The Pensions Regulator has revealed its approach to the cross-border requirements of the Occupational Pensions Directive, in a consultation document that will last for just four weeks.
As the final regulations for the cross-border requirements will be published by the Department for Work and Pensions (DWP) at the end of the year, the Pensions Regulator claims a consultation period of the normal length of 12 weeks would mean the directive would be implemented in the UK without the Pensions Regulator’s approach being finalised.
In the consultation paper, the regulator states its overall approach would be to welcome and encourage applications from schemes wanting to operate cross-border, adding these will be supported by technical expertise and will not be hindered by processes already established by the Regulator.
But, the document adds, any schemes which choose the UK as its home state regulator for cross-border purposes will have to follow the same legal requirements and regulatory regime as domestic schemes. This means the regulator’s objectives of protecting members’ benefits and reducing the risk of claims falling on the Pensions Protection Fund (PPF), will apply as much to UK-based cross-border schemes with members in other EU states, as it will to schemes that are based solely in the UK.
In the document the Pensions Regulator says it plans to use a proportionate risk-based approach to ensure the consideration given to documents and information provided by the applicant is appropriate and proportionate to the apparent risks to members’ benefits and the PPF.
The Occupational Pensions Directive, or European Directive 2003/41, aims to provide a common legal framework for the regulation of occupational pensions throughout the EU, with the cross-border requirements focusing on three areas, the authorisation and approval processes, funding arrangements and supervision arrangements. Of these the funding requirements are likely to cause most problems for the Pensions Regulator as article 16(3) of the directive states cross-border schemes must be “fully funded at all times”.
Implementing this part of the directive could mean valuations for cross-border schemes would need to be carried out every year, rather than at the three year intervals currently applicable to UK only schemes, and it may also mean underfunding of a scheme could not be rectified through the use of a recovery plan.
Although these two points would clash with recommendations in the Pensions Regulator’s earlier consultation paper on scheme specific funding for UK schemes, the cross-border consultation states the final decision on these issues will be determined by the DWP regulations, which are scheduled to be in place by the end of the year.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected].IFAonline
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