Changes came into force on 13 January 2019 to the UK and European legislation regarding schemes carrying out cross-border activities. This guidance is currently under revision to reflect those changes.
The regulations now in force may be viewed on legislation.gov.uk.
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.
- 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.
From December 2005, 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.
From 23 April 2007, Norway, Iceland and Liechtenstein (EEA states) became part of the cross-border regime. All references to EU states in this guidance include EEA states and it is possible to apply for approval in these states.
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.
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 state for an indefinite period are likely to be subject to any relevant social and labour laws in that state. The essential question is whether the nature of any member's employment means that the scheme has to comply with any other EU state's social and labour laws in respect of that member.
If the employer is considering sending employees who are members of a pension scheme overseas to work in another EU member state, this could cause the scheme to start accepting contributions in respect of European members, depending on whether that other country's social and labour law will apply to the employees.
However, it is also necessary to consider whether all the employees concerned are seconded employees. If they are, they will be subject to the UK's social and labour law, 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 employees'?
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 employees.
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 state, it does not automatically follow that they are subject to the other state's social and labour law. It depends on whether their place of work is sufficiently located in the other 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 employees.
The fact that an employer has seconded employees 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 employees 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 employees' 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 employees), 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?
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,
in each case without the use of a recovery plan. 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.
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. For this reason Part 2 of the application form for approval needs to be completed in the language of the country in which it is intended that cross-border operations take place, as well as in English.
We do not supply a translation service and expect schemes operating cross-border to have their own translation facilities. (This rule does not apply to applications to operate in Holland, as the Dutch regulator is willing to accept notice of applications in English.)
If upon receipt of the information contained in Part 2 the host state regulator raises issues about compliance with that 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 Directive 2003/41/EC on the activities and supervision of institutions for occupational retirement provision ('the IORP Directive')
- that they are subject to regulation in the UK in accordance with the IORP 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.
Cross-border legislation means sections 287 to 295 of the Pensions Act 2004, and The Occupational Pension Schemes (Cross-border Activities) Regulations 2005 and The Occupational and Personal Pension Schemes (Miscellaneous Amendments) Regulations 2007.
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:
Norway, Liechtenstein and Iceland (EEA states) have now become part of the cross-border regime and it is possible to apply for approval for these states.
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. The statutory funding objective of a scheme which remains subject to transitional provisions is its MFR.
A scheme's technical provisions mean the amount required, on an actuarial basis, to make provision for the scheme's liabilities.