EU Adopts New Rules for Occupational Pensions

The European Union has agreed on a proposal for a revised directive on occupational pension funds. The new Institutions for Occupational Retirement Provision (IORP) directive is intended to strengthen and replace the existing 2003 directive, which provided a legislative framework for workplace pensions, including minimum standards on funding, the types of investments pensions are allowed to make, and the allowance of cross-border pension plan management.

“Pension funds have a special responsibility in helping people save and plan for their retirement,” said Jonathan Hill,European commissioner for financial stability, financial services, and capital markets union. “This agreement will ensure high standards of governance, improve information for pension savers, and encourage more cross-border pension services.”

Features of the new directive include:

Enhanced cross-border rules. The directive introduces a new procedure for the cross-border transfer of pension plans with a role given to both countries’ supervisory authorities, which will be based on a list of criteria.

Improved governance. IORPs must identify the risks they are, or could be, exposed to that could impact their ability to meet their obligations. They must also draw up a risk assessment accordingly.

Better and more comprehensible information to pension members through the annual Pension Benefit Statement (PBS). The PBS will outline information on the guarantees under the pension plan, benefit projections, information on the accrued entitlements, the contributions paid, and the costs deducted, as well as information on the funding level. The PBS is designed to allow pension plan members to make more informed decisions about their pensions while leaving member countries the flexibility to tailor its exact content and design to their market.

Pension funds will have to consider the risk of environmental, social, and governance risks in their investment decisions, and document this in their three-yearly statement of investment policy principles.

The rule that cross-border IORPs should be fully funded at all times will continue to apply. However, should an IORP become underfunded, the supervisor must promptly intervene and require the pension fund to develop and implement measures “without delay” to protect members and beneficiaries.

Having been approved by the European Council, the text will now have to be formally approved by the European Parliament. After that, it will be published in the official journal and will officially enter into force, according to the European Commission. EU member states will have two years to transpose the text into their national legislation.

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Tags: EU, Pension, Pension Benefit Statement

Only about half as many Millennials in the UK have a pension as do Generation Xers and Baby Boomers, according to a new report from market research company YouGov.

According to the recently released “Bridging the Young Adults Pension Gap” report, 44% of 18-34 year olds say they have no pension provision, compared to 22% of 35-54 year olds, and 20% of those older than 55.

“For retirement to work, there must be balance between young people paying in and old people not being entirely reliant on the state,” said the report. “However, many Millennials either simply can’t afford to, while for those that can, financial pressures not necessarily faced by their parents mean that they have other priorities.”

One the main reasons Millennials lag behind in terms of having a pension provision is due to a limited knowledge about pensions. According to the report, 27% say they simply don’t understand enough about pensions in general, and the 14% of Millennials who do have a pension say they aren’t sure what it entails.

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The report also highlights Millennials’ skepticism when it comes to pensions, as 35% believe pensions will cease to exist at some point due to a lack of funding. And 58% said they are concerned about whether they will have enough money to support themselves when they reach retirement age. The report also found that 18% of Millennials don’t think the state pension will be enough to support them in retirement, but believe they will have to rely on it anyway.

Saving for retirement is also a relatively low priority for Millennials, according to YouGov. The report found that only 21% of those ages 18-34 who are currently able to save money said saving for retirement was a priority for them, which was below that of saving for a rainy day (29%) and saving for a vacation (32%). However, it was higher than saving to buy property (14%) and paying for home improvements (10%).

The report also offered the following tips that might help close the generational gap in pension participation:

18-34 year olds want information. Be clear, straightforward and don’t overcomplicate things.

They are often hesitant toward making financial decisions. Provide them with clear guidance so they will be able to make informed decisions and understand exactly what it is they’re looking at.

Target Millennials through online methods instead of offline. Younger people are more likely to see the internet as their main source of information and will turn to it to try to find out what they can.

Millennials are also more likely to speak to their friends, family, or colleagues before making any financial decisions. Put your messages out there and take the lead when it comes to recommendations. They may be more likely to use less-traditional methods to gain information, but that doesn’t mean those they look to for advice do too.

Many are unsure if the state pension will be around when they retire, and don’t think they should be forced to retire. There may be scope for a product that supports people as they scale back work, for example.

“With a large aging population eating into the government’s ability to provide a state pension, and many young people unwilling or unable to feed in to pensions of their own,” said the report, “these figures again suggest a tricky retirement for many.”

Tags: Millennials, Pension, UK, YouGov