Portugal introduces new pension rules, EU IORP II

Portugal introduces new pension rules, EU IORP II

Portugal has introduced measures to implement the European Union (EU) Directive on the activities and supervision of institutions for occupational retirement provision (IORPII) that aims to improve the governance of workplace pensions and ease workers’ job mobility within the EU. The law generally took effect in Portugal on 1 Aug 2020.  

Highlights

  • Extension of the consultative committee members. The pension fund committee — in addition to representatives from sponsor and members — must now include a representative of the works council and one representative from each of the two most important trade unions in the applicable economic sector. 
  • Appointment of an actuary to defined contribution (DC) schemes. An actuary must be appointed for DC schemes that require the funds to pay pension benefits directly to beneficiaries.
  • Benefits payment. Payment rules applicable to DC schemes are extended to include defined benefit schemes. Subject to certain restrictions, individual beneficiaries can transfer to an open-ended pension fund prior to receiving (or after starting to receive) their pension.
  • Vesting rules. The minimum age for an individual to start vesting must not exceed 21 years, and the period of time before an individual is allowed to build up a pension entitlement is capped at three years after they join the plan. Upon termination of an employment contract, pension plans cannot require the transfer of vested rights to other pension funds. Beneficiaries can choose to receive vested amounts as capital, subject to the plan’s terms, if the amount is less than two times the guaranteed minimum monthly salary. 
  • Transfer commissions. Fees cannot be charged for the transfer of accumulated amounts to a new pension fund, except if the pension fund provides a capital or guaranteed return. In such cases, the fee is capped at 0.5% of the transferred amount.
  • Compulsory publication of pension plan contracts. Contracts between the sponsor and the pension fund manager must be published, but it is not necessary to include information about management fees or commissions. 
  • Information provided to plan members. On an annual basis, plans must issue a document detailing the plan’s pension benefits and an estimate of a member’s expected benefits.
  • Investment policy principles declaration. Pension fund managers must post a statement of the fund’s investment principles on the manager’s site. The statement must be revised at least every three years and after any significant investment policy change. It must include: Investment risk measurement methods; risk management processes and strategic asset allocation; and how environmental, social and governance factors are taken into account.
  • Units (fund shares). The total net amount of open- and closed-ended pension funds must be unitized. In the case of the open-ended funds, different kinds of units must be issued according to the fees charged. Funds must comply with this requirement by the end of October 2020.

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