The European Federation for Retirement Provision (EFRP) has mapped out proposals for a pan-European occupational pensions vehicle, which would circumvent the issue of national tax regimes – the litmus test for any practical European retirement savings plan.
And cost savings from the implementation of such a tax-neutral scheme, says the EFRP, could be in the region of e1.3m for the average multinational company.
In its report, A European Institution for Occupational Retirement Provision (EIORP), the EFRP explains that its core proposition is to create a workable single institution for occupational retirement. This would incorporate individual sections corresponding to national occupational pension regimes. While these sections would be kept separate in respect of taxation and labour law – thus rendering the vehicle tax neutral, assets and liabilities would be pooled for investment efficiency.
Cees van Rees, chairman of the EFRP, comments: “A single European IORP is urgently needed for European industry to be competitive and grant a high degree of social protection to the work force. This report sets out basic hurdles and the principles that have to be overcome.”
Recognising that the practical introduction of the plan may not be easy, the EFRP proposes a pilot project in European member states with well developed occupational pension plans and experienced supervisory boards. This it says would include Ireland, the Netherlands and the UK. Subsequently, member states such as Denmark and Belgium would be invited to join.
And the legal framework needed for such a plan to work, the federation says, is a single European licence, which it hopes will figure in September’s European Commission directive on supplementary pensions. Van Rees notes: “To achieve this objective the European legislator must lay down basic prudential principles that allow member states to mutually recognise each other’s supervisory systems and practices for pension funds or preferably, Institutions for Retirement Provision (IORP).”
Such a structure, the EFRP notes, could be applicable to any approved IORP, be it an insurance product, pension or other type of pension vehicle.
And overall reporting, it says, would be made to a single European prudential supervisory authority.
In proposing the EIORP, the EFRP comments that proposals for a Pan-European pensions case in the European Court of Justice – put forward by William M Mercer with the support of a number of multinationals, could produce a solution that is “either too complex, or too limited”.
However, it warns member states that a solution to the Pan-European pensions impasse is sorely needed.
“If the EFRP proposal or one like it, is not adopted by member states in the near future then it could be the European Court of Justice that decides how the single license will operate from a tax perspective.