EUROPE - The European pension funds industry could save up to e10bn annually through the implementation of the updated EIORP model introduced by the European Federation for Retirement Provision (EFRP).
EFRP chairman, Alan Pickering presented the report entitled ‘European Institution for Occupational Retirement Provision’ (EIORP) to the EU Commissioner Frits Bolkestein on December 3, 2003.
“The road to pan-European pension funds and the cross-border provision of pension schemes is open,” EFRP said.
EIORP 2005 - the EFRP model for pan-European pensions- is an occupational pension vehicle designed to hold its assets as a single, undivided fund, benefit from the ‘single passport’ provided under the IORP Directive, simultaneously achieving multi-jurisdictional compliance in areas where each member state may have its own rules.
EFRP predicts that the benefits to pension funds could be much larger than the savings in direct costs. Total overall savings are estimated at 45 basis points.
Annual performance could be lifted by an estimated 15 basis points saved from improved investment costs, administration, compliance, expatriates schemes and better governance.
An additional 30 basis points could be saved by better investment returns and the ability to smooth out the ups and downs in solvency capital requirements by having one fund of assets and liabilities, the EFRP estimates.
“Even if only part of these savings were realised, the benefit to Europe’s competitiveness would be significant,” EFRP said.
The EIORP 2005 model also increases the opportunities for financial service providers since pan-European pension funds will need professional fund management, administration, risk insurance on a pan-European scale.
The model focuses in particular on taxation aspects since they were identified as the major hurdle for EIORPs. No tax harmonisation is needed for the model.
The EFRP proposal provides a solution which ensures that member states retain both effective and fiscal control and their tax revenue.
Pickering said: “Multi-national companies have already tested the waters on pan-European pensions and cross-border operations. They are most likely to be in the first wave of ‘EIORP pioneers’.”
“For governments, the EIORP models offers tax neutrality, ensures effective fiscal supervision and prevents tax evasion. It will bring advantages both to employers and employees because EIORPs generate cost savings, enhanced investment returns and promote intangible benefits such as a consistent benefits philosophy and improved risk control,” the EFRP report added.
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