Luxembourg to launch 'European pension fund'
The wraps were taken off the European pension fund made in Luxembourg" last month by Lucien Thiel of the Luxembourg Bankers' Association.
The fund would be designed for European companies that want to have "a single pension scheme with common rules for all their employees in different EMU member states" said Thiel.
More immediately, he said, it could be used for the mobile executive staff of international companies. This was an existing market which "can be canvassed immediately".
The bulk of the work has been done on the fund, Thiel told the recent conference of the Association of the Luxembourg Investment Funds in the Grand Duchy.
"The European pension fund will not be a pure financial instrument of the investment fund type, but a mix of asset management on the one hand and insurance on the other". The basic model of the fund would comprise a life annuity. "That will not make its design any easier", he added.
He described the legal form of the new product as a single structure combining "the two key elements of fiduciary management of a capital asset and a pensions obligation".
But the competitiveness of "our European pension fund" would depend on its tax treatment. "This is all the more delicate as the tax authorities in the country of origin will certainly not take a back seat." he said. "They will want their cut, either on the capital formation or on pension payments, or in the worst scenario, at both these stages."
To avoid double taxation, the tax burden on funds must be "reduced or neutralised in the country of domicile". Thiel saw this as perfectly feasible through the set up of provisions which could cover the fund's commitments to beneficiaries.
The aim would be to attract pensions fund assets from all over Europe, and Luxembourg was ideally placed to do this. "Our country lies in the very heart of this European region where pension funds are the least developed" he pointed out.
Two thirds of Luxembourg's banks originated from these countries, revealing the true potential of these markets. Thiel argued, "The fund must be globally more attractive than a national fund on its domestic market."
He says estimates of the new European pensions market put it at between BFr5,000 and BFr6,000bn ($170bn) on an annual average in the next 10 years.
Would the Luxembourg financial industry be able to attack this new market? With assets equivalent to $400bn being managed there al-ready, Thiel believed the country could become "a future centre for excellence of pension funds too".
The financial centre was starting from pole position in this race - Thiel's argument being that "Luxembourg no longer has to prove its expertise in the management of international capital flows."
The development of this new niche market for Luxembourg's banking industry was raised for the first time with the government last summer by the bankers' association.
The political authorities had "indicated their determination to support the initiative right down the line," said Thiel. Fennell Betson"