But while a hassle free pan-European approach to pensions may still be beyond reach, it inches ever closer with the European parliament and domestic governments striving to achieve something approaching a harmonised system.
The goal of a pan-European pension system has been on the cards since 2003 and is now theoretically possible since all member states were forced to comply with the Activities and Supervision of Institutions for Occupational Retirement Provision (IORP) Directive in 2007.
However, the Directive only applies to funded occupational pension plans and does not cover state schemes or personal pension arrangements. Further, there have been clear differences between how nation states have interpreted the Directive and this lack of consistency has created significant obstacles.
Consequently, the Committee of European Insurance and Occupational Pension Supervisors led a consultation to iron out some of these problems in 2008, which has been more recently followed up by another consultation in 2010.
In July the European Commission published a Green Paper on how to ensure an ’adequate, sustainable and safe’ pensions system. The debate centres on five key areas one of which is how to remove obstacles for people working in different EU countries and to create an efficient and effective internal market for retirement products.
The consultation will run until mid-November and the EC is inviting contributions from any interested parties, hopefully opening the door to free-thinking and genuine debate on a topic which has long confounded domestic governments and pensions providers.
Craig Burnett, EMEA DC leader at Mercer, says: “This is a worthy objective containing both commercial and social components. Often, these interests seem irreconcilable, but in the pan-European pensions space the Commission has the unique opportunity to support both. Many employers and suppliers are ready to lead the way in cross-border pensions but continue to face barriers. We believe the Commission should play an active role in removing those barriers and encouraging the rapid development of pan-European pension schemes.”
While the consultation has been warmly welcomed by most of the key players, anxieties are emerging about the potential repercussions for the UK, in particular its place as a centre of cross-border pension provision.
The most attractive jurisdictions are Austria, Belgium – which has made an effort to attract schemes, unlike the UK – Gibraltar and Ireland,
In spite of boasting a highly developed and sophisticated pensions market, the UK is blighted by one of the most complex tax and legislative regimes in the EU. Even A-day, which saw eight tax regimes slimmed down to just one, has failed to make the UK any less perplexing, and when this is coupled with heavy duty pensions law Britain suddenly looks particularly unappealing as a domicile for a pan-European scheme.
Robin Ellison, head of strategic development for pensions at law firm Pinsent Masons, says: “The UK is probably the least attractive jurisdiction for the domicile of a cross-border pension arrangement; it has excessive and expensive regulation and compliance, and an unattractive tax regime.”
That is a view shared by Paul Kelly, senior investment consultant at Towers Watson, who describes the UK as a “dreadful domicile” for cross-border pensions, and notes that the UK takes a much harder line when demanding that schemes are fully funded.
“The UK has taken a strong line on the fully funded issue, demanding that schemes are fully funded at all times. This very strong view means that companies must have no deficit or they must settle within a year or two so that makes it very difficult, or expensive, to run a DB pension scheme out of the UK. Meanwhile other jurisdictions have taken quite different views on what fully funded means,” Kelly says.
Additionally, since other European governments and regulators are taking steps to make their countries more attractive to multi-nationals on the hunt for a pensions HQ, the UK has started to look even less appealing.
Ellison says: “The most attractive jurisdictions are Austria, Belgium – which has made an effort to attract schemes, unlike the UK – Gibraltar and Ireland, with Malta and Luxembourg making strong efforts.”
Consequently, where multi-nationals have already established a cross-border pension arrangement follow- ing, it is difficult to find a single case where the UK has been the favoured domicile. Unilever and Deutsche Bank both selected Luxembourg as their home state, while Shell went for the Netherlands and Nestle’s asset pooling scheme is located in Dublin.
With little to promote the UK as a centre for cross-border pensions it could mean the nation’s pensions industry misses out on a plentiful supply of lucrative business in the future. According to a survey conducted by Hewitt earlier this year, a third of multi-nationals will have pan-European pension arrangements by 2015.
“My fear is that if companies [locate their scheme] in Belgium they are going to start looking for administrators, actuaries, auditors and accountants there. Also fund managers to a lesser extent but there are some issues there,” Kelly says.
“It’s an opportunity to take domicile money away from the UK and while one could overstate the issue, it’s still something for the UK to think about.”
Robin Ellison, head of strategic development for pensions, Pinsent Mason.
“The point of the EU is to allow cross-border competition”
In August Aifa created something of a storm when it claimed advisers should not overlook the possibilities of side-stepping the retail distribution review by basing their business overseas and ’passporting’ back in to the UK.
The association noted that while taking these steps presented no mean feat, and left financial advisers exposed to the whims or foreign regulators, passporting “should not be ignored – especially given the tax plans of the UK government”.
Accordingly, Paul Stanfield, ceo of the Federation of European Independent Financial Advisers (FEIFA), says he has seen a sudden increase in enquiries from UK advisers looking to head abroad. However, Stanfield is keen to point out the potential considerations and pitfalls such a route contains, including regulatory and legislative; cost and savings; and commercial pros and cons.
He says: “Many companies or individuals thinking of passporting into the UK simply to avoid RDR might find that the process is too costly or intensive to really make it worthwhile. There may also be moral considerations – or the FSA may certainly believe that there are. If, however, the strategy is seen as part of a long term and more sustainable business model, then this tactic is certainly worthy of serious consideration.”
Robin Ellison, head of strategic development for pensions at Pinsent Masons, notes that while the RDR rules are not yet set in stone; the FSA will do everything in its power to ensure advisers operating in the UK, even if their base is overseas, comply with the review.
However, he adds: “The point of the EU is to allow cross-border competition, so it may be that the European Court of Justice will pronounce on the topic if there are impediments to overseas advisers.”
It appears as if the door is at least ajar for advisers wanting to take their businesses overseas. Yet, cost and legal and moral grey areas are likely to mean instances of this kind of practice are few and far between.