European Federation for Retirement Provision > Key Issues

Pan-European pension funds

The adoption in 2003 of the IORP Directive¹ marked quite a revolution by enabling the establishment of pan-European pension funds. Pension funds operating cross-border are – according to the IORP Directive – only subject to the prudential regulation and supervision of the home member state.

A pan-European pension fund provides multinational companies with an innovative solution to centralising their local retirement schemes. It allows for:

a reduction in costs by exploiting economies of scale in pension administration and investment management (asset pooling)
the sharing of demographic, inflation and interest-rate risks among the plan members in the different countries (liability pooling)
a simplification of governance as the company’s management has to oversee only one instead of several pension funds

Pan-European pension funds got off to a very promising start. Various member states – such as Belgium, Luxembourg and the Netherlands – have introduced institutional frameworks for cross-border pension vehicles. Recently, the first actual pan-European pension funds have been established by multinational companies.

EFRP was an early proponent of cross-border pension provision. A pan-European pension fund increases efficiency, which benefits employers and plan members in terms of lower contributions and higher retirement benefits. Now, EFRP is focusing on removal of the remaining impediments to cross-border pension provision. Obstacles include opacity and extensive interpretation of host-state social and labour law, discriminatory taxation (dividends, VAT) and differences in interpretation of the IORP Directive (i.e. cross-border activity, risk capital, ring-fencing).