The potential reform to the taxation of pensions in the UK has highlighted the complexities of creating a pan-European pension product.

Delivering the Budget in the House of Commons on 8 July, UK Chancellor George Osborne announced the launch of a green paper to look at overhauling the current taxation of pensions.

Osborne said he is open to “further radical change” including making the taxation of pensions more like the way ISAs are taxed.

However, Pinsent Masons pensions lawyer Simon Tyler noted that when different countries within the EU tax pension savings and benefits in different ways, the idea of a cross border pension product becomes “tricky”.

Squire Patton Boggs pensions partner Matthew Giles added taxing pensions like ISAs would “clearly set us apart from other EU member states that tax occupational pensions”. “TEE is not the preferred model of the European Commission,” Giles added.

“Although the paper does not specifically address the different approaches to pensions tax relief across the EU, a standardised product will no doubt be harder to develop and implement if the UK is falling out of line with its European neighbours on its approach to pensions tax relief.”

Earlier this week the European Insurance and Occupational Pensions Authority launched a consultation on creating a standardised pan-European pension product (PEPP).

The objective of the PEPP is to encourage EU citizens to save for an adequate retirement income by creating a “simple, transparent, cost effective and trustworthy” product.

To achieve this objective, EIOPA suggests the creation of a harmonised legal framework for an internal European PEPP market.

This framework would ensure a level playing field between all providers; remove existing barriers to cross-border business and, thus, facilitate cross-border offering of PEPPs to consumers; as well as facilitate a multi-pillar approach to pension saving.

“Tax treaties will be required to ensure individuals aren’t taxed twice – or not at all – on their pension savings. A proposal of this type would make reaching agreement on a common way forward harder, not easier,” Tyler said.

However, Broadstone technical director Dave Brooks said proposals for a pan-European pension product are like “comets” and are many years from having any practical impact.

“We have already seen with cross-border schemes that the harmonisation of arrangements across EU member states’ borders can have disproportionate effects. In the UK’s case, broadly speaking, a DB scheme that operates as a cross-border scheme must satisfy full funding requirements,” he said.

Brooks said DC arrangements are a “little easier” but if each state treats the taxation of contributions and the interaction with state benefits differently the savings from economies of scale could be written off due to increased complication.

He predicted the UK would object to harmonised tax rules because of an “ideological standpoint” where freedom and range of choice is highly valued and individuals would prefer not to be forced into a product designed in Brussels.

“Europe has a vested interest in providing sound pension provision and should work on promoting equal treatment and good practice over governance, custodianship and charges,” he concluded.

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