European multinationals could be missing a trick when it comes to saving costs and reducing risks because they are failing to merge their country-specific pension schemes into single, pan-European pensions.
A study by HR consultancy Mercer has said that, as more tax hurdles are being eliminated for cross-border pension schemes, there is increasing opportunity for large companies to save money, increase management efficiency and improve governance procedures by implementing pan-European pension arrangements.
The biggest barrier up to now to cross-border pensions – which pool assets and liabilities from schemes in different countries – has been the discriminatory tax treatment applied by European Union member states to pension arrangements established in other states, said Mercer.
Traditionally, authorities have offered favourable tax treatment to pension arrangements in their own country, but have not extended these privileges to those in other states. But now most EU member states have agreed not to discriminate on tax.
Speaking at a seminar in association with the European Commission, Yvonne Sonsino, principal at Mercer, said: "People have talked about pan-European pensions for years, but only now are they becoming a viable option for multinational companies.
"The tax barriers are breaking down and there is a huge opportunity for employers to benefit from the cost savings these arrangements offer," she added.
While there were still significant issues to overcome, such as the need to comply with social and labour laws in each country involved in a cross-border scheme, Mercer said the benefits would outweigh the disadvantages if they could be proved to make economic sense.
By pooling scheme assets across countries, companies could benefit from lower investment management fees, greater risk control and reduced transaction costs. Additionally, it took less time to oversee one plan than to manage multiple schemes, said Mercer.
Companies that employed lots of expatriate staff who frequently changed location could benefit in particular.
"Pan-European pensions make it easier for employees to work in different EU countries without their benefits being reduced, so companies can gain from having a more flexible workforce," said Sonsino.
"More multinational companies are now realising that cross-border schemes could be the way forward for their European pension arrangements," she added.
Peter Schonewille of the European Commission, who also spoke at the seminar, said: "It is a priority for the European Commission to ensure the single market for occupational pension provision works efficiently."
EU member states that do not discriminate on tax are Germany, Ireland, Luxembourg, the Netherlands, the UK, Austria, Portugal, Finland, Spain, France, Poland and Hungary.