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Cross-border schemes

Guidance

This guidance sets out the application process for authorisation and approval from the Pensions Regulator for trustees to accept contributions in respect of European members.

Issued: December 2005

You may find it useful to view the UK social and labour law summary overview (PDF, 99kb, 24 pages).

European regulators have agreed Service Level Agreements (SLAs) for the cross border application process. In order to ensure these can be met, we strongly advise the trustees, employer or their advisers to contact us via customer support before completing any cross border application. This will ensure that all information and document requirements can be met. In the absence of such contact, the processing of any cross border application may be delayed.

Key points

  • Pension schemes located in one EU member state must apply for authorisation and approval to accept contributions from employers employing members who are subject to the social and labour law of another EU member state.
  • If you are a trustee of an occupational pension scheme you need to decide whether you have to apply to the regulator for authorisation and approval for your scheme to accept contributions in respect of European members.
  • If you are an employer sponsoring an occupational pension scheme, you need to consider whether your scheme will be accepting contributions in respect of European members in future.
  • If you are an adviser to the trustees of a pension scheme, you need to know whether the scheme you are giving advice in respect of should be authorised and approved to accept contributions in respect of European members.
  • Use our flowchart to help you decide if your scheme needs to apply for authorisation and approval.

Important

Changes

Changes were made in January 2019 to the UK legislation and European legislation regarding schemes carrying out cross border activities. This guidance has been updated to reflect those changes. Many of the changes affect the processes carried out by The Pensions Regulator (TPR) and other EU pensions regulators during the authorisation and approval of cross border activity.

Changes were also made in January 2019 to UK and European legislation regarding the bulk transfer of members’ benefits from one scheme to another scheme across EU borders. This guidance explains what these changes mean, and what you should consider before carrying out a bulk transfer.

Brexit

Schemes currently authorised and approved to accept cross border contributions, and those who are considering applying for authorisation and approval, or those considering making a bulk cross border transfer, will need to consider the implications of the UK’s withdrawal from the European Union on 31 October 2019 (unless a withdrawal agreement is ratified and comes into force before this date).

Introduction

Pension schemes located in one EU state need to apply for authorisation and approval to accept contributions from employers employing members who are subject to the social and labour law of another EU state. This requirement was introduced in 2005 and was expanded in 2007 to include the European Economic Area (EEA) states of Norway, Iceland and Liechtenstein.

All references to EU states in this guidance include EEA states and it is possible to apply for authorisation and approval in these states.

The requirement for authorisation and approval from the regulator before contributions are accepted in respect of European members is set out in the cross-border legislation.

Is your pension scheme accepting contributions in respect of European members?

This section tells you what you need to consider.

Where does the scheme have its main administration?

If a scheme has trustees in the UK and is set up under UK law, it can be taken to have its main administration in the UK. This guidance applies to schemes which have their main administration in the UK.

If a scheme has its main administration in an EU member state other than the UK, but there are or will be members in the UK, the scheme may be accepting contributions in respect of European members. However, the scheme has its main administration outside the UK and should follow the procedure for authorisation and approval of the relevant EU member state.

If the pension scheme has its main administration overseas in a country which is not an EU member state, this guidance does not apply. Remember that the Channel Islands and the Isle of Man are not EU member states, and nor is Switzerland.

If there is any doubt, your scheme's legal adviser will be able to confirm where the scheme has its main administration.

Do you have 'European members'?

If you only have non-UK scheme members located in countries which are not EU member states, this guidance is not relevant.

This guidance is relevant if your scheme includes European members or European survivors.

Once a scheme is authorised and approved to accept contributions in respect of European members, it remains subject to the cross-border legislation for as long as it has any European members, or European survivors.

If the liabilities for any such European members or European survivors are met in full, either by transferring them completely to another arrangement, or by buying out their benefits, such members would no longer be European members or European survivors of the scheme they have left.

If a scheme which is so authorised and approved no longer has any European members or European survivors, the trustees can apply for revocation of authorisation or approval.

Trustees and employers should be mindful of the position of all members, including deferred members and pensioners, when considering whether their scheme should be seeking authorisation and approval.

Which country's social and labour law applies to the scheme members?

If all scheme members are subject to the social and labour law of the UK, and the scheme has its main administration in the UK and this situation is not about to change, the scheme is not accepting contributions in respect of European members and this guidance does not apply.

If the pension scheme has its main administration in the UK but has members who are subject to the social and labour law of another EU member state, the scheme is accepting contributions in respect of European members.

As a general rule, people who are required by their employment contract to work habitually in another EU member state for an indefinite period are likely to be subject to any relevant social and labour laws in that EU member state. The essential question is whether the nature of any member's employment means that the scheme has to comply with any other EU member state's social and labour laws in respect of that member.

If all the employees concerned are seconded workers they will be subject to the UK's social and labour law. This means that the scheme will not be accepting contributions in respect of European members and this guidance does not apply. If they are not all seconded, this guidance should help you with how and when to apply for authorisation and approval.

Who are 'seconded workers'?

If employees are sent by a UK employer to work overseas for a period in another EU member state, and at the end of that period intend to return to resume work for that employer in the UK or intend to retire, then:

  • if they were sent to the other EU member state for a limited period; and
  • they were sent for the purpose of providing services on behalf of the UK employer; and
  • they intend at the end of that period either to return to the UK to work for the same employer, or to retire,

they are counted as seconded workers.

The characteristics of a secondment are:

  • the employee being sent to work overseas from the UK;
  • the employee providing services on behalf of the UK employer;
  • the limited period; and
  • the expectation either to return to the UK or to retire (in the UK or otherwise) at the end of that period.

If an overseas posting has these characteristics, it may be regarded as a secondment. Cases which do not have these characteristics (if, for example, no limited period was expressed, or there was no expectation of return to the UK or retirement at the end of the limited period) should not be regarded as secondments.

If employees are working in another EU member state but are not seconded, perhaps because they work in more than one EU member state, it does not automatically follow that they are subject to the other EU member state's social and labour law. It depends on whether their place of work is sufficiently located in the other EU member state.

The main characteristic of a limited period is that it will end on a specified date although it is also possible for a period to be 'limited' if it ends when a specific event, such as the completion of a project, takes place.

If employees work abroad for an indefinite period, or for their entire career, that should not be regarded as a secondment.

If a member of a scheme is seconded overseas and, at the end of that secondment is seconded again, either to the same or to another EU member state, this should be regarded as a 'fresh start' rather than a single secondment. Each secondment must maintain the characteristics of a secondment.

If the question of extending an existing secondment arises, the trustees should be sure that the secondment is really for a limited period, and that the total period of secondment is not in fact a permanent posting.

It is up to the trustees to determine whether any members of the scheme who work in EU member states other than the UK are seconded workers.

The fact that an employer has seconded workers in its pension scheme does not mean that the scheme is accepting contributions in respect of European members. If the only employees working overseas are seconded workers then this guidance does not apply. UK employers should make sure that they are aware of all employees who are posted to other EU member states, and should be clear whether they are 'seconded workers' so that the trustees of the relevant schemes can have this information to hand.

Does your scheme need authorisation and approval?

Use this decision tree to help you decide whether your scheme needs to apply for authorisation and approval.

If a UK scheme has European members (which excludes those who are seconded workers), the scheme must obtain authorisation and approval to accept contributions in respect of them before doing so.

If an employer plans to employ members in, or transfer scheme members to, another EU member state, and if that state's social and labour law applies to their employment, then the scheme will start to accept contributions in respect of European members from the date the first such contribution is accepted.

Does my scheme need authorisation and approval by the UK regulator?

crossborder1

The determining factors are the main administration of the scheme and the place of work of the member. If the scheme's main administration is in the UK and has members in another member state, it could still require authorisation and approval, even if the employer were in a third, non-EU country. If the scheme's main administration was in a non-EU country, it would not require authorisation and approval, even if it had members in both the UK and another EU member state (it would be a foreign scheme).

Applying for authorisation and approval

Trustees may apply for authorisation for a scheme to accept contributions in respect of European members in general and for approval to accept contributions from a specific European employer either together or as two separate applications. The application must be made either at the same time as the application for approval, or before it.

If a scheme applies for both authorisation and approval at the same time, we will process the application for authorisation before considering that for approval.

We cannot consider an application for approval from a scheme which is neither authorised nor applying for authorisation.

A scheme only needs to apply for authorisation once. However, it will need to apply for approval for each employer that participates in the scheme, and should apply for approval for each EU member state in which it will operate, even if the same employer covers all the EU member states concerned.

A scheme may be authorised to accept contributions in respect of European members in general without having approval to accept contributions from a specific European employer. To make an application you can download our application forms for authorisation and for approval.

Signing the declaration

Trustees must read and sign a declaration that the information given is correct and complete to the best of their knowledge and belief. There are penalties for providing false information.

The declaration should be completed by:

  • all the trustees of the scheme;
  • an existing scheme providing pension benefits for such employees who have already been accruing pension benefits; or
  • the managers of the scheme, if there are no trustees.

Applying for authorisation

Before a scheme can accept contributions in respect of European members, it needs to be authorised to do so. This is the case whether the scheme is:

  • an existing scheme providing pension benefits for non-seconded overseas employees in a member state for the first time;
  • an existing scheme providing pension benefits for such employees who have already been accruing pension benefits; or
  • a new scheme specifically set up to provide benefits for such employees.

The trustees of a scheme which is going to accept such contributions have a duty to apply for its authorisation.

Authorisation is a general process; it does not relate to operations in a specific EU member state, and need be obtained only once, no matter how many EU member states or separate employers become involved with the scheme.

Authorisation does not, by itself, allow a scheme to accept contributions from any specific European employer. A scheme can only accept contributions from a specific European employer in accordance with the terms of an approval granted to it.

Before a scheme can be authorised, it will need to be registered by The Pensions Regulator and will need to quote its registration number on the application for authorisation. This is the eight-digit PSR number (not the HMRC number).

The Pensions Regulator has the right to scrutinise applications for authorisation in line with the cross-border legislation. Usually, The Pensions Regulator will authorise a scheme as long as:

  • the required documents are provided;
  • the required declarations are signed; and

confirmation is received that the cross-border scheme funding requirements will be met by the required date.

Scheme funding requirements

Schemes which apply for authorisation are expected to comply with the cross-border funding requirements and we will not be able to authorise schemes which do not meet these requirements.

The requirements are:

  • for a new scheme, that it will meet its statutory funding objective within two years of the date of application for authorisation;
  • for a scheme which already exists, but is going cross-border for the first time, that it meets its statutory funding objective at the date of application; and
  • for a scheme which already exists and is already operating cross-border, that it will meet its statutory funding objective, based on a valuation under Part 3 of the Pensions Act 2004, by 22 September 2008, or the date of application if later.

The statutory funding objective must be met for the entire scheme for which application for authorisation is being made; it cannot be met for a 'European' part of a single employer scheme. Where the objective is not satisfied, or cannot be satisfied within a two-year period, TPR has discretion to revoke an authorisation.

Applying for approval

The trustees of any UK scheme which is going to accept contributions from a specific European employer must obtain approval from The Pensions Regulator in respect of each such specific European employer.

The trustees of a scheme need to complete an application form for approval and to provide the documents and information required.

Some of the documents and information required for authorisation will also be required for approval. If application is made for authorisation and approval at the same time, it is not necessary to supply all the information again.

However, if there is a time-lag between the two applications, then either a declaration confirming that there has been no material change to the information supplied must be signed, or the information must be supplied again if there has been any material change.

Approval is required for each specific European employer that has employees in the scheme, and should be obtained for each EU member state in which members are located, even if one employer covers employees in more than one EU member state.

Approval can only be granted in the member state where authorisation was granted. A scheme authorised by the French authorities, for example, could not apply to The Pensions Regulator in the UK for approval.

The Pensions Regulator will grant approval provided there is no reason to doubt that:

  • the administrative structure of the scheme concerned; or
  • the financial situation of the scheme concerned; or
  • the repute and the professional qualifications or experience of those running the scheme

is compatible with the proposed operations in the specified host member state.

We will base our decision on the information contained in the application form and any other data about the scheme which is available to the regulator.

The regulator is obliged to pass on the information contained in the application form to the host member state in which the scheme's European members are located.

If upon receipt of the information contained in Part 2 of the application form the host state regulator raises issues about compliance with that host state's social and labour law, or such issues are known to The Pensions Regulator, we will raise these with the scheme.

Withdrawing an application

If the trustees of a scheme find that an application for authorisation or approval is no longer needed, it can be withdrawn by writing to the regulator, stating the circumstances.

For example, this could be because the potential European members have retired from the scheme and the employment, or have left employment and taken a transfer value representing all their benefits to another arrangement.

Provided the regulator is notified before authorisation or approval has been granted, we will be happy to confirm that the request has been withdrawn and that the scheme has not been authorised or approved to accept contributions in respect of European members, as appropriate.

Applying for revocation of authorisation or approval

If authorisation or approval has been granted to a scheme but is no longer required because there are no benefits remaining in the scheme in respect of any member or deferred member who is or was a European member or European survivor, then the trustees can apply to the regulator to have the authorisation and approval revoked.

The application can be made in writing to the regulator giving details of the scheme and setting out the circumstances.

We will consider the circumstances of the request and, if satisfied that there are no cross-border benefits remaining which require protection, will confirm the revocation.

Withholding tax reclaims by UK schemes

UK occupational schemes may be asked by tax authorities in other EU member states to provide evidence of the following in order to assist with overseas withholding tax reclaims:

  • that they are Institutions for Occupational Retirement Provision 'IORPs' (the EU term for occupational pension schemes)
  • that they are required to comply with EU Directive 2016/2341 on the activities and supervision of institutions for occupational retirement provision ('the IORP II Directive')
  • that they are subject to regulation in the UK in accordance with the IORP II Directive

The Pensions Regulator is unable to provide certification of the above information for individual schemes. However, the letter below can be provided to the relevant authority as part of a claim relating to a scheme with more than one member. The letter provides a link to EIOPA’s public register of IORPs in order for the authority to verify a UK scheme's IORP status and provides details of further evidence that a scheme can provide to show that it is registered as an occupational pension scheme.

Tax reclaim by UK scheme letter
PDF 246KB , 2 pages

Authorisation of cross-border activity

From 13 January 2019, new rules provide a definition of cross-border activity and alter the authorisation process, including the following changes:

  • reducing the timeframe that TPR has to communicate with competent authorities in other EU member states (from two months to six weeks);
  • requiring TPR to provide reasons for not approving an application for approval in relation to a European employer; and
  • stipulating information that TPR must send to EIOPA with regards to cross-border schemes.

Cross-border (bulk) transfers

From 13 January 2019, new rules apply for a scheme wishing to make or receive bulk transfers to/from another scheme across EU borders. This is referred to as 'cross-border transfers' in legislation. These rules apply to any pension scheme wishing to engage in bulk transfers – not just schemes that already hold authorisation and approval for cross-border activity.

Subject to compliance with the new rules, member states must allow IORPs registered in their territory to make a cross-border transfer of all or part of pension scheme’s liabilities, technical provisions and other obligations and rights to a receiving scheme.

The costs of the transfer must not be incurred by the remaining members or beneficiaries of the transferring scheme or by the incumbent members or beneficiaries of the receiving scheme. In addition, the prior approval of the sponsoring employer and a majority of members and beneficiaries concerned (or their representatives) must be obtained. In this regard trustees are recognised as ‘representatives’ in relation to schemes receiving a transfer. Scheme managers or trustees can give consent in relation to schemes making a transfer.

The application for authorisation of a cross-border transfer is initiated by the receiving scheme which must submit an application in the prescribed form to the regulator in its home member state. The regulator in the home member state of the receiving scheme and the regulator in the home member state of the transferring scheme are both involved in the assessment of the transfer, and must take into account prescribed requirements. These requirements are different depending on whether the scheme is receiving or making the transfer.

The prime objective of the new regime is to ensure the protection of scheme members and beneficiaries and the stability and soundness of pension schemes across the EU when cross-border transfers take place. The rules for cross-border transfers of benefits initiated by scheme members themselves remain unchanged and are not relevant to this guidance.

UK schemes receiving cross-border (bulk) transfers

When any UK pension scheme seeks to receive a cross-border bulk transfer from another scheme, that receiving scheme must seek authorisation from The Pensions Regulator by providing information including:

  • a description of the characteristics of their scheme;
  • information about the transferring scheme and participating employer(s);
  • a description of the technical provisions, liabilities, obligations, rights, or cash equivalent to be transferred;
  • written agreement with the transferring scheme setting out the conditions of the transfer;
  • proof of the approval of the transfer by the majority of members and a majority of beneficiaries of the transferring scheme who will become members or beneficiaries of the receiving scheme, or by a majority of their trustees (termed 'their representatives' in the legislation);
  • proof of approval of the transfer by the relevant participating employer;
  • information about the social and labour law of any other member state that applies to their scheme.

The authorisation process is overseen by The Pensions Regulator and the equivalent regulator in the relevant EU member state. Different considerations apply in each case but if either regulator does not approve the transfer, the transfer cannot be authorised. The Pensions Regulator will communicate this decision to the receiving scheme within three months of receiving the application.

UK schemes making cross-border (bulk) transfers

A UK pension scheme is prohibited from making a cross-border bulk transfer to an EU pension scheme without authorisation from the regulator in the home member state of the receiving scheme. The receiving EU scheme must seek authorisation from its own regulator and from TPR following the process set out above.

The Pensions Regulator will need to give consent to the transfer as part of the authorisation process to ensure that the long-term interests of the UK members and beneficiaries being transferred are adequately protected.

The UK's withdrawal from the EU

Trustees may prefer to wait for more certainty regarding the UK’s future relationship with the EU before applying for any new cross-border authorisation or approval.

Trustees of schemes that are currently authorised and approved should be considering contingency plans, together with participating employers and their scheme advisers, to cover a range of EU exit scenarios.

The Pensions Regulator is working closely with government to ensure that the position of cross-border schemes is considered as part of the ongoing EU withdrawal preparations.

Find out how to prepare your scheme for Brexit and the steps you may need to take.

Definitions

Cross-border activity means operating a pension scheme (as defined under section 1(5) of the Pension Schemes Act 1993(c)) where the relationship between the employer, and the members and beneficiaries concerned, is governed by the social and labour law of an EEA state other than the EEA state in which the pension scheme is registered or authorised and in which its main administration is located.

Cross-border legislation means sections 287 to 295 of the Pensions Act 2004, the Occupational Pension Schemes (Cross-border Activities) Regulations 2005 (as amended by the Occupational Pension Schemes (Cross-border Activities) (Amendment) Regulations 2018) and the Occupational and Personal Pension Schemes (Miscellaneous Amendments) Regulations 2007.

Cross-border transfer means the transfer of all or part of the liabilities, technical provisions and other obligations and rights, and the corresponding assets or their cash equivalent, from one pension scheme (as defined under section 1(5) of the Pension Schemes Act 1993) to another pension scheme that is registered or authorised in a different EEA state.

A European employer employs qualifying persons and makes contributions in respect of their pensions.

European member means a member of a scheme who is, or was, a qualifying person in respect of whom contributions were made to the scheme by a European employer,

European survivor means a survivor of a European member of the scheme who is entitled to benefits, or has a right to future benefits, under the scheme rules in respect of that European member.

Host member state means in relation to a European employer, the member state or states other than the United Kingdom where that European employer has employees who are qualifying persons.

Member states are:

Austria Belgium Bulgaria 
Croatia Cyprus Czech Republic 
Denmark Estonia Finland 
France Germany  Greece
Hungary Iceland (EEA) Ireland
Italy Latvia  Liechtenstein (EEA)
Lithuania Luxembourg  Malta
Norway (EEA) Poland Portugal
Romania  Slovakia  Slovenia
Spain  Sweden The Netherlands 
United Kingdom    

Qualifying person means a person who is employed under a contract of service and whose place of work under that contract is sufficiently located in a member state other than the UK so that his relationship with his employer is subject to the social and labour law relevant to the field of occupational pensions schemes of that member state.

Social and labour law means the national laws relevant to the field of employment and occupational pension schemes. Whether another EU state's social and labour law applies to a member will depend on the precise terms of the employment relationship between the sponsoring employer and that particular employee.

The statutory funding objective of a scheme which has entered the Part 3 funding regime under the Pensions Act 2004 is that it must have sufficient and appropriate assets to cover the technical provisions.

A scheme's technical provisions mean the amount required, on an actuarial basis, to make provision for the scheme's liabilities.