EUROPE - Hewitt Associates has claimed a third of multi-national companies could have pan-European pension arrangements by 2015, as increased offerings from financial services providers could open the market to mid-sized companies.

Findings from a survey of 14 major financial services providers across Europe, including insurance organisations, suggest 75% of respondents have already implemented some form of cross-border pension product, and most have undertaken feasibility studies on behalf of multi-national companies.

In 2005, the EU Pension Directive provided a passport framework allowing companies to have a single pension scheme across multiple countries on both a defined benefit (DB) or defined contribution (DC) structure. However, Hewitt noted there are currently approximately only 80 funds making use of the directive.

Paul Bonser, senior international consultant at Hewitt Associates in London, suggested while companies have been expressing an interest in consolidating their pension arrangements for some time, they have been "somewhat reluctant to be the first to test the water'.

But he claimed several companies have implemented such arrangements, and with a number of financial services providers offering or developing new products "the proposition is becoming more feasible".

He added: It's clear both from our survey findings and from our own experience of the market that with several providers and a series of products available, the marketplace is becoming more competitive and attractively priced."   

The survey found, for example, that 77% of providers predict the cross-border pension market will continue to grow steadily, and most respondents believe the pace will quicken once the first few pan-European funds are made public.

However, Jacqueline Lommen, senior international consultant at Hewitt Netherlands, warned growth would be gradual, as companies will combine the pension arrangements that make sense, rather than adopting a 'big bang' approach.

"This is not about changing the benefit structure, but rather how it is financed. Aside from reducing complexity and improving risk management, this has many additional benefits for companies, including the potential to increase purchase power, reduce costs and make the benefit spend work harder," she added.

Bonser admitted the potential for savings varied depending on the location and size of the pension fund, the asset classes adopted and its use of existing managers and custodians. But, as an example, he suggested a multi-national firm combining five pension funds with total assets of €1bn could produce overall savings of €1-2m per year.

Findings from the survey also suggested the other options for cross-border pensions - under the Third Life Directive and virtual cross-border schemes with asset pooling - are unpopular with providers because of implementation obstacles, with just one provider stating a preference for using the Third Life Directive.

This leaves companies with the option of either establishing their own cross-border solution or participating in a multi-employer product operated by a financial services provider, which can be delivered as a 'bundled' service including scheme administration, investment management and actuarial services, or through an 'unbundled' approach where the services are available are separated.

Research showed 83% of providers are most willing to 'unbundle' DC administration, while 77% offer separate investment management. In addition, 75% offer multi-national risk pooling and 67% provide asset-pooling services, while 58% of providers are willing to consider 'unbundling' DB administration, asset liability studies and communication services.

Lommen said: "While establishing a pan-European pension vehicle is not without its challenges, we have not found any that are insurmountable. So far, it has been larger multinationals that have started to develop and implement their own custom-made cross-border pension solutions. We believe the market will open up to mid-market companies as financial service providers bring their products to market, making this a solution for all - and at attractive costs."

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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