Scepticism over cross-border schemes
The desire to implement defined contribution (DC) pension plans is growing among companies around the world, while the necessity, one day, of a pan-European DC scheme is at the front of industry minds. But even though some pension providers have already paved the way, the journey is a long one.
Speakers at the World Pension summit held in Amsterdam last month agreed on one point: since the Institutions for Occupational Retirement Provision (IORP) directive was introduced in June 2003, the launch of cross-border pension schemes in Europe has been limited, with only 84 pension funds now involved in such activity.
Clearly, several barriers remain. Anne-Marie Struycken-van Daelen, a partner at law firm De Brauw Blackstone Westbroek, noted that one of the main issues for pension providers is to comply with social security and labour laws of both the home state and the host state.
As a result, most pension fund represen-tatives attending the conference did not seem to be in a hurry to launch cross-border funds, and actually sounded quite sceptical about the possibility of setting up such vehicles.
And even though the European Commission issued a call for advice in April this year to the European Insurance and Occupational Pensions Authority (EIOPA) on the reform of the IORP due to the low uptake of cross-border pension funds, a recent Aegon Global Pensions report has pointed out that the debate is still ongoing.
According to the report, ‘Pensions in Europe’, “the path to cross-border IORPs is more complex and the ultimate benefits that can be realised are, to many companies, less clear”.
Nonetheless, Erik Schouten, co-author of the report with Thurstan Robinson and Heleen Vaandrager of Aegon Global Pensions’, continue: “Although it may look like something of an impasse has arisen, the European pensions environment is far from static, and we can expect some significant developments over the next year.”
Meanwhile, other issues such as longevity were also in the spotlight during the three-day conference. A panel of four speakers from the US, Canada, Mexico and Sweden spent 45 minutes explaining what programmes their governments have or are putting in place to face the ageing of the population.
Among the four countries, only Canada seems to have coped pretty well with the problem. Mark L Newton, partner at law firm Heenan Blaikie, explained that the country is relatively new and has managed to solve some of its issues through immigration.
As for Mexico, Monica Schiaffino, a lawyer from another law firm, Basham Ringe and Correa, admitted that the country was also facing a serious longevity problem, but with one difference compared with other countries: the government is not implementing any programme to change the situation.
Finally, the last day was again devoted to the desire from companies to implement DC schemes. According to Klaus Mössle, managing director at Fidelity International in Germany, DC plans can flourish as much as a defined benefit scheme if companies implement the right design.
“A large number of companies, especially in the US, are now looking to implement DC schemes,” he said. “These companies should understand such plans are not about cost reduction but risk control.”