As more tax hurdles are being eliminated for cross-border pension schemes, there is increasing opportunity for large companies to save money, increase management efficiency and improve governance procedures by implementing pan-European pension arrangements.
The biggest barrier to cross-border pensions - which pool assets and liabilities from schemes in different countries - has been the discriminatory tax treatment applied by EU member states to pension arrangements established in other states. Traditionally, authorities have offered favourable tax treatment to pension arrangements in their own country, but have not extended these privileges to those in other states. Now, most EU member states have agreed not to discriminate on tax.
Speaking at a seminar in association with the European Commission, Yvonne Sonsino, principal at Mercer, said: "People have talked about pan-European pensions for years, but only now are they becoming a viable option for multinational companies. The tax barriers are breaking down and there is a huge opportunity for employers to benefit from the cost savings these arrangements offer."
While there are still issues to overcome, such as the need to comply with social and labour laws in each country involved in a cross-border scheme, Mercer believes the benefits will outweigh the disadvantages if the asset volume is large enough. By pooling scheme assets across countries, companies can benefit from lower investment management fees, greater risk control and reduced transaction costs. It also takes less time to oversee one plan than to manage multiple schemes.
Companies employing expatriate staff who frequently change location could particularly benefit. Sonsino says: "Pan-European pensions make it easier for employees to work in different EU countries without their benefits being reduced, so companies can gain from having a more flexible workforce. More multinational companies are now realising that cross-border schemes could be the way forward for their European pension arrangements."
