policy to allow employees of multi-national companies to pay into funds as they move between Eu states goes before council of ministers
The ability to transfer pension schemes across European borders is a step closer to reality, although concerns about the lack of tax and investment strategy harmonisation among EU members still remain.
Driven forward under the Spanish presidency of the European Commission, the proposals on crossborder pensions seek to allow employees of multi-national companies to make payments into their pension funds as they move from one member state to another.
The policy, which has had its first reading in the European parliament last summer, is currently before the Council of Ministers, which is considering member state submissions before it goes back to the parliament this summer.
EU members are aiming to have a common position by the end of June. The second reading will be later in the year, but there will not be any fundamental change in UK policy for about two years, according to Simon Gentry, head of European Affairs at the ABI.
Before crossborder pensions becomes a reality, a large number of obstacles have to be cleared, not least the wide diversity of tax relief rules for pension premiums in different member states.
It will, according to some observers, not be possible to implement fully without some level of tax harmonisation among member states in the EU, even if it succeeds in setting out the ground rules for an European-wide standard occupational pension scheme.
Gentry said the proposals will offer employees the best chance of being able to maintain their pension, even if they move to another EU country.
One threat that the Treasury is lobbying to defuse is that in seeking some level of pension harmonisation, it has been suggested that the draft policy should include regulations about investment strategy. This could threaten the status of the prudent man philosophy practised in the UK, under which asset allocation decisions are not stipulated, but must be 'prudent'.
Some countries such as Italy and Spain stipulate the amounts a pension fund must be invested in equities and fixed interest. The Treasury, supported by the IMA and the ABI, is keen to ensure the prudent man approach is not outlawed. The pensions directive is just one of seven currently being discussed in Europe. Another presents opportunities to advisers to expand their businesses into Europe. Gentry said that a draft directive will allow advisers to sell non-investment life products across the whole of Europe.
But Gentry said that to do this brokers will need to be registered by a statutory authority. Currently, insurance products are registered by the General Insurance Standards Council (GISC) which is not part of the FSA. Gentry stated that the GISC must be incorporated into the industry-wide regulator if these regulations were to be implemented into UK law. There is doubt in the intermediary market as to how much impact these changes would make to UK brokers.
However, if the EU directive is implemented as it stands, it will impose an extra level of regulation that will cost the industry and therefore the consumer money, said Gentry. The directive could mean that a 'best possible advice' clause is introduced to sales of this type of product.
The ABI estimates this could add up to 3% in costs per product because new admin systems capable of retrieving and storing relevant information would need to be implemented.
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