Compliance May 13, 2003

EU Approves Cross-Border Pension Plans

May 13, 2003 (PLANSPONSOR.com) - Faced with a "pension time bomb" as countries around the globe struggle to mend their ailing retirement savings systems, European Union (EU) member governments have stripped away a major potential reform barrier.

Reported by

Fred Schneyer

>The EU voted to allow private pension funds to market their retirement plans throughout the 15-nation block, regardless of national borders, according to a Dow Jones report. European Internal Market Commissioner Frits Bolkestein hailed the decision by EU finance ministers as a “major achievement,” ending a 10-year-old debate about taking away national laws cross-border pension plans.

>Bolkestein told Dow Jones that the law would generate safer pensions and let European workers “benefit from more efficient pan-European pension funds, and so make an important contribution to tackling the ‘pension time bomb’.” The EU law vote came as France was crippled by a transport workers’ strike aimed at forcing Prime Minister Jean-Pierre Raffarin to reconsider reforms in the retirement system.

>The EU pension law is designed to take pressure off state-pension systems that are fast running out of money as Europe’s population gets older. The EU vote follows the release of a consultant’s report, which found that r etirement plans worldwide are underfunded by almost $1 trillion (See Study Paints Somber Worldwide Pension Picture ).

>Officials said the new law would also boost the EU’s underdeveloped capital markets and stimulate growth and jobs. EU governments have two years to implement the new rules.

>The EU law allows companies to pool pension plans across national borders at a potential saving of up to €40 million ($46.2 million) a year, according to the European Federation for Retirement Provision. At the moment, national legislation limits them to offering only side-by-side national programs.

>The law will benefit pension plans that now cover 25% of the EU labor force and manage assets worth €2.5 trillion, equal to 29% of the EU’s gross domestic product. The new legislation allows pension funds to invest up to 70% of their assets in stocks and corporate bonds and up to 30% in non-domestic currencies. Some experts didn’t believe that the new law will create a single EU pension-funds market, pointing to tax laws that favor domestic over foreign funds and punish workers for swapping jobs or moving abroad.