There are two possible solutions to boost cross-border pensions in Europe, according to CBBA-Europe secretary-general, Francesco Briganti.

Speaking to European Pensions, Briganti said current obstacles need to be removed as part of a review of the IORP II Directive and the European Union (EU) should also develop a pan-European occupational pensions product, which he refers to as a PEOP.

His comments follow a report published by the European Insurance and Occupational Pensions Authority (EIOPA) earlier this month, which revealed the number of cross-border schemes has fallen by more than 50 per cent since the UK’s withdrawal from the EU.

“This reduction of the number of cross-border IORPS was absolutely expected and normal because of Brexit… we are not speaking about a situation that is worsening. The transposition of IORP II was very delayed in several European countries and so we cannot make an assessment on how this new directive will change the possibility to set-up cross-border schemes in Europe. It’s too soon,” Briganti commented.

Nonetheless, the UK’s withdrawal from the EU has highlighted how few cross-border schemes there are operating in the EU; prior to Brexit, many of the cross-border schemes operated between the UK and Ireland. According to EIOPA, there were 73 active undertakings in 2017, compared to 33 today.

Although the IORP II Directive has only recently been transposed in some countries, despite there being a January 2019 deadline, Briganti said the directive has made the limits and obstacles of cross-border pensions clearer than ever before. “Now that the problems are clear, we can really focus on the removal of those obstacles by reviewing IORP II,” he said.

The first obstacle, which has previously been raised, is the requirement to have a majority of members and beneficiaries vote in favour of transferring the scheme to another country. However, some countries, such as the Netherlands, have set the majority at two-thirds rather than just over half. Briganti also raises the point that trustees may be better placed than members and beneficiaries to decide whether to transfer a scheme.

“Trustees are the ones that manage the pension fund and probably know much better what it means to manage a pension fund. I understand the democratic approach to consult beneficiaries and members but they are not the most expert when it comes to saying, ‘yes, we should move to another country,’” Briganti said.

This is backed up by, Aon partner, Thierry Verkest, who leads Aon’s cross-border pension offering, United Pensions, who said that there is no question of a “lack of appetite in the market,” as several providers and companies would like to set up cross border pensions in Europe. The problem, he said, is that there are regulatory complications that discourage many in starting such operations.

The main problem, according to his experience on the ground, is the requirement for a majority of members and beneficiaries to approve a transfer. Not only because in some countries the threshold of those majorities is very high but, like Briganti, he too questions whether members and beneficiaries have the competence to make such a decision.

The second issue relates to the requirement for double reporting in the home and host countries. Briganti highlights that different countries have different parameters when it comes to the solvency ratio and sustainability of a pension scheme, pointing out that you cannot compare “apples with pears”.

He also warns that it could lead members to think the pension fund is at risk, citing the Netherlands and Belgium as an example: “The Netherlands has much stricter solvency rules and a Belgian pension fund has its own rules. It would have to adapt its criteria to the Dutch regulation. To the Dutch this scheme would not look healthy, but it is just because the rules are different.

“The problem is the double reporting – in the case of cross-border activities it should not required. According to the principle of multiple recognition we should assume that wherever the pension fund is based it is following the country rules and its country rules are solid,” he said.

Therefore, he thinks that EIOPA needs to work on a new revised IORP directive to make it easier for employers to set up cross-border schemes. Another option, which was raised by former EIOPA chair, Gabriel Bernardino, in his final speech, is the creation of a PEOP. Briganti believes the two approaches could work hand in hand to boost cross-border pension activity.

“The PEOP is something that creates a solution because employers could still stay with the second pillar but could have a federal product that is occupational,” Briganti said, adding that the upcoming pan-European personal pension product (PEPP) is a third-pillar product that puts at risk second-pillar cross-border pension activity.

He believes that both approaches need to be taken to make it easier for cross-border DB schemes to continue in countries with more developed markets, which requires a revised IORP directive. On the other hand, although DC schemes can be set up under the IORP II Directive, he thinks a DC PEOP would attract markets where there is little second pillar pension saving.

“It is much better if you can offer a PEOP in Poland and Hungary, where employers don’t need to be very skilled [at pensions] because they can just enrol their employees into this product, which is managed by another country,” Briganti said.

However, Briganti is concerned that there is not currently a “strong political will” to implement these changes and could even see changes being made to cross-border pensions through case law in the future.

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