Asset pooling

epn has an interesting story mostly about the competition between asset pooling locations in Ireland, the Netherlands and Luxemburg. The Belgian approach with its relaxed solvency regime gets bad marks, especially with regards to next year's Commission review of the Directive and its transposition. 

ECJ deals first blow

In an important decision in case C-522/04 Commission vs. Belgium, the Court's second chamber has found, among other things, that Belgian tax provisions effectively taxing retirement capital to be transferred to an IORP resident outside of Belgium to be in breach of several Treaty freedoms (recital 40) and therefore inadmissible (IPE).

This is the first decision dealing with an issue that is critically important to the establishment of cross-border pensions, and its favourable, albeit unsurprising outcome virtually removes yet another area of legal uncertainty. It is interesting to note that the Court evaluates the equivalent applicability of its reasoning to the EEA, which it confirms.

39 cross border IORPs

Already in early March, CEIOPS reported the status of cross-border IORPs that were active by the end of January 2007. For some reason, this has escaped our attention to date, which is quite unforgiveable since it is an interesting statistic.

Of the 39 institutions reported, 77% have been in operation prior to the Pensions Directive's entry into legal force. Only 9 are "new" IORPs, located in Finland (1), Germany (1), Ireland (4), Luxemburg (1) and the UK (2). Notably absent from that list are Belgium and Liechtenstein, but we would wager that the "many new cross-border IORPs" anticipated by CEIOPS should change that ranking fairly soon, especially since Belgium is a relatively late arrival in terms of directive transposition. We hope that this statistic is updated periodically, for instance quarterly.

CEIOPS also notes that the Budapest Protocol of supervisory cooperation works well, but that "some features of the IORP Directive might benefit from further clarification".

Location competition starts to bite

Evidently, the cross border competition for locating IORPs starts having an impact - at least, that's the impression you get when reading this story about the Dutch central bank lambasting neighbouring Belgium's new (and competitive) pensions regulation. We wonder for how long the Commission will be able to uphold its politically highly sensitive stance of tolerance towards regulatory & supervisory shopping - which is conceptually at the core of the Pensions Directive.

P.S. Naturally, the Belgian response wouldn't be too far out.

The chocolate connection

Last Tuesday saw an interesting convention on the shores of lake Geneva at the sumptuous estate of Baron Rothschild and his company. The topic of the well attended conference was pan-European pensions in general and the Belgian incarnation thereof in particular. The list of speakers could not have been of higher calibre: The Prime Minister together with two cabinet ministers and high level representatives of the EU Commission and the Belgian pensions supervisor. Their objective was to introduce the Belgian legal framework for the newly created legal entity Organisation for Financing Pensions (OFP). They did this quite effectively, albeit on the only neutral territory in Europe where the Pensions Directive is not applicable.

The OFP seems to be a highly attractive entity to provide pan-European pensions with. It operates on zero (income, capital, VAT) tax, it can provide solidarity across several pension plans (which is attractive for efficient capital allocation), it reflects no other restrictions on asset management than the Directive's prudent person principle, it may rely on Belgium's extensive network of double taxation treaties, it takes advantages of Belgium's recent transition to EET, it is not encumbered by a Pensions Protection Fund levy and last, but by no means least, the valuation of its liabilities may be based on a discount rate that incorporates expected returns, thus may go as high as 6%. A word of caution may be in order here, though: It is not clear whether the long term consensus expected return used to derive that attractive discount rate takes into consideration recent literature on the proper calculation of expected rates of return.

Jean-Pierre Steiner of Nestlé Capital Advisers shed some cold water on participants' hopes that pan-European pension plans might fully replace local plans in the near future. In his view, this is an ambitious long-term objective reaching beyond his active lifetime. Nevertheless, he put Nestlé's considerable weight behind the support of Belgium as the currently most attractive location for pan-European pension funds.

Also of interest was Mr Van Hulle, the EU Commission's representative's comment that he wasn't opposed to supervisory shopping, which is of course tantamount to regulatory shopping - something that tends to be frowned upon elsewhere. Equally interesting to Swiss listeners was Mr Wymeersch's note that Belgian first pillar institutions may be falling under the Directive, which seems to be in direct contradiction to the Directive's scope and is of particular interest to Liechtenstein as well.

Belgium transposes Directive [BE]

According to IPE on its redesigned website, Belgium has now escaped further sanction by the EU Commission for non-transposition of the Pensions Directive by passing the law 51K2534 on 13 July.

Evidently, the Belgian Association of Pension Institutions has been instrumental in designing that bill, but search as we might, there was no functioning website of this Association to be found.

Commission takes action

The EU Commission has issued a reasoned opinion against Belgium, Cyprus, Czech Republic, Finland, France, Italy, Lithuania, Slovakia, Slovenia, Spain and the United Kingdom for non- or partial transposition of the Pensions Directive into their national law, thereby capturing all the member states that it has identified earlier for lagging. The next step in the infringement proceedings according to Art. 226 EU Treaty would be court action in front of the ECJ after two months time (via IPE).