AMSTERDAM — EU finance ministers have reached a Spanish-led compromise for the long-awaited EU-wide pension funds directive, bringing Europe’s private firms a step closer to offering employees cross-border pensions.

The EU says Europe-based companies could save as much as EUR 40 million per year by pooling their pension assets from different member states. The directive does not include provisions for how taxes on cross-border pensions will be handled, an issue the EU will have to deal with in the future.

Although France dropped its objections to the plan, Belgium’s opposition has delayed the formal majority vote, which will have to take place before the EU summit in Seville 21 June.

After that, the pension funds directive will go to the European Parliament for a vote. The directive will not go into affect until 24 months after it has passed, however, likely making the earliest date for offering pan-European funds mid to late 2004.

Rather than having several defined, quantitative restrictions, the EU-wide pensions would operate under the “prudent person rule”, which means that the funds would need to have diverse investments and be able to cover their liabilities. The aim is to protect future pensioners while decreasing the financial burden pensions put on multinationals.

Some “general qualitative principles” in the directive explain the meaning of prudence in asset allocation, according to an EU statement.

Yet member states would have the right to ask a pension fund from another member state to apply the same quantitative rules that that country applies to its own funds. An EU spokesperson confirmed that a UK-based fund, for instance, may have to abide by France’s pension regulations when offering its pension in France, but only if asked by the French government to do so.

It’s precisely this aspect of the plan that may discourage multinationals from using the “European passport” funds.

Alan Pickering, chairman of the European Federation of Retirement Provision (EFRP) told International Pensions News that “Unfortunately, Member States can choose to keep in place quantitative regimes as a 'derogation' to the general prudent person rule. EFRP regrets [this] option”.

The compromise plan does not affect the way domestic-only pension schemes operate — a concern of the UK and member states that already have well-developed private pension systems.

“The question is, will organisations be willing to put in the time and expense of setting up these things, which may depend to a certain extent on how the economy goes,” says David Collinson, a partner with the UK office of HR consulting firm Watson Wyatt.

Collinson believes that while this proposal could help some expatriates, most are able to stay and will continue to stay in their home-country schemes.

The pan-European pensions directive has been in the works since 1998 and the last proposal came in October 2000. Spain, which has held the EU presidency since 1 January, made pensions a priority and wanted to reach an agreement on the directive before the end of its presidency on 30 June.

[Copyright Expatica News 2002]