CROSS-BORDER PENSIONS / PENSIONS MARKET IN IRELAND

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

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 2nd 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 1st step • Liability pooling – centralised administration are next steps • Full Pan-European Pension Funds • Will take time • But WILL come about