Efama recently published its ideas for a pan-European personal pension. With the low take-up of IORPs, Peter Davy examines whether cross-border personal pensions have potential

It is time for a new pensions brand, according to Efama. Last month, the European Fund and Asset Management Association, representing managers with approximately €11 trillion in assets under management, published its “blueprint for a European brand” of cross-border personal pension.

The Ocerp (Officially Certified European Retirement Plan) plans (available online), argues Efama, would help provide a solution to Europe’s long-term savings systems deficit, providing a single, trusted quality mark for customers across the EU.

“European consumers need a product that is simple, cost-effective and transparent to encourage long-term savings,” it said.

The benefits are two-fold: first, it would provide a product for those whose residency changes over the course of their lives and want a retirement savings product that can follow them wherever they go within Europe.

“Mobility is still a very important objective in Brussels that remains to be achieved in Europe,” says Efama director of economics and research Bernard Delbecque. “One of the reasons why the eurozone crisis is so difficult to resolve is that there is still not enough labour mobility across Europe.” Pensions are part of solving that puzzle.

Perhaps more importantly for the banks, insurers and assets managers who it’s envisaged could sell the product is that there is the prospect of being able to sell pension products cross-border. Ocerp providers could look to an EU-wide customer base – addressing the ‘fragmentation’ of the pensions market.

The model in mind is Ucits funds, which are currently celebrating their 25th anniversary. Not only has the Ucits brand proved hugely popular, now a €6 trillion industry with 36,000 funds sold in more than 70 countries, the majority of sales are cross-border. In 2012, of €192 billion net Ucits sales, €97 billion were Ucits from Luxembourg and €91 billion were domiciled in Ireland – the two leading markets for cross-border sales.

“Ucits is really the best example of the potential offered by cross-border business if you had a passport,” says Delbecque.

And while occupational pan-European pensions have failed to take off to date (with just 82 cross-border IORPs operating as of June 2013), proponents argue that a personal pension could be easier to get off the ground.

“One reason is that you only have to interact with the individual, rather than employees and employers, staff representatives, unions, board members and so on,” says Italian administration services firm Previnet SpA senior manager for pension fund services and international clients Martino Braico.

“As long as the product is properly designed it should be less challenging to convince clients or individuals it is an interesting option.”

Further down the road, of course, Efama says it could lead to an occupational solution such as a group personal pension – as was the conclusion of European pensions and insurance regulator EIOPA, which is also in favour of developing a pan-European personal pensions market. A year ago its chairman Gabriel Bernardino suggested an “EU retirement savings product” could be developed to finance individual or collective DC plans, and its consultation on a possible EU single market for personal pension products closed in August.

Currently analysing the comments provided, EIOPA plans to publish its reasoned feedback together with the preliminary report for the European Commission at the beginning of next year.

An old problem
In fact, the idea of a pan-European pension scheme is far from new. In 2004, a report by the European Commission suggested products would emerge, over time, from industry initiatives – and indeed the European Financial Services Round Table of the chairmen and chief executives of Europe’s leading banks and insurance companies launched an initiative to set up a framework for an EU single market for personal pensions the same year. It followed up with a paper outlining the framework for them in 2007. To date, though, the plans have gone nowhere.

There are probably a number of reasons for that. First, not everyone agrees that personal pensions in the third pillar are an obvious stepping stone to widespread take up of pan-European second pillar schemes. Jop Versteegt, responsible for the Pan European Pension Fund solutions for Dutch insurer Achmea says collective occupational schemes have one big advantage: scale.

“For a multinational company setting up a pan-European pension fund, there is a sponsor and a group of members in place so they have the advantage of automatic economies of scale, instead of an individual approach in the third pillar with personal pensions,” he says.

And cross-border sales are unlikely to be easy. Personal pensions might not face the problems over solvency rules and some regulations that have played such a role in limiting uptake of cross-border IORPs, but they still have to win over savers to a new product.

“It’s a problem of who wants to take the risk,” says Olivier de Fontenay, founding associate of consultant Debory Eres, which publishes the Observatoire des Retraites Européennes analyses of EU countries’ pension systems.

“You may have a wonderful product but if you are the first entering the market and it is a foreign product no one will trust it. Unless one of the local actors has already developed a product no one would buy it – especially if it is sold by advisers; they would never take the risk.”

At Hargreaves Lansdown, head of pensions research Tom McPhail agrees. Distribution has always been the challenge. “We may be happy to buy a Japanese car or German audio system but I’m not sure we are quite ready to buy a French pension,” he says. To date, he notes, European providers such as AXA, Santander (through Abbey) or ATP (Now:Pensions) have established British brands to sell their products.

More fundamentally though, McPhail argues it’s doubtful the personal pension is the ideal vehicle. They look, he says, “a little obsolete” against more flexible options such as self-invested personal pensions (Sipp), the big trust-based workplace DC schemes (such as Now:Pensions) or even stakeholder pensions for a no-frills option. Not only is a Europe-wide personal pension such as Efama proposes likely to face significant obstacles, says McPhail, it’s unclear what purpose it serves.

“I’m just not sure there’s much point to it.”

Whether that’s true or not, at least one UK firm is betting on a Sipp beating the Ocerp to it: London & Colonial, which is launching its European Self Invested Personal Pension (EuroSipp) in the next month or two.

Tax troubles
At London & Colonial, chairman Robin Ellison shares McPhail’s doubts over the point of the Efama proposals, but for a slightly different reason: In theory they should be unnecessary, because it is meant to be possible to provide a cross-border personal pension already. The problem has always been tax authorities’ reluctance to give foreign schemes the same breaks enjoyed by domestic ones. Yet a series of cases against Finnish, Swedish, Belgian and Danish tax authorities, amongst others, has repeatedly confirmed that overseas pensions should receive equal treatment. And tax authorities have repeatedly refused to change their approach.

“It has been European pensions law for the thick end of 20 years to give cross-border tax relief,” he says. “You don’t need a change of policy or new regulations to do it.”

The problem, Ellison admits, is that no one does it. He adds that EuroSipp will be “compliant with judgments from the European Court of Justice”. However, he admits the company has neither the time, money or resources to fight the local tax authorities to ensure they are recognised across different jurisdictions.

Efama is not blind to such problems. It notes that significant “legal, prudential and tax hurdles” remain. Nevertheless, Delbecque says he’s hopeful it can convince the new Commission sitting from 2015 to table legislation during its mandate. “Hopefully sooner or later there will be some proposal to create a single market for pensions products.”

Even some supporters reckon it will be later, though. The Association of the Luxembourg Funds Industry (Alfi) is an enthusiastic supporter of such moves. Alfi Pension Funds Committee co-chair Thierry Flamand says that the Ucits funds its members sell would make the ideal investment for the pensions wrapper. But does he think the latest moves will have more success than in those in the past?

“Honestly, no. If I look at all the EU regulation around pension and life insurance and distribution it is still a long, long journey.”

Written by Peter Davy, a freelance journalist

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