Belgium: opportunities for pan-European pension funds

Henk Becquaert from the Belgian Control Authorities tells Francesca Fabrizi why Belgium has so much to offer pan-European plans looking for a home

The Europeans have always been a competitive bunch– the European Championships later this year will undoubtedly provide enough evidence of this. Even when it comes to pensions, arguments about which country offers the most advantageous hub to a multi-national looking to set-up a pan-European pension fund have caused numerous spats across the borders.

One country that some might argue is ahead of the game is Belgium in that it has made huge efforts to make its proposition one of the most competitive in the European space and there are certainly a number of things Belgium has done to make itself a prime location for any new pan-European pension plan looking for a home.
Like others of its European counterparts, Belgium grasped the opportunity provided by the implementation of the European Directive 2003/41/EC on Institutions for Occupational Retirement Provisions (IORP) and designed a new legal vehicle – the Organism for the Financing of Pensions (OFP).

Henk Becquaert, who sits on the management committee at the Belgian Control Authorities* (CBFA), has played a crucial role in developing Belgian pension regulation in this area and argues that a number of different elements make the OFP a very attractive proposition.

“Belgium offers a number of definite advantages over other European countries and the first is that we have a specific law for IORPs – the OFP – which has been written specifically to attract pension funds. In the development of this law we have take into account companies’ interests – we have done a huge amount of research and taken on board what they like and don’t like, what they need and don’t need, and have also taken into account a lot of their concerns.
“This has resulted in a very flexible new legal entity which offers the basic legal criteria necessary for any pan-European plan which can then be adapted according to the requirements of the plan sponsors. For example they can organise the ring-fencing according to their wishes – so it is very flexible, very transparent and can be adapted easily which is a big advantage.

“Another big advantage is that we have put into place the prudent pension principle which means there are almost no quantitative rules, only qualitative – so you can have a solvency framework adapted to each country as long
as it is prudent and meets the principles of good governance.

This makes sense as there is a very diverse landscape through-out Europe.

Last but not least, the tax advantages of the Belgian framework are considerable, Becquaert, continues: “The tax regime of pension funds has also changed in Belgium to the extent that there is almost no tax on pension funds – on the core business of the pension fund anyway – which is very advantageous.”

One of the more difficult issues associated with pan-European pension funds is the fact that different social and labour laws apply in different jurisdictions and with each plan. To address this problem, the Belgian authorities have tried to find a solution by creating the possibility for social committees. “These are commonly organised on a global level but could also be on a country, company or even plan level, and you can organise via these committees specific disclosures, and these committees can make binding and non binding decisions which we are confident will prove extremely helpful.”

All in all, argues Paul Kelly, principal at Towers Perrin (a firm which has seen a lot of client interest in this area): “One of the biggest points in favour of the OFP legislation is that it is one of the few legislations that has came in after the IORP directive, and that has tried not simply to put the words of the directive into the law (as some other countries have done) but it has put a framework in place to allow pan-European pensions to happen.”

The pan-European debate
Pan-European pensions have been a popular topic of discussion for some time now but while there
was once a huge amount of scepticism surrounding their feasibility, interest among multi-nationals has certainly increased.

Towers Perrin, for example, conducted a survey earlier in the year whereby 52 per cent of the multi-nationals involved expressed an interest in pan-European pensions, compared with only 29 per cent in last year’s survey.

There is also more awareness of the fact that pan-European plans can be set up for just a portion of a company’s employees, as opposed to the whole workforce; for example, for mobile workers or in new markets.

Kelly explains: “Continental European companies, particularly in Belgium, the Netherlands, Germany and Switzerland, are seeing the logic of having one plan instead of, say, three.

“In comparison UK companies are more wary – they often have the biggest plans so feel they have the most to lose.”
The reasons why a company might want to go down this route are manifold. It offers them a better overview of the company pension schemes, investments and commitments; while the risks for the pan-European pension institution can be calculated as a whole. So while reducing costs is still the main driver for those looking at pan-European plans, this is also coupled with risk reduction,asserts Becquaert: “I think with IFRS, companies are more aware of their pension liabilities and they are certainly more aware of the need to better understand the risks inherent in their pension schemes, which they can better control with a pan-European fund.”

“The reality is, if you want to reduce your costs while knowing your risks you need to centralise these elements because to have your own expert in each country is more expensive than having just one, and this is where an IORP can provide the perfect solution.”

But it’s not a battle yet won – the complexity surrounding pan-European pensions is still a concern for many, and tax can be an issue; a lot of the tax boundaries may have already fallen away but for some countries it is still difficult
to transfer a lot of assets, so this is still an issue that the European Commission is working hard to tackle.

But the interest is certainly there, confirms both Becquaert and Kelly, with some new names that are going down this route to be announced imminently. Concludes Becquaert: “I don’t think in the short-term we will see very big pan-European pension plans being set up, it will start with the smaller plans – for example with mobile workers or in new markets – but thereafter we will see bigger existing funds going down this road and we are confident Belgium can offer them an attractive hub in which do set themselves up.”

* Commission Bancaire Financière et des Assurances (CBFA): visit www.cbfa.be