With effect from 13 January 2019, all pension funds have been subject to the rules of the revised EU Directive for Institutions for Occupational Retirement Provision (IORP II). The aim of this Directive is to encourage cross-border pension provisions so as to make these provisions safer and more transparent. To achieve its aim, IORP II imposes a number of new requirements on all industry-wide pension funds, company pension funds and occupational pension funds.

What does IORP II mean for you?

Pension funds are required to include additional information in their Uniform Benefit Statement (Dutch acronym: UPO) and flesh out their risk management system. In doing so, they’re also expected to make explicit allowance for risks related to environmental, social and governance (ESG) factors.

The change with the most impact on pension funds is the new requirement to have in place an effective governance system with the following three key functions:

• a risk management function
• an actuarial function
• an internal audit function

IORP II imposes a number of requirements on the independence, suitability and duties of pension funds, particularly when it comes to their internal audit function.

Internal audit function

Creating an effective internal audit function will initially result in an increase in the cost of compliance. At the same time, IORP II also leaves scope for pension funds to structure their internal audit function in a fund-specific manner that is proportionate to the size and complexity of their activities. In other words, the requirement to have in place an internal audit function calls for a pragmatic and cost-efficient approach, so that you, as a pension fund, are and stay compliant with the new rules and regulations.

The keys to an efficient and effective internal audit function are 1) a constructive dialogue and 2) teamwork between the first, second and third lines. The result will be maximum comfort within the parameters of the budget, so that you’re in control at all times and can make instant adjustments as needed. We’ve put together a factsheet that tells you more about how to structure your internal audit function.

What BDO can do for you

At BDO, we understand the challenges that come with implementing IORP II. We offer you the option to outsource all or part of your internal audit function to us. We have a proven track record in setting up internal audit functions and performing internal audit duties for organisations operating in the financial sector. Experience has taught us that, after we’ve been called in, we usually manage to bring about a structural improvement in the effectiveness of an organisation’s governance system. Mindful of the specific wishes of the board, we focus on practical aspects rather than on complex theoretical constructs.

Contact

Please feel free to contact one of our specialists for an informal chat with no strings attached if you want to find out more about how BDO can assist your organisation in matters related to your internal audit function or other governance and compliance-related challenges.