Institutions for occupational retirement provision

With the adoption of the Directive on the activities and supervision of “institutions for occupational retirement provision (IORPs)” , the European Union has moved decisively in the direction of creating an internal market for occupational retirement provision. By clearly setting out how IORPs should function, the Directive ensures a high level of protection for members and beneficiaries of pension funds. A specific legal framework for IORPs allows them to offer a maximum degree of security and efficiency.

Directive 2003/41/EC of the European Parliament and the Council of 3 June 2003 on the activities and supervision of institutions for occupational retirement provision.

Key Provisions

The Directive lays down rules for the taking-up and pursuit of activities carried out by institutions for occupational retirement provision. It aims to ensure a high level of protection for future pensioners (“members” and “beneficiaries” of pension funds) while guaranteeing efficient investment by establishing three sets of rules:

  • strict prudential rules to protect the beneficiaries and members of IORPs, who must have sufficient information on the rules of the pension scheme, on the institution’s financial situation and on their rights;
  • investment rules adapted to the characteristics of IORPs and to an efficient management of savings since IORPs invest on a long-term basis and have to diversify their assets by taking full advantage of the benefits offered by the single market and the euro. If each institution is to establish the safest and most efficient investment policy, the investment rules, and in particular the rules for investing in shares, must not be too restrictive;
  • rules permitting cross-border management of occupational pension schemes. This cross-border management requires mutual recognition of supervisory methods in force in the Member States and must be supplemented by an appropriate degree of tax coordination.

The Directive will help achieve the following aims:

  • Ensuring a high level of protection for members and beneficiaries of pension funds

The Directive clearly sets out how IORPs should function. Members and beneficiaries are properly informed about the rules of the scheme, the financial situation of the institution in question and their rights. Commitments as to future benefits are carefully calculated and represented by sufficient assets on the balance sheet.

Member States are urged to confer on their supervisory authorities the necessary powers to supervise their IORPs effectively.

  • Allowing institutions to accept as members companies located in other Member States and to manage their pension schemes

On the whole, occupational retirement providers operate only in the Member State in which they are based. Companies located in ten different Member States must therefore call on the services of ten different providers. For multinational companies, this could cost around EUR 40 million a year. Considerable economies of scale could be achieved if one IORP could manage all the different schemes of the same company doing business in several Member States.

To this end, the Directive authorises mutual recognition of the supervisory schemes in force in Member States. An IORP can therefore manage the schemes of companies located in other Member States by applying the prudential rules of the Member State in which they are located (home-country control).

The Directive nevertheless guarantees the continuing application of Member States’ social and labour legislation (i.e. the legislation governing the relationship between “sponsoring undertakings”* (which pay contributions into IORPs) and members).

  • Allowing IORPs to implement investment strategies suited to the characteristics of their pension schemes

Given that IORPs invest on a very long-term basis, they need to be free to apply whatever investment policy is best suited to the commitments they have made. The Directive lays down a set of principles aimed at helping IORPs define their asset-allocation strategy in accordance with the “prudent person” rule.

In accordance with this rule, assets should be invested in the best interests of members and always in a broadly diversified manner in order to ensure the portfolio’s security, quality, liquidity and profitability. The Directive also lays down that investments in shares and capital investment should not be unduly restricted. However, Members States will be able to subject IORPs established under their jurisdiction to more detailed investment rules but must allow IORPs to invest at least 70% of their technical provisions or their portfolio in shares and corporate bonds and at least 30% in currencies other than that in which their future pension payments are expressed.

Furthermore, the Directive allows the host Member State (where the company paying the contributions is based) to request the home Member State (where the retirement provision institution is located) to apply certain quantitative rules to assets held by cross-border pension schemes provided that the host Member State in question applies the same (or stricter) rules to its own funds. These quantitative rules govern investments in assets not admitted to trading on a regulated market, assets issued by the sponsoring undertaking and assets denominated in currencies other than that in which their future pension payments are expressed.

Finally, Member State shall require IORPs an adequate available solvency margin at all times which is at least equal to the requirements in this Directive. The available solvency margin shall consist of the assets of the institution free of any foreseeable liabilities, less any intangible items. It is possible that one third of the required solvency margin shall constitute the guarantee fund (minimum EUR 3 million – this amount shall be revised every year).

Respecting Member States’ prerogatives

regarding social protection and pension schemes

The principle of subsidiarity lays down that it is for the Members States to organise social protection and pension schemes. The choice between pay-as-you-go or funding schemes, the balance that may need to be struck between these two types of scheme and the encouragement of certain types of retirement savings scheme are decisions left entirely to the Member States. Occupational retirement schemes based on the funding principle exist in most Member States, but they currently account for the bulk of retirement schemes available in Ireland, the Netherlands and the United Kingdom.

The Directive in no way affects this national prerogative. It simply aims to allow the internal market to perform to its utmost, primarily in the interests of future pensioners, while fully respecting national prerogatives. A coherent Community framework strengthening the security and efficiency of IORPs and allowing them to benefit fully from the internal market and the euro will be a major asset for those Member States wishing to develop the role of occupational retirement schemes in their pension systems.


There are three main categories of pension scheme: social security schemes, individual schemes (life assurance contracts) and occupational schemes. IORPs cover some 25% of the EU’s working population and manage assets of EUR 2 500 billion, i.e. about 29% of the Union’s GDP. Thus, along with the other financial institutions, such as banks, insurance companies and UCITS, they play a key role in Europe’s economy. They differ from other bodies by the very long-term nature of their activities. In view of the ageing of the Union’s population, it is vital to ensure that IORPs can operate with maximum security and efficiency. Savers must also be protected by strict prudential rules, due attention being paid to the cost of pensions.

In this context, Directive 2003/41/EC has been adopted in order to lay down a prudential framework aimed at protecting future pensioners’ rights. With an integrated capital market and the introduction of the euro, it also helps remove barriers to investment on the part of pension and retirement funds.

Key terms used in the act
·         Institutions for occupational retirement provision: an institution, irrespective of its legal form, operating on a funded basis and established separately from any sponsoring undertaking or trade for the purpose of providing retirement benefits in the context of an occupational activity on the basis of an agreement or contract agreed individually or collectively between the employer(s) and employee(s) or their respective representatives, or with self-employed persons, in compliance with the legislation of the home and host Member States, and which carried out activities directly arising from that purpose.

·         Pension scheme: a contract, an agreement, a trust deed or rules stipulating which retirement benefits are granted and under which conditions.

·         Members: persons whose occupational activities entitles or will entitle them to retirement benefits in accordance with the provisions of a pension scheme.

·         Beneficiaries: persons who receive retirement benefits.

·         Sponsoring undertaking: any undertaking or other body, regardless of whether it includes or consists of one or more legal or natural persons, which acts as an employer or in a self-employed capacity or any combination thereof and which pays contributions into an institution for occupational retirement provision.


IORPS 2016

Directive (EU) 2016/2341 — activities and supervision of institutions for occupational retirement provision

It sets out minimum harmonisation rules for institutions managing collective retirement schemes for employers on behalf of their employees. EU governments may introduce further measures they consider necessary.

The rules aim to:

ensure occupational pension schemes are financially sound;
give greater protection and information to members and beneficiaries;
remove obstacles to cross-border fund activity;
encourage long-term and responsible investment.
The legislation revises and replaces Directive 2003/41/EC, which needed to be updated after the 2008 financial crisis.

Key Points

EU countries must ensure that occupational pension funds or institutions for occupational retirement provision (IORPs):

are only involved in retirement-benefit activities;
safeguard their assets for members and beneficiaries if a partner organisation goes bankrupt;
are registered and authorised by the relevant national authority, including for cross-border activities;
have sufficient funds to cover their financial commitments;
invest prudently in the best long-term interest of members and beneficiaries;
operate an effective governance system that provides sound and prudent management of their activities;
are run by people with the suitable expertise, qualifications and knowledge;
apply a sound remuneration policy for all employees;
have risk management, internal audit and actuarial functions* in place;
at least every 3 years carry out an internal risk assessment and provide a written statement of their investment policy principles;
draw up and publicly disclose annual accounts;
are subject to prudential supervision on issues such as solvency margins and investment rules.

The relevant national authorities in the EU countries:

must have the resources necessary to exercise the prudential supervision;
require IORPs to have sound administrative, accounting and internal control mechanisms;
may impose administrative and other penalties for any breaches of legislation;
have the power to review an IORP’s strategies, processes and reporting procedures, obtain internal documents they may require and conduct on-site inspections;
may exchange information with each other and monetary authorities without violating professional secrecy conditions.
IORPs must provide prospective and actual members and beneficiaries with clear, updated and free information. This includes:

details of the IORP itself and members’ rights and obligations;
pension benefit statements containing, for instance, data on contributions paid, a breakdown of costs and the value of the personal scheme;
advice on how to obtain supplementary information;
pre-retirement advice on benefit pay-out options.
Depending on the requirements in question, EU countries may exempt certain funds which operate pension schemes with fewer than 15 or 100 members from certain conditions of the legislation. In the event that a pension fund wishes to provide its services in other EU countries, however, it has to apply all the rules laid down in the directive.

The European Insurance and Occupational Pensions Authority:

helps cooperation between national authorities;
ensures consistent application of EU insurance and occupational pensions legislation.
The European Commission must report to the European Parliament and to the Council on the implementation of the legislation by 13 January 2023.

Application & Background

The directive entered into force on 12 January 2017. It has to become law in the EU countries by 13 January 2019 and it will apply from the date of national transposition.

Occupational pensions include contributions from employers. They are the ‘second pillar’ of the pension system. State-based social security pensions are the ‘first pillar’. The ‘third pillar’ consists of individuals’ non-compulsory private pension savings.

Under EU rules, funds in one country can manage occupational pension schemes for companies based in another. Pan-EU companies can also have a single pension fund for all their European subsidiaries.

Some 125,000 occupational funds operate across the EU. They hold assets worth €2.5 trillion on behalf of around 75 million citizens, representing 20% of the EU’s working-age population.

For more information, see:

Revision of the Occupational Pension Funds Directive – frequently asked questions — press release (European Commission).

Actuarial functions: defined in Article 48 of Directive 2009/138/EC (Solvency II), it covers (i) the coordination and monitoring of technical rules, including methodology, assumptions and data; (ii) reporting; and (iii) supporting the risk-management function.


Directive (EU) 2016/2341 of the European Parliament and of the Council of 14 December 2016 on the activities and supervision of institutions for occupational retirement provision (IORPs) (recast) (OJ L 354, 23.12.2016, pp. 37-85)


Regulation (EU) No 1094/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/79/EC (OJ L 331, 15.12.2010, pp. 48-83)

Successive amendments to Regulation (EU) No 1094/2010 have been incorporated into the original document. This consolidated version is of documentary value only.

Directive 2003/41/EC of the European Parliament and of the Council of 3 June 2003 on the activities and supervision of institutions for occupational retirement provision (OJ L 235, 23.9.2003, pp. 10-21)

European Insurance and Occupational Pensions Authority (EIOPA)

The 2008 financial crisis brought to light shortcomings in European Union (EU) financial supervision. Based in Frankfurt, the European Insurance and Occupational Pensions Authority (EIOPA) was created in 2010 to prevent the risks of destabilising the insurance sector.

Regulation (EU) No 1094/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/79/EC.

It sets up EIOPA, an EU body that supports coordination between national authorities and ensures the consistent application of EU laws for the insurance and occupational pensions sectors in EU countries.

Consistent application of law

EIOPA draws up regulatory and technical standards that accompany laws adopted by the Council and the European Parliament for insurance companies, financial conglomerates (large financial companies active in various financial sectors), occupational pensions and insurance intermediaries (businesses selling pensions and insurance policies). It also has the power to issue guidelines and recommendations on the application of European law.

Market trends

EIOPA is tasked with ensuring the stability of insurance markets and the protection of policyholders, pension scheme members and beneficiaries. For instance, it monitors consumer trends and assesses potential risks and vulnerabilities of the markets. Under certain strict conditions, it can temporarily prohibit or restrict financial activities that cause a threat to the stability of the financial system.

Breach of law

EIOPA has the power to investigate a breach of law by a national authority. This arises when the latter fails to ensure that a financial institution complies with European law.

Within 2 months, EIOPA can issue a recommendation to the national authority. Then the European Commission may issue a formal opinion requiring the authority to take the necessary action to comply with the law. If the national authority’s non-compliance persists, EIOPA may directly address a decision to a financial institution under certain strict conditions. This decision prevails over previous decisions taken by the national authority.

European financial supervision

EIOPA is part of the European System of Financial Supervision created in 2010, and which comprises three other supervisory organisations:

the supervisory authority in charge of the financial markets, based in Paris (European Securities and Markets Authority);
the supervisory authority in charge of the banking sector, based in London (European Banking Authority);
the European Systemic Risk Board responsible for the overall oversight of the EU’s financial stability, based in Frankfurt.
For more information, see the EIOPA website.



Entry into force

Deadline for transposition in the Member States

Official Journal

Regulation (EU) No 1094/2010


-OJ L 331 of 15.12.2010, pp. 48-83


OJ L 54 of 22.2.2014, pp. 23-23

Amending act

Entry into force

Deadline for transposition in the Member States

Official Journal

Directive 2014/51/EU



OJ L 153, 22.5.2014, pp. 1-61


Council Regulation (EU) No 1096/2010 of 17 November 2010 conferring specific tasks upon the European Central Bank concerning the functioning of the European Systemic Risk Board (Official Journal L 331 of 15.12.2010, pp. 162-164).

Directive 2010/78/EU of the European Parliament and of the Council of 24 November 2010 amending Directives 98/26/EC, 2002/87/EC, 2003/6/EC, 2003/41/EC, 2003/71/EC, 2004/39/EC, 2004/109/EC, 2005/60/EC, 2006/48/EC, 2006/49/EC and 2009/65/EC in respect of the powers of the European Supervisory Authority (European Banking Authority), the European Supervisory Authority (European Insurance and Occupational Pensions Authority) and the European Supervisory Authority (European Securities and Markets Authority) (Official Journal L 331 of 15.12.2010, pp. 120-161).

Commission Decision 2004/9/EC of 5 November 2003 establishing the European Insurance and Occupational Pensions Committee (Official Journal L 3 of 7.1.2004, pp. 34-35).


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