The Luxembourg parliament has finally adopted a law giving legal status to the principality’s proposed European pension fund asset vehicles - SEPCAV and ASSEP.
The law, voted on May 20, is ex-pected to be published in the coming weeks before going before the Grand Duke of Luxembourg for signed ratification by the middle of June.
The SEPCAV, a pensions savings company with variable capital, based on the US 401k plan, seeks to ensure optimum investment yield for beneficiaries who are then free to dispose of the accumulated lump sum capital on retirement. The vehicle is liable for income tax, but at a rate sufficient to enable it to benefit from double tax treaties.
ASSEP, however, is a pensions savings association where the beneficiaries of the fund are not the owners or shareholders but creditors entitled to a benefit defined in advance.
As a non profit association, the ASSEP will be treated as a fully taxable company, with the idea that the tax would be virtual with income immediately transferred to reserves to cover pension commitments.
Victor Rod, president of the Luxembourg Insurance Supervisory Board (Commissariat aux Assurances), says: “ I think that now the framework is established it is up to the financial institutions to firstly start marketing the idea, and secondly to breathe real life into these investment vehicles.
“I’m quite optimistic this framework will be fulfilled, although I’m afraid that in the mean time this will not be easy while there is no European pension fund harmonisation regulations to work around. I’m not personally convinced there will be any major developments without a European legal structure.
“For expatriate workers in multinational companies, however, there is definitely scope now for bringing more of this business to Luxembourg.”
James Ball, managing director of investment and life consultants JBI Associates in Luxembourg, comments: “Clearly until there is a European solution to these issues, then Luxembourg’s law can only be used in those jurisdictions which will allow cross border investment and taxation treaties.
“Otherwise, there is certainly a building effort happening in Luxembourg to chase the business of Jersey, Guernsey and Switzerland - the rump end international employee benefit and expatriate schemes.
“Furthermore, the legislation does appear to have acted as a catalyst for the banks here to eye up the international pensions market. They are taking the organisational and structural side very seriously, with a view to offering ‘one stop’ investment products, possibly via strategic alliances with other fund managers and better relationships with benefits consultants.” Hugh Wheelan