BELGIUM - The Belgian government has passed legislation enabling pan-European pension funds to operate in and from the country.

The new law, passed on July 13, just before the end of the parliamentary term allows OFP (Organisme pour Fonds Pension) to be created.

"The legislation is expected to be operational by the end of this year," says Philip Neyt, president of the BVPI (Belgian Association of Pension Institutions), who was instrumental in the formation of the new law.

In addition, the country's council of ministers has agreed to introduce the EET pensions tax system in Belgium for the OFP. This will mean the removal of the annual 0.17% tax on pension fund capital as well as the removal of capital gains tax.

This is the first time Belgium will have a purpose built vehicle for occupational pension provision, Neyt points out. The ASBL format used by many corporate schemes has been adapted from other uses for pension purposes.

The OFP will be available to Belgian-based employers for both their domestic and cross border activities. It will also be available to multinational groups wanting to centralise their pension provision in one European country.

The multinational does not need to have operations in Belgium in order to be able to establish its pension plan there, Neyt points out.

The government is also changing the investment fund law to enable ‘institutional' fund structures to be set up, which can be confined to just one user and not have to offer its products to a wider public.

Neyt believes this will help pooling of assets by funds using the OFP. It means there is a flexible structure for pension funds wanting to use a range of sub-funds on a unitised basis to their different plans.

He emphasises that the new OFP is not just a transparent asset pooling vehicle, as offered by Luxembourg and Ireland. Though in his view it will be superior on this basis to either of these, due to Belgium's wide range of double taxation agreements.

The OFP is an independent legal entity, designed to be "flexible and transparent", he says. The prudential structure will enable sponsors to adapt the actual provisions of the fund to their different needs.

But the structure incorporates the OECD's pension governance guidelines. It also includes provision for a ‘social committee' to be built in. Neyt sees this as playing a role where the OFP has to meet the social and labour aspects of the EU's pensions directive under the host country requirements.

The OPF will be supervised by the CBFA, the Commission for Banking. Finance and Insurance, in Brussels. This will mean that the funds will come under Belgian funding requirements, which include using a 6% discount rate.

He believes this regime could be of interest to Dutch and UK employers, as it could allow them more flexibility on the asset side.

Neyt, who is an executive at Belgacom, the country's telecom's operator, said that after becoming president of the association, he approached the relevant ministers last May and was asked to formulate his thoughts.

He says he was concerned that under the freer pensions markets in Europe that the Belgian pension funds could disappear, particularly as a number of the country's bigger funds were sponsored by multinationals.

A task force was set up, which included representatives from multinationals, international law firms and consultants. The laws were drafted speedily by the Commission. "It was accepted unanimously by the government and the opposition parties," Neyt points out. All in all, it took just three months from concept to realisation, which he acknowledges is fast by Belgian standards.

Neyt believes that Belgian corporate schemes will transfer across to the OFP, and the new sector funds, which have to adopt a new structure by year-end, will also choose the new vehicle.