As one of the final steps for the complete transposition of the Institutions for Occupational Retirement Provision (IORP II) Directive, several amendments are being introduced to the Maltese Pension Rules for Occupational Retirement Schemes. The IORP II Directive is intended to facilitate the development of occupational retirement schemes and to provide sustainable and adequate occupational pensions to EU citizens.
The purpose of the consultation is to highlight the proposed amendments to the Rules which will transpose the remaining provisions of the IORP II Directive. This is intended to bring Malta in line with the Directive’ transposition rules.
The current rules require an Occupational Retirement Scheme to involve the collection of contributions made by the employer(s), or by an employer and employees throughout an employment relationship. The MFSA is now clarifying that the contributions made by the employees must be connected to a sponsorship undertaking. One instance would be where an employer of an entity “sets up an occupational retirement scheme on behalf of his employees, and it is agreed that, after a period of time, subsequent contributions, will be carried out solely by the employees”.
The MFSA is proposing to introduce two new provisions in this regard:
New requirements are also being introduced in relation to key functions. Persons who effectively run the Scheme, as well as persons who carry out key functions would thus need to be deemed to be “fit and proper” at all times. Additionally, an Administrator would also be required to have in place the following key functions:
A single individual is permitted to hold more than one key function, except for the role of the internal auditor. While outsourcing is permitted, the Administrator must be very selective as to whom the outsourcing is made in order to protect the quality of its governance system and so as to not impair the MFSA’s ability to monitor the compliance of the Scheme.
With reference to the workings of the Scheme, the Consultation Document states that if a member opts to take up to 30% of the assets as a cash lump sum, his remaining assets, which are not paid in the form of a cash lump sum, shall be enough to generate sufficient retirement income throughout the rest of his lifetime. Therefore, for a member to take the initial cash lump sum, the Administrator must be satisfied that such member will have sufficient funds in the pension account to meet the minimum wage throughout his lifetime. With this in mind, Administrators must obtain demographic studies on life expectancy at the age where the member would like to withdraw the cash lump sum.
The MFSA is expected to issue further guidelines on the role of key function holders and their responsibilities. This Consultation exercise follows the recent issue of four opinions by the European Insurance and Occupational Pensions Authority (EIOPA) on the implementation of the IORP II Directive. These opinions highlighted the requirement to conduct an Own-Risk Assessment (ORA) and the intention for the ORA to be forward-looking, considering internal and external emerging developments likely to affect pension funds’ future risk profile. The EIOPA stressed the importance of increasingly paying attention to pension funds’ future viability and operational liabilities of defined contribution schemes. This is particularly on the basis of possible increased complexity in the face of increased supervision, as well as the rapid evolution and transmissibility of cyber threats.
The consultation period for the draft Pension Rules is open to the public until 12th August 2019 and any interested parties are encouraged to submit comments and feedback to the MFSA’s Insurance and Pensions Supervision Unit in writing.
Article by Dr Cherise Abela Grech and Dr Gabriel Fenech
For more information on setting up Pension Schemes in Malta please contact Dr Robert Tufigno on email@example.com, Dr Cherise Abela Grech on firstname.lastname@example.org or Dr Gabriel Fenech on email@example.com
This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.