The European Council has now agreed its final negotiating stance in respect of the proposed IORP II Directive. We have previously provided updates on the original Commission proposal for IORP II in March and the compromise proposal put forward by the Council in September. The Council’s negotiating stance, published on 10 December 2014, makes significant changes to both the initial proposal and their own compromise proposal. This is because the negotiating position has now been agreed by representatives of all EU member states. The Council will now enter negotiations with the European Parliament on adopting the proposal.
The key points of the Council’s revised position are as follows:
- The requirement for cross-border schemes to be fully funded at all times has been reinstated. This provision had been relaxed in the September compromise proposal to only require schemes to be fully funded at the beginning of cross-border activity.
- The fit and proper person provisions have been amended and will no longer require professional qualifications for all persons running the scheme. The new wording provides that the qualifications, knowledge and experience of those running the scheme must be "collectively adequate in relation to the activities performed for the institution".
- Member states will have 24 months following the final adoption of IORP II to transpose the relevant provisions into national law with the original IORP being repealed at the 24 month stage. Similar to the compromise text, no fixed date for implementation has been provided.
The reinstatement of the fully funded requirement for cross-border schemes is significant but does not constitute a major change from the September 2014 compromise proposal which would have required schemes to be funded at the beginning of cross-border activity with safeguards in place where a scheme becomes underfunded at any time.
The most significant proposed change is in relation to the fit and proper person requirements as this will apply to all schemes, irrespective of whether they operate cross-border. The fit and proper person test now refers to the collective knowledge, qualifications and expertise of those operating the scheme. The September proposal required each person running a scheme to have an adequate level of professional qualification, knowledge and expertise and caused considerable concern that the use of lay trustees would have been prohibited. The new definition would appear to permit lay trustees and this will undoubtedly be a welcome development for UK pension schemes.
A further point to note is that the Council’s agreed negotiating stance significantly reduces the role of the Commission and EIOPA in setting standards for member state authorities and provides member states with a greater degree of discretion than originally proposed. The Council will now enter negotiations with the European Parliament with the aim of adopting the proposal at first reading.