The second pillar of the pension system is undergoing significant changes as management requirements increase for Institutions for Occupational Retirement Provision (IORPs), which include pension and provident funds.
Further changes are expected as part of broader pension reforms being advanced by the Ministry of Labour, where the second pillar is set to play a crucial role.
The transformation of pension funds began with the adoption of stricter legislation in 2020, with changes being implemented gradually through directives issued by the Superintendent of Occupational Retirement Provision Funds.
Last Friday, a new directive was published in the Official Gazette of the Republic. The directive outlines qualification and experience requirements for pension fund management committee members and consultants providing investment advice to funds.
The directive activates and clarifies various legal provisions aimed at strengthening pension fund supervision, a development expected to help restore confidence in the institution following setbacks during the financial crisis and subsequent haircut.
According to the new directive, management committee members must individually possess knowledge, skills and/or experience that collectively ensure effective fund management protecting members’ and beneficiaries’ interests.
Committee members must demonstrate basic investment and risk management knowledge, thorough understanding of IORP legislation, and awareness of management committee duties and compliance requirements.
The directive stipulates that management committees must be capable of selecting external advisers and service providers in a manner that ensures service quality and protects member interests.
For IORPs with at least 100 members or beneficiaries, multi-employer IORPs, or those with assets of €4 million or more, committee chairs must hold relevant academic or professional qualifications.
Existing chairs have a 12-month grace period to meet these requirements, subject to conditions.
Regarding investment services, the directive requires management committees to engage licensed providers for specialist investment matters, particularly for investment advice on financial instruments and portfolio management.
Only funds exclusively dealing with euro deposits in licensed credit institutions within Cyprus or other member states may be exempt, subject to conditions.
For general investment matters, the Superintendent has specified that advisers must be either licensed investment service providers, actuaries with three years’ investment experience, Chartered Financial Analysts with three years’ experience, or Cyprus Securities and Exchange Commission-certified individuals with three years’ investment experience.
The directive explicitly prohibits the same individual or legal entity from simultaneously providing both general and specialist investment services to an IORP.
