Guidelines for insurance companies in Luxembourg looking to break into the potentially lucrative pension fund market to come into being early next year in the Grand Duchy, were published last month by the Commissariat aux Assurances (CAA), Luxembourg's insurance regulator.

The circular has been published to fill the gap in prudential investment directives available for insurance companies, as Luxembourg looks to become the centre for European fund investment.

It seeks to clearly define the difference between collective pensions savings provision for retirement and life assurance or individual capitalisation products.

Pension funds, the guidelines emphasise, are employee savings schemes and the accent must be on their 'management', not a transfer of risk as with insurance.

As such, the circular continues, insurance company activity in pension fund investment must be on a prudent basis and be compatible with the fund's liabilities.

Investment rules should also be set out in advance between the company and insurer on to ensure conformity to the pension plan objectives.

Requirements demanded here include a full actuarial survey, as well as a comprehensive investment policy and communication system, to inform employees of the state of their benefits.

This information, including a breakdown of charges and administration costs, must be available at all time for scheme member perusal.

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