Raising the Bar for EU Occupational Pension Safeguards

From National Discretion to a Common Standard

The original IORP directive, left the appointment of a depositary or custodian to Member State discretion. IORP II, adopted in 2016 and still in force, went further — defining depositary responsibilities in Articles 34 and 35, covering safekeeping of financial instruments, ownership verification, oversight of IORP instructions and monitoring of asset-related transactions. However, it stopped short of requiring a single, harmonised approach. Member States could require one or more depositaries, and some extended depositary obligations beyond regulatory requirements. The result was a patchwork of national frameworks, varying in scope, cost and investor protection.

The 2025 Supplementary Pensions Package, published on December 1, 2025 and forming part of the broader Savings and Investments Union strategy, seeks to help ensure effective supervision while harmonizing the framework across Member States. The proposed amendments to the IORP II directive would require DC pension scheme where participants fully bear the investment risk, to appoint a single, independent depositary aligned with UCITS V standards. The intent is to bring supplementary pension investors the same level of protection that UCITS investors already receive.

For pension schemes and their service providers, this is not a distant regulatory development. It represents a fundamental shift in how depositary obligations are defined, scoped and enforced.

What Does the 2025 Supplementary Pensions Package Propose?

The proposed move to a single, UCITS-standard depositary model is a crucial change, restructuring how pension schemes source, evaluate and contract with their service providers. The practical implications differ materially by member state, and by the current state of each scheme’s depositary arrangements.

For DC pension schemes in markets with concentrated custodian arrangements

Large pension funds may use multiple custodians and depositaries to diversify operational and concentration risk. Under the proposed amendments, that model would need to change. A single entity would be responsible for safekeeping, oversight and cash flow monitoring — with clearly established liability rules aligned to UCITS V.

The UCITS framework does not allow for the contractual discharge of depositary liability to sub-custodians. For pension funds accustomed to distributing that liability across multiple providers, this creates a genuine structural question that requires legal and operational review.

There is, however, a degree of flexibility built into the proposal. Recital 31 of the amending directive provides that Member States may maintain existing, alternative safekeeping measures where those measures provide a level of protection comparable to that of a qualifying depositary. ² In some European markets, IORPs already benefit from comparable asset-safeguarding measures, including solvency and asset-coverage rules tailored to occupational pension institutions, as in Sweden. In others, similar functions and responsibilities are carried out by service providers, such as external auditors, administrators, fiduciary managers, and custodians, alongside robust regulatory and supervisory frameworks. ³

New Depositary Obligations and Market Opportunities

The UCITS V oversight model introduces obligations that have no direct precedent in the pension fund context. Monitoring subscriptions and redemptions, overseeing net asset value calculations and conducting cash flow monitoring are standard depositary duties under UCITS but they do not map cleanly onto pension fund operations.

Pension funds do not issue units. The lifecycle of contributions, benefit payments and drawdowns differs fundamentally from investment fund flows. For depositaries entering the pension market, this requires adaptation rather than replication. UCITS oversight workflows will need to be restructured around the specific mechanics of pension fund operations.

The proposed alignment with UCITS V introduces obligations that go beyond those currently required under IORP II Article 35. Cash flow monitoring — currently absent from the IORP framework — becomes mandatory under the proposed standard. Expanded oversight responsibilities covering valuation, net asset value calculations and contribution flows will require depositaries to build or adapt capabilities specifically for the pension fund context.

That operational investment is accompanied by a significant market opportunity. DC pension schemes across the EU that do not currently operate under a UCITS-standard depositary arrangement represent a new and substantial addressable market. Depositaries and administrators that develop the competency in DC pension fund accounting. Depositaries and administrators that build expertise in DC pension fund accounting, contribution-flow and benefit-payment oversight, and the safekeeping and supervision of the broad range of asset classes in which IORPs invest, will be well placed as the regulatory framework takes hold.

With a powerful combination of global custody, asset servicing, institutional accounting and reporting, post-trade compliance monitoring and depositary services, BNY provides the infrastructure, expertise and scale IORPs need to operate confidently in an increasingly demanding regulatory environment. Drawing on our deep institutional servicing experience, and the understanding that pension fund operations differ fundamentally from traditional investment funds, we are well positioned to support pension funds with trusted solutions tailored to their specific operational and oversight needs.

The Legislative Path Forward

The Member State text addresses the issues discussed in this paper. This includes more explicitly adopting the flexibility referred to in Recital 31 for Member States to allow alternative safekeeping measures if those measures provide a level of protection comparable to that of a qualifying depositary. In addition, the new proposed text seems to acknowledge the practical implication of the requirement to appoint a single depositary per scheme by allowing for an IORP to appoint the same depositary to act for one or more of the pension schemes it operates, or to appoint more than one depositary per pension scheme.

The European Parliament is now considering its position on the EU Commission’s legislative proposal ahead of trialogue discussions with Member States.

The outcome of those deliberations will shape the final framework for narrowing the governance gap between investment funds and pension funds and extending the investor protections built into UCITS to a sector that has long operated under a more fragmented standard.

BNY, working across nine EU member states supporting depositaries, custodians and fund administrators, supports the intention of the original EU Commission proposal to apply the same Savings and Investments Union agenda that has driven the expansion of ELTIF 2.0, the proposed depositary passport and wider reforms to European fund distribution to the occupational pension sector.

The question for pension schemes and their service providers is not whether to engage with the proposed framework, but how to assess their current arrangements against it — and on what timeline.