Heart of the matter

philip neyt

Some people bring a dedication and commitment to their work that is truly commendable and shows a degree of leadership most could only dream of. Usually modest and humble in their approach, these are the outstanding thought leaders that take their industries to the pinnacle of their development with levels of innovation that can only serve to take their chosen industry to the next level while laying the ground work for what lies beyond.

A Belgian national, Philip Neyt is no newcomer to the European pensions landscape. Armed with a master’s degree in economics and political and social sciences from the Universities of Leuven and Brussels, Neyt began his career at the University of Antwerp, where he lectured on finance and financial planning. A prominent member of Belgium’s pensions and asset management sectors, Neyt has held a number of influential and high-ranking posts and remains chief public affairs officer at the Belgacom Group. He was also chief executive officer of the group’s pension scheme before it was wound up a couple of years back.

But perhaps his most notable and influential position to date is as chairman of the Belgian Pension Funds Association Funds (BPFA), where he has been instrumental in establishing Belgium as a location for a pan-European pension fund – a concept he believes in without reservation and one he has pursued relentlessly. The driving force behind legislative changes to Belgium’s pensions laws, Neyt foresees a future of open architecture dominating pension funds and increased transnational co-operation.“ The key issues for pension funds in the future will be globalisation, outsourcing and short-term solvency with long-term continuity,”Neyt told IPE.“Pension funds will enter an era of globalisation, while following general trends of their industry and their sponsors.”

This era of globalisation can only lead to genuinely cross-border pension schemes, and with Belgium at its heart, Europe, with its multitude of national states operating in close union, provides the perfect breeding ground. This is why Neyt as head of the BPFA has worked hard in recent times to show Belgium is leading the way towards achieving this goal.

Why Belgium?
Recent changes to Belgian law have made it a very attractive location for multinationals to base their pension fund there. This is thanks to tax changes, changes to the legal structure of pension schemes domiciled in Belgium, an autonomous legal frame- work, skilled and experienced workforce, and Belgium’s attractive central location and political importance.

“The key issues for pension funds in the future will be globalisation, outsourcing and short-term solvency with long-term continuity. Pension funds will enter an era of globalisation, while following general trends of their industry and their sponsors”

Belgium is home to the European Union’s main political institutions and is geographically at the heart of the EU. This is perfect for multinational groups and institutions looking for a key central base from which to operate. Belgium has been proactive in ensuring favourable tax regimes to retain its competitive edge in this respect and 50 years at the heart of Europe has seen it build up the expertise and skills among its own workforce to run and oversee transnational operations at the level a pan-European pension fund demands.

Tax reform
Changes to Belgium’s tax laws in 2006, which the BPFA lobbied for, have made it the perfect country for niche sectors such as pension funds to establish their internationally structured arrangements. The key change is an exemption on dividends. Neyt gives a perfect example of the possible gains: “Pension funds usually invest in three things: shares,bonds and/or property. Let’s suppose a pension fund holds some shares in an American company and receives a dividend worth €100. Under the old system, the legislator would cap that amount by 15% in American tax and then by 25% in Belgian tax. The actual net dividend worked out at less than €64. Today, with the Belgian tax reforms removing the double taxation altogether, a scheme domiciled in Belgium is subject only to Belgian law. Thus that dividend of €100 gross is worth €100 net. That’s a significant increase in yield.”

Wise arrangement
The BPFA says Belgium often goes beyond just adopting European legislation and adapts its national regulations to enhance their objectives. As regards pensions, it not only fully implemented the EU’s IORP (Institutions for Occupational Retirement Provision) Directive, but seized the opportunity to redefine its own philosophy concerning cross-border second pillar provision. This led to a new and transparent, flexible, prudential legal framework in 2006 focusing on the “prudent person” principle.“ The Act offers a flexibility which allows the pension fund the best means possible to respond to the specific needs and wishes of the multinational, group of companies and its members,” says the BPFA.

The beauty of this structure means a pan-European pension scheme does not have to deal with the multitude of national regulations and authorities, even if its sponsor does.“A pension fund located in Belgium may have cross-border activities and operate several pension plans in different countries. The pension fund will, however, solely be subject to the Belgian legal and regulatory prudential framework. If employees affiliated to the pension fund are working in countries belonging to the European Economic Area, the relevant legal provisions of their country’s social and labour laws must be respected. The Belgian framework offers on the one hand a guarantee of solid management securing the interests and members’ pensions rights while, on the other, provides a high degree of flexibility in the level of funding by the sponsor,” explains the BPFA.

The new legal structure for the transnational scheme is called OFP – Organisation for Financing Pensions.“ The OFP is a separate legal entity solely liable for its assets and obligations and distinct from the sponsoring undertakings. It is specifically designed to allow for a flexible governance structure and organisation with at least two governing bodies: a general assembly to oversee its operations and a board of directors to determine how it will operate,” the BPFA comments.

As a separate legal entity, the OFP is autonomous in law and is not subject to laws governing other structures and entities to which it may be connected – in Belgium or elsewhere. Moreover, establishing an OFP is easy and swift – a single corporate sponsor may do it merely by adopting by-laws. “The by-laws do not need to be drafted by a notary nor do they require court approval,” says the BPFA.