Plan for Europe-wide pensions
A US company is preparing a pioneering legal challenge which could lead to employers being allowed to offer a single pension scheme to employees across the 15 nations of the European Union.
At present, the tax rules force companies to set up individual pension schemes for each EU country they operate in, which adds millions of pounds to the pension costs of multinationals.
A change to the rules could provide a lucrative opportunity for City fund managers to seize the initiative as the first port of call for large international employers wanting to establish pan-European pension schemes.
Computer software group AMS Management Systems has applied to the Inland Revenue for approval to place one of its UK-based employees in the pension scheme of its Dutch subsidiary. The expected refusal would set the scene for a challenge first in the British courts and ultimately in the European Court of Justice.
At present the Revenue does not recognise foreign-based pension schemes as equivalent to British ones, so Britain-based employees miss out on the normal generous tax perks. The Pan-European Pension Group (Pepgo), a ginger group of multinational companies, hopes that the ECJ would rule the discriminatory tax treatment as contrary to European law, opening the way for pension schemes which straddle national boundaries.
Paul Kelly of Mercers, the actuaries advising Pepgo, said a positive outcome would lead the way to pan-European pension schemes which could save some companies as much as 20%-30% of their setup and administration costs. Larger funds would also tend to be more stable and more secure.
Geoffrey Furlonger, an independent lawyer co-ordinating the campaign, said the savings would run into millions of pounds for large companies and could be a boon to British fund managers. 'The City of London would certainly benefit,' he said.
National tax authorities are worried that a new system would reduce tax revenues because of the different way pension funds are treated, but Kelly argues this problem is resolvable.
Last week EU finance ministers-agreed in principle to ease onerous national investment rules that prevent the creation of pan-European pension funds. However, pan-European schemes would be bound by more stringent solvency and investment rules than domestic-only schemes.
