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Multinationals await law changes for pan-European pension funds

EUROPE – Multinationals operating across Europe will probably begin to establish pan European pension funds (PEPFs) once it becomes clearer how EU countries will modify their laws and make tax and other changes when implementing the pensions directive, according to international consultants Hewitt.

Countries have until September next year to incorporate the directive into their national laws.

Establishing a central fund, as allowed by the directive, could have a number of key advantages for multinationals. In a recent survey, Hewitt found that corporates saw that PEPFs could mean improved governance and risk management.

“Using one central fund helps to focus management resources effectively and remove an administrative burden from local managements where expertise may not always be available,” the consultants observed.

Multinational believe there could be cost savings, the survey also found. These would arise from economies of scale through reduced investment, administration and compliance charges.

“Estimates of direct potential savings vary, but could be as much as 0.3% of funds under management per annum, though these will depend on each company’s circumstances,” said Hewitt.

The survey found that multinationals felt that introducing single retirement funds could be used as an opportunity to make changes that would otherwise be difficult to implement, helping with the process of restructuring. It provided an occasion to improve efficiency and roll out policies such as changing from defined benefit to defined contributions.

But Hewitt warned that establishing a PEPF would not remove all technical, administrative and fiscal constraints that multinationals face when operating in different national markets, as labour, social security and direct tax are country specific and not harmonised.

Despite the hurdles, the age of the PEPF is dawning, Hewitt said. It expected that the pension tax barriers in most EU states would have been addressed by the September 2005 date for directive implementation.

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