EUROPE - If cross-border pensions within Europe are hard enough, to achieve closer cross-border arrangements in a wider context for multinationals with global coverage might seem well nigh impossible.
But the current is running in the same direction here too. With some form of common approach within different jurisdictions, costs can be cut and efficiencies introduced.
The obstacles to one fund for all are formidable. Myriad regulatory and tax regimes are just the beginning. The list is daunting: a different structure of pension provision within the different jurisdictions with first pillar provision the dominant form in some states, yet minimal or non existent in others; different legal frameworks with trust law recognised in some locations but not in others; asset management organised either internally or outsourced to external managers; some jurisdictions with draconian restrictions in what pension funds can invest in, others allowing prudent man rules; in some countries wide influence of consultants, in others hardly any.
A survey last year from Watson Wyatt found moves accelerating towards a consistent approach globally across plans. This trend is discernible in the area of global governance.
“If we look at the global governance model, you see some degree of integrated decision-making, larger among north American plans than among European plans, [and] some degree of appointment of common external advisers,” said Ric van Weelden, partner in the investment practice at Watson Wyatt.
Such a governance strategy might involve introducing a common methodology for ALMs, so all individual plans across continents and countries are using the same system of modelling and the same method of calculation – in this way enabling headquarters to get a better understanding of how much risk each plan is taking.
Appointment of preferred providers is another way multinationals can cut costs. Specific arrangements with preferred asset managers or custodians, actuaries or consultants bring economies of scale and put companies in strong positions to negotiate fees downward.
Van Weelden is optimistic that the drivers to a common approach will overcome the obstacles: “Headquarters want to have a consistent approach to understanding risk and taking risk across all plans.
“There is some money to be made by being consistent, by having preferred providers, by pooling money. At the other end there are important obstacles, such as tax, regulatory regime and domestic practice. In the end the drivers [of reform] will slowly but gradually gain ground.”
*According to law firm, Hammonds the advantages that a single Europe-wide pension scheme would offer to a multinational:
- Easing regional transfer costs and facilitating employee mobility throughout the member states.
- Streamlining administrative costs as the scheme would only require a single administrator to oversee the arrangement across several European countries.
- Providing employers with a choice of either operating national or pan-European pension arrangements and designing arrangements that meet the needs of their employees.
- Simplifying communications as there would be one set of scheme rules.
- Creating greater cross-border investment opportunities.
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