EUROPE – The European Commission should drop plans to revise the current IORP Directive for occupational pensions and focus instead on tackling issues surrounding accrued pension rights, according to Aon Hewitt.
The consultancy conceded the current IORP Directive implemented in 2003 worked "very well" from a cross-border pensions perspective, and that regulators in different EU countries generally cooperated "effectively" and "facilitated" cross-border activity.
But it also stressed that, while the existing directive worked well in enabling arrangements for future service, past rights were another issue.
Paul Bonser, partner and leader of Aon Hewitt's UK International Retirement Practice, said: "Where [the directive] is less satisfactory – and where we would like some change – is in enabling the way past service benefits from previous pension arrangements are consolidated.
"This is a key element for increasing the popularity and effectiveness of cross-border arrangements, with all the economies of scale and improved governance they can bring."
Bonser went on to say that the IORP Directive should facilitate the cross-border consolidation of assets and liabilities.
"A key part of the process of establishing a cross-border pension fund is the winding-up of existing local pension funds/insurance contracts and consolidating those assets and past service liabilities in the cross-border vehicle," he said.
"Failure to do so leads to increased operational costs and governance and an inability to benefit from economies of scale."
According to him, while some regulators in Europe already apply the "spirit" of the pensions directive to cross-border asset transfers, others are taking a more protectionist approach.
Additionally, Bonser stressed that most of the barriers to cross-border arrangements were "perceived rather than actual".
"Social and labour law are often cited, but they become non-issues if you are simply 'lifting and shifting' an existing benefit promise into a different financing vehicle, established in another European Economic Area country," he said.
Aon Hewitt called on Brussels to avoid "unnecessary changes" to the existing rules on cross-border pensions.
"Other than addressing asset transfers, the most influential action the EC should take is to communicate more effectively that the cross-border process does work in practice – using existing cases as positive examples – and that it is not obstructed by insurmountable barriers," Bonser said.
Last week, a report published by the European Insurance and Occupational Pensions Authority revealed that the number of IORPs dropped from 84 to 82 over the last 12 months.