UK life funds missing out on cross border potential
Life assurance companies are the ones to watch for those following the pursuit of the ideal pan-European pooled pensions fund, according to Philip Orange of UK laywers Simmons & Simmons. Speaking at a recent conference, ‘Developments in European investment funds’ held in London, Orange asserted that the industry must not forget the importance of life funds as possible contenders for a cross border pooling vehicle. “In a way, a life assurance company is a good model for pooled investments,” he said. “What the investor gets is a contact which determines which benefit he is entitled to – and in this way it is not really any different from other types of securities.”
For tax exempt investors, he pointed out, life vehicles are particularly favourable. “It is the life company itself which is the taxed vehicle, not the OEIC, the unit trust or the PFPV.
“In a European context, there is a potentially useful exemption for overseas businesses.
“Potentially a life company based in the UK or other jurisdictions can operate as an effective pooled vehicle for investments from other jurisdictions if investors are themselves exempt from capital gains.”
However, he noted that the UK Treasury proposals, ‘Flexibility in Pension Investment’ does not encourage the usage of life funds and needs to be reexamined. “It does contain a strand of prejudice against the life industry as a whole,” he said. “The assumptions on charging structures are a little bit out of date.”
Looking at the UK market, he pointed out that if life funds are to be seriously considered, in particular for occupational schemes and group person pension plans, there needs to be some revision over their structure.
And in a European context,while he admitted that “clearly there are individual problems with jurisdictions,” there was hope for the usage of life funds as viable pooling vehicles for cross border pension provision, but domestic legislation in the UK was preventing life funds from fulfiling the potential.
“There is a need for change if UK life funds are able to sell themselves into Europe in a way that has been predicted but not realised to any great degree.” Reinsurance methods, he stated were not the only answers to this.
However, Robin Ellison of UK law firm Eversheds believed that Europe is not as far off from having a pan-European pension pooling system as some might believe. “The chance of a pan European pension scheme emerging over the next couple of years is good, probably 80%.”
David Vriesenga of Moody’s Investors Services in London spoke on the difficulties surrounding the rating of index funds since the advent of the euro, based on the fact that he expected the benchmarks to change “significantly over the next few years” which, he said, made it very difficult to award a realistic and forward looking risk rating.
Compounding this difficulty, he said, was the style issue which prevails amongst Europe’s fund industry. Fund managers are not sticking within the parameters set by the style they have quoted such as value or growth he said which makes it difficult to compare funds like-for-like.
“We are seeing inconsistencies in how funds are marketing themselves compared to how they are actually run,” he said.
He added by saying that measuring European funds on an equal basis is still a long way off, as long as Europe’s different states continue to present their own versions of performance measurement data. Even though Moody’s itself will be launching its ‘European Style Analyzer’ later this year in Europe which will rate funds on an equal basis, discrepancies still exist in terms of the lack of consistent historic data. Examples of such pre euro are differences in interest rates and currency risk in each jurisdiction, he said. “It makes it very, very difficult to make those easily comparable.”