Provident Funds have monopolised the occupational pensions arena in Cyprus, given that until recently there was a lack of any noteworthy alternative

An amendment, however, to the Law on the Establishment, Activities and Supervision of Pension Funds in 2014, has paved the way for the introduction of a new breed of occupational pension schemes, governed by Class VII of the Insurance Law.

Equipped with a practical and modern regulatory framework, insurance companies are well versed in offering new and innovative occupational pension schemes that eliminate the administration involved with creating and running a Provident Fund. A significant milestone, which eliminates the need for a Provident Fund Investment Committee, is the personalised investment policy by which members follow their own investment policy fitting their individual requirements and investment profile.

What are the main characteristics and benefits of the Class VII offering?

-Hassle-free set-up with no administration costs

As opposed to Provident Funds that involve the formation of a legal entity, Class VII is implemented by way of agreement between the Plan provider and Plan sponsor. It thus requires no set-up or annual costs, nor does it involve any administration or the need to submit financial accounts or an investment policy. This makes it cost-efficient for all types and sizes of organisations, even those with only a handful of employees.

-Individualised investment policy

Members can choose their personal investment strategy and switch between Funds. This is a fundamental difference with the Provident Fund, in which members have to follow a uniform investment policy and maintain an Investment Committee, thus distracting employees from their daily activities and requiring them to make investment decisions for which they may not be qualified.

-Tax benefits

Both employee and employer contributions are eligible for tax deductibility from taxable income, up to 10% of each employee’s annual income. 

-Customisation

Class VII is highly customisable to fit the requirements and characteristics of any organisation.  Changes to the terms of the Plan can easily be effected at any time without prior consent from any regulatory body or authority.

-Flexibility

Members are entitled to change their rate of contributions, make lump-sum contributions or transfer in funds from existing pensions.

-Supervision

Class VII falls under the authority of the Insurance Superintendent and consequently within the Solvency II Directive (implemented as of 1 January, 2016), that codifies and harmonises the EU Insurance regulation. The key objectives are primarily concerned with capital adequacy EU insurance companies must hold to reduce the risk of insolvency as well as modernised supervision which aims to shift supervisors’ focus from compliance monitoring and capital to evaluating insurers’ risk profiles and the quality of their risk management and governance systems.

In conclusion, some of the disadvantages or shortcomings of the Provident Fund that may have discouraged employers from offering their people a pension scheme have been efficiently addressed via the introduction of Pension Plans under Class VII.

*Christis Michaelides, BA, MSBA, MCIM

Ancoria Insurance Public Ltd

christis.michaelides@ancoria.com