The Arrival of IORPS II

Over two years after initially being proposed, the new IORPs Directive 2016/2341/EC (“IORPs II”) was adopted by the European Parliament on 14 December 2016 and came into effect on 12 January 2017. Member states will now have until 13 January 2019 to incorporate IORPs II into national law.


The original IORPS Directive was adopted in 2003 and sought to introduce a harmonised European framework governing the activities of institutions for occupational retirement provision (“IORPs”) and to promote the creation of a European market for cross-border pension schemes, an objective which was only partially achieved.

In March 2014, the European Commission published a proposal for a revised IORPs Directive with four main objectives:

  1. ensuring good governance and risk management of IORPs;
  2. providing members with clear and relevant information;
  3. removing the barriers to cross-border IORPs activity; and
  4. ensuring that national regulators have appropriate tools to effectively supervise IORPs.

Final Text – Key Improvements from the original proposal

Key improvements in the final text include:

  1. Funding requirements for cross-border schemes – although the initial requirement for cross-border schemes to be fully funded at all times has been retained, the final text now provides that where this condition is not met, “appropriate measures” must be taken “without delay” to ensure that member benefits are “adequately protected”. While the language is slightly unclear, it would appear to allow cross-border schemes to be underfunded for limited periods provided some form of recovery plan is put in place to protect members.
  2. Requirements for pension benefit statements – the original text contained prescriptive requirements in respect of the content of annual benefit statements which have been dropped. Instead, Member States are given scope to determine the exact information to be required, subject to certain minimum requirements.
  3. Trustee qualifications and experience requirements – the requirement for professional qualifications has been limited to auditors and actuaries and the requirement for adequate knowledge and experience can be met on a collective basis by the trustee board rather than individually as was originally required.
  4. Solvency requirements – a new recital has been added to the Directive ruling out the development of solvency requirements for pension schemes at an EU level. The recital acknowledges that such models are “not realistic in practical terms and not effective in terms of costs and benefits”.

Key Provisions of IORPs II

General principles

The text of the Directive includes a number of general principles to which trustees and administrators must have regard in the context of operating IORPs.

The Directive requires IORPs, where relevant, to “have regard to the aim of having an equitable spread of risks and benefits between generations in their activities.” This principle is drafted broadly and will be open to interpretation when the government implements the Directive into Irish law. However, it is clear that both trustees and employers will need to take this issue into account when contemplating certain activities and this could lead to some interesting considerations, particularly in the context of scheme restructurings.

The Directive also requires those operating IORPs to take environmental, social and governance issues into account when assessing the long term impact of investment decisions.

Member communication

IORPs will be required to provide annual benefit statements to both active and deferred members. This represents a significant change to the current position under the Disclosure Regulations which only require trustees to provide deferred members with limited information and only at their request. Trustees should therefore review their administrative processes now to ensure that the new requirements can be managed effectively.

Effective governance

Ensuring more effective governance of IORPs is perhaps the main focus of IORPs II. Certainly a significant portion of the Directive is now devoted to governance matters.

All IORPs will be required to have an “effective system of governance which provides for sound and prudent management of their activities.” In this regard, the Directive identifies a number of key functions which every IORP will have to put in place including:

  • a risk management function aimed at identifying, measuring, monitoring and reporting on the risks to which the IORP could be exposed
  • an internal audit function to evaluate the adequacy and effectiveness of the IORP’s internal control system and other elements of its governance including outsourced activities
  • an actuarial function where appropriate In addition to the functions outlined above, IORPs will also be required to prepare and maintain a remuneration policy covering “all those persons who effectively run the IORP, carry out key functions and … whose professional activities have a material impact on the risk profile of the IORP”.

Finally, although the requirement for professional qualified trustees was dropped from the final text, there will still be a requirement for a trustee board to collectively have suitable knowledge, experience and qualifications.

Cross-border activity

Promoting cross-border activity and supporting a panEuropean pensions market was one of IORPs II’s key objectives. It is therefore perhaps surprising to find that the fully funded requirement for cross-border schemes, seen as one of the major obstacles to cross-border activity, has been retained.

However, as mentioned earlier, the Directive appears to allow for periods of underfunding provided the trustees ensure that member benefits are “adequately protected”. While it remains to be seen exactly how this provision will be interpreted, if this view is correct and finds its way into Irish law, cross-border schemes could become a more feasible and attractive option for certain employers.


Member States have been granted a discretion as to whether to require IORPs to appoint a depositary to hold scheme assets. If Ireland elects to include such an obligation when implementing the Directive into national law schemes would face additional costs associated with having to appoint a depositary


The extent of the impact of the new provisions to be introduced under IORPs II will depend on the manner in which the government interprets and seeks to implement its principles into national law.

The new requirements imposed on occupational pension schemes and the trustees running those schemes, may be a factor in accelerating scheme consolidation.

Both trustees and employers should review the operational structure of their pension schemes and consider how the new requirements are likely to affect them.