implementation of the voluntary fully funded pension
TRANSCRIPT
Implementation of the voluntary fully funded pension insurance in Croatia in the course of compliance with EU
Directives
Toni LukšićCroatian Financial Services Supervisory Agency
Regional round table - Skopje, Macedonia – 22.02.2007.
Croatian Pension System
Three pillar system• Mandatory pension insurance based on generation solidarity
(“pay-as-you-go” system);• Mandatory pension insurance based on individual capitalized
savings;• Voluntary pension insurance based on individual capitalized
savings
Mandatory and voluntary pension insurance based on individual capitalized savings are Defined Contribution pension schemes.
The payment of pensions is the responsibility of Pension insurance companies.
Voluntary Pension Insurance
Voluntary pension insurance• Open-end voluntary pension funds• Closed-end voluntary pension funds where sponsor may be:
– an employer;
– a union;
– an association of self-employed persons
The only object of activity of a pension company is the establishment and management of pension fund. Voluntary pension company may only establish and manage voluntary pension funds (both open-end and closed-end types).
Voluntary Pension Insurance
Authorization and operation of voluntary pension funds
• Authorization for establishment of pension company
• Pension company is registered with the Trade Register
• Agency issues operating license for establishment and management of a pension fund
Conditions for establishing VPF management company
• Equity capital 15 million HRK, paid in full before registration
• Articles of association, info on founders, management and supervisory board
• Organizational and financial plan
• Conditions for management of the company
Conditions for establishing and operating VPF
• VPF management company authorization
• Articles of association and prospectus– Investment principles and restrictions– Fees (type, calculation and amount)– Information to the VPF member…
• Custody bank
• VPF membership min. 200
Voluntary Pension Insurance
Information to be provided to members and beneficiaries (information prospectus):
• information about pension fund (portfolio of the fund, method for calculating fees for the pension company and custodian bank etc.), pension company and custody bank.
Information to be provided to the competent authorities:
• Audited annual financial statements, details of the sale and acquisition of a pension fund’s assets, information about fees, remuneration and salaries paid etc.
Voluntary Pension Insurance
Investment rules (voluntary pension funds)• basic principles (safe investments, diversity of
investments, maintenance of appropriate liquidity)• Quantitative restrictions (5% per issuer, 20%
outside of Croatia)• Qualitative restrictions (credit rating of a securities
issuer)• Forbidden investments (property, securities
unlisted or not publicly traded, securities issued by pension company, custody bank or related person.
Voluntary Pension Insurance
Government incentives• 25% of contributions, 5.000 HRK per year sealing
(1.250 HRK) • Tax exemption (personal income tax, exemption
for life insurance, private medical insurance and voluntary pension insurance)
• No incentives for companies (contributions to pension funds are treated as salary payments)
Conditions for using the voluntary pension savings
• Minimum 50 years of age
• In case of disability, funds are available regardless of age
• In case of death, the funds of the deceased fund member are transferred to his/her family
Current situation
4 voluntary pension fund management companies
6 open-end voluntary pension funds• 78.000 members, 419 million HRK in net assets
10 closed-end voluntary pension funds• Sponsoring undertaking (6 companies, 2 unions, 2
associations)• 11.000 members, 65 million HRK in net assets
Current situation – Pension Funds
Net assets
VPF Open-end 419.013.000
2,48%VPF Closed-
end 64.927.000 0,38%
MPF 16.408.256.000
97,14%
Current situation – Pension Funds
Membership
MPF 1.328.779 97,14%
VPF Closed-end 10.844 0,38%
VPF Open-end 77.917 2,48%
Voluntary pension funds – investment structure
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2003 2004 2005 2006
Foreign assets
Receivables
Cash
Deposits
Short-term s.
Inv. funds
Corp. bonds
Mun. bonds
Gov. bonds
Shares
Mandatory pension funds – investment structure
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1 2 3 4 5
Foreign assets
Receivables
Cash
Deposits
Short-term s.
Inv. funds
Corp. bonds
Mun. bonds
Gov. bonds
Shares
Financial institutions – Total Assets
Leasing6,20%
Insurance5,00%
Other4,80%
Pension funds3,90%
Investment funds4,10%
Banks76,00%
Institutions for Occupational Retirement Provision Directive (IORP)
• Internal market Directive– Art. 249 EC Treaty: Binding as to the result to be
achieved– Scope: EEA (EU25 + NO, LI, IS)
• IORP is an institution (not a product):– Established for the purpose of providing
retirement benefits– Operates pension schemes for sponsoring
undertakings
IORP directive
• Single licence, Home Member State supervision– But: Host Member State supervision for social/labour
law + some information requirements
• Investments: Prudent person rule– But: Host Member State may lay down more detailed
rules, provided they are prudentially justified
• Cross-border membership– IORPs may accept sponsorship from abroad– Undertakings may sponsor IORP abroad
IORP
• Authorization• Legal separation from sponsor• Activities limited to ORP business or similar
activities• Information to members: IORP, pension
scheme and pension rights• Information to supervisor, e.g. investments• Relevant social and labor law – host MS
Closed-end PFClosed-end PF
Employer andEmployees
Employer andEmployees
RelevantSocial andlabour law
IORPDirective
IORP
AdministrationAsset mgt.
IORP - Croatia
• Applicable to closed-end VPFs– Open-end VPFs – individual pension scheme, not
under the IORP scope.
• Legal adjustments– Cross-border activities– Investment limitations (risk capital markets)
• Amendments to the Act on Mandatory and Voluntary Pension Funds will be adopted in 2007. IORP provisions will be applicable when Croatia becomes an EU member state.