Implementation of EU Directive 2016/2341 on occupational retirement provision institutions

Implementation of EU Directive 2016/2341 on occupational retirement provision institutions

Effective 13 January 2019, the European Directive on the activities and supervision of occupational retirement provision institutions (EU 2016/2341) came into force in Germany. Analogous to Solvency II, it lays out higher standards in the areas of governance, risk management and disclosure obligations. However, the current version does not expand the quantitative capital requirements. In Germany, this Directive affects occupational retirement provision institutions, which should incur both initial and ongoing expenditure due to implementation.

Directive Background and Origins

Following a lengthy period of discussion, Directive 2016/2341 became effective on the European level in January 2017. It aims to harmonize the provisions governing occupational retirement provision institutions within the EU. It replaces and expands the scope of its directive predecessor, which originated in 2003. This new Directive has been implemented into German law virtually unchanged. To do so, amendments were made to the German Insurance Oversight Act (VAG, Versicherungsaufsichtsgesetzes) and the Insurance Organization Accounting Ordinance (RechVersV, Versicherungsunternehmens-Rechnungslegungsverordnung). The regulatory authority for further specification and monitoring of Directive 2016/2341 is the Federal Financial Supervisory Authority (BaFin, Bundesanstalt für Finanzdienstleistungsaufsicht).

In order to meet the requirements laid out in the Directive as well as the interpretative decisions expected by local authorities, our experts have developed a proven procedural model:

Q_PERIOR procedural model for the implementation of EU Directive 2016/2341

The first step involves a gap analysis, which is used to reconcile a company’s actual position with the regulatory authority’s requirements and shed light on potential implementation gaps. Next, solution proposals are created with consideration of experience from Solvency II and best practices in the industry. The third step consists of coordinating implementation responsibilities for the respective solutions. Examples here can include the outsourcing of a key function or support in selecting reporting software. The fourth step is where the precise planning and structuring for implementation takes place. Components here include specification of a time frame and external / internal support. This can also encompass external quality assurance for internal implementation. The final step consists of implementation of the recommended solutions.

The Directive is relevant for occupational retirement provision institutions primarily in the following qualitative risk management fields: Expansion in governance structures, execution of operational risk assessment (ORA) and fulfillment of additional disclosure obligations.

EU Directive 2016/2341


The organization and internal processes of occupational retirement provision institutions will have to meet more stringent requirements in the future. These include enhancement of the internal control system (ICS), which encompasses administrative and accounting processes, an internal control framework and appropriate reporting. Moreover, there is a requirement that many business processes account for ESG criteria (environmental, social and governance).

Analogous to Solvency II, company pension organizations are also going to have to establish certain key functions in their organization and document the corresponding processes in guidelines. The risk management function is responsible for the risk management system and monitors the risks that arise in conjunction with things like the formation of reserves or capital investments. The internal audit function is responsible for evaluating whether the ICS and other components of the business management system are appropriate and effective. While these two functions were introduced in the predecessor directive, Directive 2016/2341 goes a step further and requires an additional actuarial function. This function is mandatory when biometric risks are covered by an occupational retirement provision institution or when guarantees have been made regarding benefit levels. Its tasks include the coordination and monitoring of the actuarial reserve calculation with respect to various criteria, such as methods, models, assumptions and data quality. Furthermore, this function has to produce opinion statements on underwriting policy, as well as on the suitability of re-insurance contracts. No compliance function analogous to Solvency II is required at this time.

With the exception of internal auditing, one person or unit can fulfill more than one of these roles. The key functions report directly to the management of the occupational retirement provision institutions and also to the regulatory authority in certain situations. In their scope and effectiveness, the key functions should be appropriate to the size and complexity of the occupational retirement provision institution. When filling these and other key management functions, “fit and proper” criteria must be taken into account in order to ensure personal and professional qualifications.

Own risk assessment

A separate risk assessment must be carried out at least every three years or in the event of significant changes in the risk profile. This includes a description and assessment of the short- and long-term risks and how they are addressed in management and decision-making processes. Part of this is an assessment of the financial situation and the measures undertaken to protect the agreed benefits for current and future beneficiaries. This report is sent to the BaFin.

Disclosure obligations

Directive 2016/2341 lays out extra disclosure obligations toward the target groups of occupational retirement provision institutions. The list has been expanded to include the group of potential future beneficiaries. Before joining they must be given information regarding the pension system, the benefits and investment policy. In the future, additional pension information will have to be made available to policyholders. This is a brief document on the current status of the policy, the amount of expected benefits and a projection for the expected pension benefits. The minimum requirements on pension information are defined by regulatory law. The benefit recipients still have to be informed of accrued benefits and potential options available to them. Moreover, the occupational retirement provision institutions also have to supply additional information to the regulatory authority.

In order to ensure proportionality for implementation, the occupational retirement provision institutions with fewer than 100 future beneficiaries are permitted to skip the Directive or only implement it partially. For all occupational retirement provision institutions with more than 15 future beneficiaries, however, the application of two articles is mandatory with respect to investment requirements and general requirements on executive management.

In addition to these expansions to the risk management standard for occupational retirement provision institutions, the Directive has comprehensive provisions on the subject of cross-border activities of these institutions. This is done against the background of promoting a single market for company pension schemes within the EU. To this end, the exact responsibilities and processes that come into play for cross-border activities or the transfer of portfolios are regulated.

If you have questions about the requirements or require support in the implementation of regulatory requirements, just let us now. We look forward to helping you with your questions and the implementation of the individual steps.

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