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Belgium – Implementing IORP II

A new European pensions directive on the activities and supervision of institutions for occupational retirement provision (IORPs)), commonly known as ‘IORP II’, came into force in January 2017.  As with much of the financial sector legislation to emerge from the financial crisis of 2008, the directive aims to improve governance and accountability.

Belgian legislation already encompassed many key elements of IORP II, including rules on governance, a type of ‘fit and proper’ test, certain key functions, information requirements for members and beneficiaries, and a thorough system of prudential supervision. However, there are still some changes required arising from IORP II (the Belgium regulator calls this an ‘evolution’ rather than a ‘revolution’).

The biggest changes have been in the ramping up of risk management requirements, including a new risk management system, and the requirement to carry out a full ORA. While Belgian schemes were already required to carry out risk analysis, the new requirements have put more focus on the identification, management and control of risks. The ORA will be broader, covering more risks (including operational risks, risks relating to conflicts of interests, cyber security and ESG factors etc) than is currently the case. The Belgian regulator, the Financial Service and Markets Authority (FSMA), has said that schemes’ ORAs and risk management policies are important documents which will be subject to detailed review.

The new risk management function involves mapping risk strategy, establishing the risk management system and coordinating all the strategic decisions which may affect an IORP’s risk profile. The person responsible will also have to make sure that the risk management system covers all potential risks for the IORP, and that it is applied appropriately.

Meanwhile, new information requirements are designed to provide members with more information on, among other things, a scheme’s investment profile, the nature of the financial risks they bear, and the mechanisms for protecting accrued benefits. Belgian IORPs are already required to issue pension benefit statements on a standardised template. This includes information on benefit protections, information on accrued entitlements or accumulated capital, and the funding level of the scheme sponsor. However, they will also now have to cover benefit projections that include best and worst estimates (for benefit projections which take account of economic conditions, such as in DC arrangements), information on contributions payable by the scheme sponsor, and a breakdown of costs deducted over the previous 12 months. A new template benefit statement will be available which incorporates new mandatory information.

Schemes are already required to produce a ‘transparency report’, outlining how they take ESG considerations into account, and are expected to include this information in their Statement of Investment Principles. It is anticipated that the increased focus on ESG will result in more schemes putting in place a specific policy on ESG matters.

Finally, new requirements for cross-border transfers mean that a majority of members and beneficiaries must approve any transfer of an IORP to another member state, as well as agreement being reached between the transferring and receiving IORPs. Before agreeing to the transfer, the FSMA will assess certain information provided by the transferring IORP, including in relation to the security of members’ benefits. FSMA will then grant or refuse the application within three months.