When representatives from multinationals descended on Amsterdam for the annual multipensions conference, it was no surprise that a report on the progress of the European pensions directive topped the bill. As the two-day conference drew to a conclusion, though, the directive appeared almost an irrelevance and was completely overshadowed by tax harmonisation as being the most pressing issue for multinationals.
Opening the conference was MEP Othmar Karas who spoke of the latest developments, or lack of, in the directive. Karas said that the pension directive is no longer a matter for the Belgium presidency but probably a matter for the successors, the Spanish. “This is even more astonishing as the pension directive has been given top priority by the financial services action plan as well as the EU risk capital initiative. This priority has been confirmed and specifically underlined by a number of Ecofin and European councils, that is, the heads of state and government,” he said.
In his opinion, the Commission and Parliament have fulfilled their duties and that it is now down to the councils to sort out the directive. He even urged delegates to exert more pressure at the national level so at to add impetus to the process. Here one of the weaknesses of decision making at the European level was evident for all to see when Dieter Klein of the BASF pension fund asked who exactly it was who really takes the decisions on the directive. Karas’s response was interpreted as everyone in equal measures. In other words, delegates were being told lobby but whom was left unclear.
He conceded, however, that the issue of taxation is essential for cross border funds to be a reality and it was this theme that prevailed for the rest of the gathering. Speaker after speaker suggested that the directive was totally ineffective without any tax harmonisation. One delegate, who asked not to be named, said during a break that most multinationals in fact cared little for the directive compared with tax harmonisation. There are already wheezes that they employ to overcome the lack of cross-border pension. “The EC directive would certainly be welcome but it’s not seen by them as essential,” he said.
This theme was thoroughly driven home during a panel discussion between Robin Ellison, Geoffrey Furlonger and Willem Handels of Shell pension fund in The Hague. Ellison, a partner at Eversheds law firm in London, is a regular speaker on the conference circuit and is not known for mincing his words – this time was no exception. “It doesn’t matter if the directive is passed or not, tax harmonisation is essential.” Ellison says there are a number of cases in the European court of justice that are favourable on the issue of cross-border tax harmonisation. He said he got the impression that that judges in the European court European court are becoming more sympathetic towards the notion of tax harmonisation.
Geoffrey Furlonger, director of pension services at Lombard, cited the case of Swedes wanting to buy foreign pensions but being prevented by the government. He also referred to the case of German born Rolf Dieter Danner, the man at the centre of the first cross-border pensions case to be considered by the ECJ. “At the moment there’s perhaps too much concentration on the directive but there will eventually be pan European pensions,” was Furlonger’s conclusion.
Jos Verlinden of Tractebel, the Belgian utility company, said they supported the EC’s objective to put forward a proper legal framework for pension funds. Verlinden had a few criticisms for the directive, not least his claim that the Commission is simply wrong to equate pension funds with individual life insurance business. “It is clear that these are two different bodies with two different objectives,” he said, adding that the objective of pension funds was to ensure the welfare of pensioners and that it had no need to make profits for its shareholders.
Verlinden was among the many speakers who referred to the directive but ended up giving the issue of tax harmonisation top billing saying it is the most critical issue to provide a pension to internationally mobile employees. He suggested that at present many large companies are bending the tax rules. He finished by saying he hoped the directive would be passed quickly. Airing his disappointment that it will probably not be passed until either the Spanish or Danish presidency he said that in mitigation that “It’s better to have no directive at all that a bad directive.”
Robert Baker, William Mercer’s head of multinational consulting, changed tack and gave an exposition of managing assets globally. Most of Mercers’ multinational clients make investment decisions locally and then report back to headquarters. In practice this means there is no global integration among plans and that inconsistent policies abound. He says this is all changing, multinationals realise this approach is inefficient and are trying to centralise decision-making.
“By managing pension assets on a multi country basis, multinationals believe they can achieve enhanced returns, reduced costs and better manage risk.” He went on to say that at the moment most multinationals have got no further than local decision making. Most are moving towards making decisions centrally and implementing them locally, the nirvana being the creation of a single, global asset pool.
There were then a few case studies of how multinationals in practice run their pension funds. Traci Hughes, HR director at Colgate Palmolive Europe, gave a run down of their arrangements. US headquarters oversee policy but she said it is apparent that there is a lack of understanding as to the various European systems. In the US the group has both a traditional defined benefit plan and a newer cash balance plan and within Europe there is a mix of government sponsored plans in each country along with a few countries that have their own company-sponsored plans.
In practice, establishing eventual retirement provisions sounds arduous. International expatriates are automatically on the US cash balance pension. On their retirement, someone in the global benefits department in the US co-ordinates with the local subsidiaries to verify if any ‘local’ benefit is or will be due to the employee. Once the data is collected, an external actuary makes a final calculation. She referred to these pensions as Frankensteins, cobbled together on retirement. It was no surprise therefore to hear her return to the opening theme and say that “pan European pensions would be very attractive to us and they would ease regional transfer costs and dilemmas that we face today”.

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