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Pension pooling a way to “get rid of trustees”

EUROPE – Pension pooling by multinational companies may be a way for them to “get rid of” uncooperative local trustees, an industry conference has been told.

Brian Hill, head of global custody consulting at Watson Wyatt, told delegates at a conference in London that a new pension pooling product would likely see plan sponsors set up a management committee to set asset allocation and select managers.

“There’ll be a group that’ll tell the management company what to do,” he said. He said the technique would enable large firms to “get rid of local trustees who are not going to do what you tell them”. Trustees – who may be against the idea of pooling - were seen as one of a series of “governance” issues faced by companies.

The comments coincided with a call by an EU body called the European Association of Paritarian Institutions. or AEIP, for European-level collective pension agreements.

It said: “The main idea of AEIP is to assess possibilities for the actors (employers’ and employees’ representatives) to create at the European level collective agreements in multinational companies and in professional sectors on cross-border membership.”

It said there is a “major difficulty” with the pension directive, Institutions for Occupational Retirement Provision. It said the lack of clear definitions of what I national and social law would hinder the smooth implementation.

Computer giant IBM – which already has a rocky relationship with its trustees in the UK - is one company that has “gone public” about looking at pension pooling.

“Will the trustee model actually be able to survive under the auspices of the IORP?” Watson’s Hill said today.

Pension pooling enables firms to deal with the “huge complexities” of tax regulations and legal jurisdictions, Hill said. “For a multinational that can often become the driving force.”

Pension funds themselves would not set up pooling at their own volition but would need a financial services provider. Hill remarked: “It’s not something for industrial companies to undertake.”

Firms will be able to get a “better bang for their buck” due to economies of scale, Hill said, adding: “Money talks in volumes.”

This would also have an impact on suppliers such as actuaries, consultants, asset managers and custodians, who would have to raise their game. He added: “I think all fees are going to come under pressure from every provider.”

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