Fennell Betson reports from the Multinationals Pensions conference in Amsterdam
The best chance for a solution to EU cross-border pensions tax barriers lay with a voluntary multilateral code of conduct accepted by member states, Geoffrey Furlonger, head of EU practice at Mercer in Brussels told the Multinationals Pensions conference, organised jointly in Amsterdam by IBC and IPE last month.
There are good prospects for re-moving the pensions tax barriers," he said to the 150 delegates attending.
The proposal to try to renegotiate bilateral treaties on tax discrimination as the official Ecofin committee proposed, he dismissed, as impractical, since it would require over 100 treaties to cover just 15 member states.
The pressure being applied by the proposed test case on pensions by multinationals to the European Court of Justice (ECJ) was very im-portant. "Member states do not want a ruling from the court to tell them what to do. They will prefer to do something themselves, so they could go for a voluntary code." This combination of the case threat and other regulatory activity made him hopeful about the removal of barriers.
But he was less optimistic about the emergence of the pensions directive Commissioner Monti was working on. The prudent man proposals, allowing fund managers full investment discretion, made it unacceptable to some member states.
The Pan-European Pensions Association is sponsoring the proposed tax challenge to the ECJ and its legal adviser Robin Ellison of London law firm Eversheds outlined the legal background, while Lynn Ellis of Anglo-Norwegian group Kvaerner, which initiated the move along with bio science group Zeneca, gave her views as to the group's thinking on cross border pensions. "We have to make every penny of provision count. As it is not possible to run schemes across Europe, the pensions cost per employee is higher."
The main reason for consolidation was to have more effective use of assets. "The money is in improving as set returns." She added that if both assets and liabilities could be pooled, there would be just one surplus emerging. At present, the group had both over funded and under funded schemes, "but we cannot balance one with the other."
One driving force behind the AT&T-Unisource scheme was to do something immediately in the form of a cross-border scheme, Jeroen Tomesen of consultants Incent in the Netherlands. He described it as a de-centralised approach to providing pensions plans on a local basis, where they would enjoy local tax advantages, but giving a common investment approach (see IPE December 1999) through the use of an arrangement involving a series of Dutch stichting vehicles, one for each individual investment fund. These are administered centrally by Fortis. "The stichting is the owner of each plan." Already operational in the UK, Netherlands and Switzerland, Tomesan said the inclusion of Germany was being examined. "There will be a big increase in membership in 1999."
The pitfalls to be avoided when harmonising pension schemes in the wake of a massive merger, as in the case of Guinness and Grand Metropolitan to form Diageo, were robustly tackled by Steve Mingle, group pension and benefits director of the new group. "Harmonisation of benefits referred only to those earned after the merger," he pointed out. "There would be no benefit windfalls, as we were not in a 'best of everything' scenario."
A well funded defined benefit plan provided the lowest cost per unit of benefit, he maintained, adding: "It has to be well funded." A surplus of assets over liabilities was essential in order to invest in equities to the extent required to maximise returns to obtain the required outperformance.
Employers must control their funds' surplus so that they could control the investment risks. "If an employer cannot do this, there will be less surplus longer term and less benefits, because of lower equity proportions and lower returns.""