The new EU Pensions Directive (2341/2016/EC) on the activities and supervision of institutions for occupational retirement provisions (IORP II) came into force in January 2017. EU member states must enact the regulations and administrative provisions required to comply with the directive by January 13 2019 – when the existing EU Pensions Directive (41/2003/EC) (IORP I) will be repealed.
The Establishment, Activities and Supervision of Institutions of Occupational Retirement Provisions Law 2012 regulates occupational pension schemes in Cyprus and largely reflects IORP I. Secondary legislation (ΚΔΠ 204/2014) was adopted on April 15 2014, which introduced regulatory provisions requiring increased amounts of information to be provided to scheme members and beneficiaries addressing some of IORP II's new provisions. However, additional legislative provisions must still be adopted in Cyprus to cover the information rights of prospective and scheme members in the pre-retirement phase. Although a requirement for summaries of information to be given to members each year already exists, the existing provisions will need to be modified to reflect more accurately IORP II's new pension benefit statement requirement. Considering the size of pension schemes in Cyprus, it seems likely that the obligation to produce this information free of charge will be an administrative challenge.
IORP II's new cross-border transfer provisions should be welcomed and adopted, as they create a regulatory framework which does not exist under national law and which will offer clarity and certainty to all interested parties.
Further, IORP II's enhanced governance provisions will have an impact on most pension schemes in Cyprus and on existing legislation, which contains no similar provisions. The new requirements include the:
- implementation of a remuneration policy;
- implementation of an own risk assessment;
- introduction of the new concept of 'key functions' being:
- risk management;
- an internal audit (which must be independent); and
- actuarial functions.
There is also a requirement that the persons undertaking actuarial functions are not the same persons undertaking those functions in the sponsoring undertaking unless an exception is given by the national authority. Such exception could be granted if the national authority is satisfied that there is no conflict of interest risk.
As many schemes in Cyprus use their sponsor's staff to meet their operational needs due to their small size, they are expected to take advantage of the exceptions offered under IORP II in an effort to reduce costs.
The introduction of a number of important and more sophisticated features and the widening of the scope of prudential supervision by competent authorities under IORP II is likely to be a challenge for the Cyprus regulator, which will need to recruit additional personnel and make changes to its existing structure in order to perform its supervisory review powers, duties and responsibilities effectively and fulfil the reformed regulatory framework's aims.
For further information on this topic please contact Nadia Tryfonidou at George Z Georgiou & Associates LLC by telephone (+357 22 763 340) or email (firstname.lastname@example.org). The George Z Georgiou & Associates website can be accessed at www.gzg.com.cy.
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