State gets ready for pan-EU pension plans

Ireland is putting in place a framework to allow it compete for pan-European pension schemes when new rules come into place in September.

The EU Pensions Directive will, for the first time, allow companies employing staff across borders within the European Union to establish a pension fund for all staff in one country.

Deborah Reidy, director of investment consulting at Hewitt, said the new rules would allow multinational employers to make significant savings on both costs and time.

"Under the current system where employers operating across national boundaries have to establish pension schemes in each of those jurisdictions, there is considerable duplication of costs and bureaucracy," she said.

It is estimated that the existing fragmented approach to pension provision in Europe increases the cost involved by about €8 billion every year.

This will be done while protecting the rights of pension fund employees under local law.

Pan-European pensions are expected to be introduced on a staged basis with the pooling of pension fund assets the first step.

Taoiseach Bertie Ahern established a task force to monitor opportunities for Ireland under the directive and its efforts are credited with putting the State in a position where it is seen as a leading contender, with Luxembourg, as a location of choice.

One of the key initiatives was the establishment of common contractual funds (CCFs) in Ireland in 2003, which are seen by the pensions industry as providing a tailored product which is ideal for tempting multinational companies to consider Dublin as a suitable base in which to base centralised funds.

Hewitt says that a number of multinational companies have already availed of CCFs to establish pooled funds in Dublin. These include US tech giant IBM and Swiss group Nestlé.

"Dublin has a wide range of expertise in running such funds," says Hewitt director Rachel Ingle.

Speaking at the recent opening of Hewitt Associates' new offices in Dublin, Mr Ahern said the State had implemented most of the EU Directive's provisions in the Social Welfare and Pensions Act passed earlier this year. Other facilitating measures were included in the Finance Act.

"Such progress has made Ireland an attractive location for pan-European pensions," Mr Ahern said. "Whilst it may be some time before full pan-European pension schemes emerge, all of the measures taken in Ireland should put us in a strong position to compete as the market develops."

However, Hewitt and others argue that Ireland will have to market itself aggressively to capitalise on the opportunity that has been created. In recent years, the State has succeeded in attracting a lot of business in the funds management industry that would traditionally have gone to Luxembourg. Observers say that Luxembourg is increasingly responding to the threat posed by Dublin's financial services centre.

The pooling of assets is likely to be followed by a pooling of liabilities, leading to the creation of a centralised pension plan.

In order to protect employee member rights, the directive insists that such pension schemes must be fully funded at all times. The Pensions Board will also have to approve any move by an Irish-based fund to cater for members employed by "entities" in other parts of the EU.