The Luxembourg government is now reviewing the completed proposals for two Luxembourg-domiciled pooled fund vehicles which will potentially be able to serve both defined benefit (DB) and defined contribution (DC) pension fund needs. The proposal, entitled Promotion of European pension funds" has the backing of practically all of the Luxembourg banking community, who are keen to develop products based on the proposed vehicles, says Lucien Thiel, general manager of the Luxembourg Bankers Association and the driving force behind the idea.
The two proposed vehicles - Société d'Epargne Pension á Capital Variable (SEPCAV) and Association d'Ep-argne Pensions (ASEP) - have been designed to fulfil the different re-quirements for the two main types of pension schemes. ASEP is an insurance-backed lifestyle fund based on the traditional DB system and collects contributions with the goal of paying a pension to the beneficiary. "That is the old European style system," comments Thiel, "And since we are still enshrined in a very tough social tradition we need this way." SEPCAV is similar to the existing SICAV vehicle which continental in-vestors are familiar with, though differs in the sense that the investors will not be shareholders of the fund as they are in a SICAV but will be the eventual beneficiaries.
"The two will_be under one roof in one legislation and can be offered by somebody who manages pension funds. If I am a Luxembourg pension fund manager I can offer you both - that's the idea"
Should the government accept the proposals, changes will need to be made to existing legislation on the permitted investment companies in Luxembourg, dated 1915.
Following the bill being presented before the Luxembourg parliament, institutions such as the chamber of commerce and the chamber of private employees will be asked to comment, before the council of state can offer its opinions which will be passed on to the special parliamentary commission who will prepare the discussion in parliament later this year. Thiel foresees the deadline for passing the bill as being no later than May 1999, before the elections, but adds the decision could be made as soon as December this year.
Yet to be agreed is who will operate the control authority in charge of these new pensions vehicles. "This is a very important element in the whole thing," says Thiel, "Since we have a very open architecture to allow everybody coming from different countries to put their product into the Luxembourg legislation, we need on the other hand a tough and solid control." Two possible options are the Central Bank which oversees the banking sector and the Luxembourg Insurance Institute. "That's up to the government to decide about that."
The possibility of a hybrid control authority - an insurance banking mix - says Thiel is more viable in Luxembourg than in some other European domiciles. "We can bring both to-gether - it is very difficult to do it in a bigger country because the Germans also had such a combination in mind and failed becasue there the interests of the insurance business and the banking business are by far heavier that they are not that easy to be brought together."
The tax question also remains unanswered and is likely to be the factor which restricts the wider degree of cross-border usage needed by multinational plans. "Once again it is up to the government to find the best solution together with the other tax authorities. But the government has already announced that they will finish the bill of law before the summer."
Meanwhile the players in Luxembourg are thinking about the designs for their product which will fit in with the SEPCAV and ASEP framework but will also be applicable to pension funds in their home country.
"They will have different products which depend on their origin and the home market of their mother company. "
He adds: "Now the players have to do their homework - we have done ours." Rachel Oliver"