, in so far as possible, national obstacles to the establishment and free movement of institutions for occupational pension provision in the internal market.
The Pensions Directive, adopted for the benefit and security of an ageing population of European pensioners, will facilitate the free movement of institutions for occupational pension provision while respecting Member State competence with regard to social protection and the taxation of pension schemes. It identifies as a primary objective the protection of pension scheme members and beneficiaries and requires (i) legal separation between sponsoring undertakings (employers) and institutions responsible for pension provision; (ii) monitoring of activities of these institutions by a competent national authority; and (iii) the provision of adequate information for the protection of present and future pensioners. While many of the legal obligations imposed on Ireland by the Pensions Directive are already housed in domestic legislation, others will pose challenges and opportunities for the Irish Government, Ireland's regulators and the pensions industry.
The Scope of the Pensions Directive
The scope of the Pensions Directive is limited. It applies neither to first pillar pension arrangements (e.g. typically state funded pay-as-you go pensions such as the exchequer funded contributory and non-contributory old age pensions) nor to third pillar pension provision (e.g. private pension arrangements including retirement annuity contracts and ARFs). Rather, its parameters encompass a limited class of second pillar arrangements, namely occupational pension provision.
The Pensions Directive addresses the activities of an institution for occupational pension provision ("iorp"). An iorp is described in Article 6(a) as:
"an institution irrespective of its legal form, operating on a funded basis, established separately from any sponsoring undertaking or trade for the purpose of providing retirement benefits in the context of an occupational activity on the basis of an agreement or a contract agreed individually or collectively between the employer(s) and the employee(s) or their respective representatives, or with self-employed persons, in compliance with the legislation of the home and host states and which carries out activities directly arising therefrom".
Where an iorp lacks legal personality under Irish law, per Article 2(1) the directive applies to "authorized entities responsible for managing [it] or acting on [its] behalf".
Iorps already covered by the preemptive provisions of Directive 79/267/EEC, Directive 73/239/EEC, Directive 85/611/EEC, Directive 93/22/EEC and Directive 2000/12/EC fall outside the Pensions Directive. As do institutions where employees of a sponsoring undertaking have no legal rights to benefits, where the sponsoring undertaking (employer) can redeem the assets at any time and not necessarily meet its obligations for payment of retirement benefits. In cases where an employer company uses book reserve schemes to pay out retirement benefits to employees, the directive, likewise, does not apply. Nor do its provisions extend to those institutions which manage social security schemes covered by Regulation 1408/71/EEC and Regulation 574/72.
The Scope of the Pensions Directive in the Irish pensions market
The Pensions Directive will directly impact upon a limited category of iorps operating within the Irish pension framework. These Irish iorps will be required by Article 7 to restrict their operations solely to retirement benefit related operations and activities arising therefrom.
Occupational Pension Schemes
Irish occupational pension schemes (defined benefit schemes and defined contribution schemes) are trust based vehicles and, as a rule of thumb, should fall within the scope of the directive. The Oireachtas, however, has power to restrict the scope of the directive. A large proportion of occupational pension schemes, the so-called small schemes, could be excluded under Article 5. Additionally, the legislature may choose not to apply Articles 9 to 17 to larger iorps where pension provision is made...