6th European Pension Debate
April 3rd 2009
What is the best location for pan-European
pension funds?
03-04-2009
Welcome Address & Opening
Prof. Gerry Dietvorst, Chairman of the CCP
Mr. Eric Bergamin, Chairman of the KPS
Programme
9:30 – 9:45
Welcome Address & Opening
Prof. Gerry Dietvorst & Eric Bergamin
9:45 – 10:15
Keynote Speech
Peter Borgdorff
10:15 – 10:45
Results of pan-European pensions study by Ernst &
Young
Prof. Ton Daniels
10:45 – 11:15
Corporate point of view of Chevron/Texaco
Jos van der Velden
11:15 – 11:45
Coffee break
Programme
11:45 – 12:45
Panel session
Why choose Ireland, Luxembourg, Belgium or the
Netherlands?
Debaters:
Ireland – Brendan Kennedy
Luxembourg – Gerd Gebhard
Belgium – Lut Sommerijns
The Netherlands – Robin Fransman
Moderator: Gerard Staats
12:45 – 14:00
Lunch
Programme
14:00 – 14:30
Credit crisis and pension funds
Prof. (emeritus) Jacques Sijben
14:30 – 15.00
Advantages and disadvantages to relate a panEuropean pension fund with Greece
Prof. Konstantinos Kremalis
15:00 – 15:30
Break
15:30 – 16:45
Panelsession: Theory meets practice
Debaters:
Belgium: An van Damme
Ireland: Paul Kelly
The Netherlands: Jacqueline Lommen
Moderator & Final Debate: Joop Rietmulder
Programme
16:45 – 17:00
Chairman’s final remarks
Prof. Gerry Dietvorst
Eric Bergamin
17:00
Drinks
Welcome Address & Opening
Prof. Gerry Dietvorst, Chairman of the CCP
Mr. Eric Bergamin, Chairman of the KPS
Keynote Speech
Peter Borgdorff,
Director Pensioenfonds Zorg & Welzijn
Results of pan-European pensions
study
Prof. Ton Daniels,
Partner Ernst & Young
6th European Pension Debate –
Tilburg University
April 3, 2008
What is the best location for pan-European
pension funds?
Prof. dr. Ton Daniels
Current status pan-European Pension Funds
►
Focus on investment management for pension funds
►
More and more asset pooling by single corporate pension
funds (Ireland, Luxembourg, Netherlands)
►
No real pan-European pension liability pooling
►
Risk pooling offerings developed by insurers
Page 11
Relevant decision factors for the location of
a pan-European IORP
►
►
►
►
►
►
►
Tailored vehicles
Product catalogue
Governance
Solvency
Ring-fencing
Tax
Business Models
Page 12
IORP vehicles: many vehicles in Europe
►
Tailored vehicles in:
►
►
►
►
General framework for pension arrangements
►
►
►
►
Luxembourg: SEPCAV (company), ASSEP (association), CAA
(pension fund)
Belgium: OFP
Netherlands: (under construction: PPI for defined contribution and
API)
Ireland: trust arrangement with trustees
U.K.: trust arrangement with trustees
Netherlands: stichting
Insurance arrangements
Page 13
Pension vehicles in selected countries
Belgium
Defined Benefit
Defined
Contribution
Page 14
Ireland
Luxembourg
Netherlands
UK
trust
trust
OFP
trust
ASSEP, CAA
Pension Fund
Stichting
[API]
OFP
trust
ASSEP, CAA,
SEPCAV
Pension Fund
Stichting
[PPI]
Governance
►
►
►
►
Luxembourg: umbrella fund structure with ability for
tailored governance at sub-fund level to comply with hoststate legislation; representation regulated;
U.K. trust: at least one third of trustees nominated by
participants in the plan;
Belgium OFP: there shall be a board of directors and a
general assembly (of sponsoring undertakings).
Sponsoring undertakings and members must be
represented on the board;
Netherlands: equal representation [except in PPI, API ?)
Page 15
Solvency – EU minimum requirements for
cross border IORP
►
►
Article 18 IORP Directive: “the technical provisions of a
cross-border IORP shall at all times be fully funded”
If underfunded:
►
►
►
Maximum rates of interest should take into account:
►
►
►
the competent authority shall intervene;
the home Member state may require ring-fencing.
Yield on corresponding assets held by the institution and future
investment returns and/or
Market yields of high quality or government bonds
Member States shall ensure permanent additional assets
to serve as a buffer
Page 16
“Best pensions” – a case study
►
►
►
►
►
Generic asset allocation: 40% equities/60% government
bonds with 5 year duration
2% inflation indexation
2.5% increase in in annual deferred benefit
500 employees, at age 40
No risk sharing
Page 17
The key parameters – discount rate &
regulatory funds in case study
►
Belgium
►
Discount rate:
►
►
►
►
Regulatory own funds Euro 3.2 million fixed
U.K.
►
Discount rate:
►
►
►
►
6% pre retirement date
4% post pension date
6.5% pre retirement date
4.5% post retirement date
Regulatory own funds: 0
Netherlands
►
Discount rate: swap rate in interbank swap market
►
►
currently between 2.5% and 4%
Regulatory own funds
►
►
Minimum own funds: 5%
Additional risk based own funds
Page 18
European intraday swap rates
4,5
4,0
3,5
3,0
2,5
2,0
1,5
1,0
0,5
0,0
31-12-2008
31-1-2009
28-2-2009
constant 4%
1
4
7
10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61
Minimum rate 10 years – 3.524%
/28.2.2009
Highest rate – 4.123% / 31.1.2009 - 15
years
Page 19
Solvency rules: 105% of what?
€ 7.8
million
Risk based € 9.3 million
€ 1.5
Regulatory own funds
€ 3,2
million
Technical provision
€ 14,5
million
Required assets
€ 17,7 million
Belgiu
m
Page 20
€ 28,5
million
€ 11,8
million
€ 37,8 million
€ 11,8 million
The
Netherlands
United
Kingdom
Unharmonised coverage ratio’s for identical
pension plan
Liability
Minimum own funds
Required assets
“Cov. Ratio”
Comparison
Page 21
U.K.
Belgium
NL
11.8
0
11.8
100%
100%
14.5
3.2
17.7
122%
150%
28.5
1.5
30.0
105%
254%
And what about the Financial Statements?
►
►
IFRS 19
►
discounting for post-employment benefits at market yields at
balance sheet date on high quality corporate bonds;
►
In countries where there is no deep market in such bonds, the
market yield on government bonds shall be used.
IFRS 19 and IORP Directive both refer to market yields on
high quality corporate bonds
►
except that IORP Directive in addition allows reference to future
investment returns
Page 22
Ring-fencing
Ring-fencing is isolating assets of one plan/sponsor from
liabilities of another plan/sponsor within the same legal entity
►
►
►
►
Luxembourg: umbrella structure of sub-funds without
cross-liability between the sub-funds
U.K.: regulator may issue a ring-fencing notice with
respect to plans administered for EU employers
Belgium: ring-fencing may be implemented
Netherlands: no ring-fencing, unless PPI or API?
Page 23
Taxation
►
EU case law and infringement procedures secure income
tax neutrality for contributions to pan-European IORP’s
►
Tax exempt IORP (Netherlands, Ireland, U.K.) may
benefit from EU tax neutrality for capital income
►
VAT exemption for asset management on behalf of
pension funds: Luxembourg and Belgium
►
VAT exemption for pension administration in Luxembourg
and Belgium. Netherlands: koepelvrijstelling?
Page 24
Single corporate model: step 1
Centralization investment management = asset pooling
The other activities of the
pension fund remain the
responsibility of the local
pension fund:
• Pension administration
• Risk Management
• Pension Communication
SPONSOR
Multinational company
.
SPONSOR
Country A
SPONSOR
Country B
SPONSOR
Country C
SPONSOR
Country D
Pension Plan
Pension Plan
Pension Plan
Pension Plan
•
Belgium = SICAV /
FCP
• Ireland = CCF
• Luxembourg = FCP
• The Netherlands = FGR
• UK = PFPV
Pension Fund
Country A
A
S
S
E
T
.
Pension Fund
Country B
P
O
O
L
I
N
G
Pension Fund
Country C
Pension Fund
Country D
...
Service Provider 3
Service Provider 2
Service Provider 1
Page 25
.
.
Asset Class 1
Asset Class 2
Asset Class 3
ALM Studies
Asset Allocation
Investment Management
Investment Reporting
Performance Management
Custody
Securities Lending
Tax Management
Single corporate model: step 2
Centralization through pensions competence center
SPONSOR
Multinational company
Assets and liabilities remain at the pension fund
level
•
.
SPONSOR
Country A
Pension Plan
Pension Fund
Country A
.
.
.
•
SPONSOR
Country B
Pension Plan
Pension Fund
Country B
SPONSOR
Country C
Pension Plan
Pension Fund
Country C
SPONSOR
Country D
Pension Plan
Pension Fund
Country D
Page 26
SPONSOR
Pension
Competence
Center
Asset Management
• ALM
Investment Management
• Risk Management
• Reporting
• Etc.
Advisory Services
Pension plan construction
• Financial Engineering
• Actuarial
• Tax and Legal
• Compliance
• Accounting
Pension Administration and
Communication
• Communication
• Collection and Payment
• Administration
Risk Management and Risk Pooling
• Longevity
• Disability
• Mortality
• Etc.
Single corporate model: step 3
Centralization through IORP
SPONSOR
Multinational company
.
SPONSOR
Country A
SPONSOR
Country B
IORP
SPONSOR
Country C
SPONSOR
Country D
Home Country
Pension
Scheme
Host Country
A
Pension
Scheme
Host Country
B
.
Benefits
.
paid to participants in
plan A
Benefits paid to participants in
plan B
Pension
Scheme
Host Country
C
Benefits paid to participants in
plan C
Pension
Scheme
Host Country
D
Benefits paid to participants in
plan D
• The pan-European pension fund
operating cross-border will be
supervised only by the Home
Member State supervisory
authority
• Asset and liabilities pooled
Page 27
.
Multiple clients model: step 1
Outsourcing investment management = asset pooling
The other activities of the
pension fund remain the
responsibility of the local
pension fund:
• Pension administration
• Risk Management
• Pension Communication
.
SPONSOR
1
.
Pension Plan
SPONSOR
2
.
Pension Plan
SPONSOR
3
.
Pension Plan
SPONSOR
4
.
Pension Plan
Pension Fund
SPONSOR 1
A
S
S
E
T
.
Pension Fund
SPONSOR 2
.
P
O
O
L
I
N
G
Pension Fund
SPONSOR 3
Pension Fund
SPONSOR 4
.
Asset Class 1
Asset Class 2
Asset Class 3
Asset Manager
...
Service Provider 3
Service Provider 2
Service Provider 1
Page 28
ALM Studies
Asset Allocation
Investment Management
Investment Reporting
Performance Management
Custody
Securities Lending
Tax Management
Multiple clients model: step 2
Centralization through outsourcing
Assets and liabilities remain at
the pension fund sponsor level
Pension
Delivery
Organization
(PDO)
•
Country A
SPONSOR 1
SPONSOR 2
Pension Plan
Pension Plan
SPONSOR 3
SPONSOR 4
Pension Plan
•
Pension Fund
SPONSOR 1
Pension Fund
SPONSOR 2
Pension Fund
SPONSOR 3
PDO
Branch
Country A
Asset Management
• ALM
Investment Management
• Risk Management
• Reporting
• Etc.
Advisory Services
Pension plan construction
• Financial Engineering
• Actuarial
• Tax and Legal
• Compliance
• Accounting
Pension Administration and
Communication
• Communication
• Collection and Payment
•. Administration
.
Pension Fund
SPONSOR 4
.
Risk Management and Risk Pooling
• Longevity
• Disability
• Mortality
• Etc.
Assets and liabilities remain at
the pension fund sponsor level
•
Country B
SPONSOR 5
SPONSOR 6
SPONSOR 7
.
SPONSOR 8
Pension Plan
Pension Plan
Pension Plan
Pension Plan
Page 29
Pension Fund
SPONSOR 5
Pension Fund
SPONSOR 6
Pension Fund
SPONSOR 7
Pension Fund
SPONSOR 8
•
PDO
Branch
Country B
.
Asset Management
• ALM
Investment Management
• Risk Management
• Reporting
• Etc.
Advisory Services
Pension plan construction
• Financial Engineering
• Actuarial
• Tax and Legal
• Compliance
• Accounting
.
Pension Administration and
Communication
• Communication
• Collection and Payment
• Administration
Risk Management and Risk Pooling
• Longevity
• Disability
• Mortality
• Etc.
Multiple clients model: step 3
Centralization through IORP
Country A
SPONSOR 1
Pension
Scheme
SPONSOR 1
SPONSOR 2
Pension
Scheme
SPONSOR 2
Benefits paid to participants in plan 2
SPONSOR 3
Pension
Scheme
SPONSOR 3
Benefits paid to participants in plan 3
SPONSOR 4
Pension
Scheme
SPONSOR 4
Benefits paid to participants in
plan 4
Pension
Scheme
SPONSOR 5
Benefits paid to participants in
plan 5
.
IORP
Country B
Home Country
SPONSOR 5
.
.
.
.
Benefits
.
paid to participants in plan 1
.
SPONSOR 6
Pension
Scheme
SPONSOR 6
Benefits paid to participants in plan 6
SPONSOR 7
Pension
Scheme
SPONSOR 7
Benefits paid to participants in plan 7
SPONSOR 8
Pension
Scheme
SPONSOR 8
Benefits paid to participants in plan 8
• The pan-European pension fund operating cross-border will be
supervised only by the Home Member State supervisory
authority
• Asset and liabilities pooled
Page 30
Conclusions
►
►
►
Comparable frameworks for asset pooling
Unharmonised solvency requirements
Solutions:
►
►
►
►
►
►
harmonising EU solvency for pensions and/or aligning with financial
reporting; or
ring-fencing pensions solvency requirements
Belgium and Luxembourg are ahead with tailored vehicles
Netherlands is following with tailored vehicles
Ireland focuses on asset pooling/investment management
“Harmonized” VAT unlevels the playing field significantly
Page 31
Questions?
Ernst & Young Belastingadviseurs
LLP
Corporate point of view 2008 of
Chevron/Texaco
Jos van der Velden,
Chevron Corporation
Agenda
Corporate overview
A perfect pensions world
The real pensions world today
The real pensions world of tomorrow
A pan-European pensions environment
© 2008 Chevron Corporation
Chevron:
2008 Performance
Overview
Tilburg, Nederland
3 April 2009
© 2008 Chevron Corporation
2008: Strong Performance
Record Earnings
$
26.0%
ROCE
Capital & Exploratory Spending
© 2008 Chevron Corporation
23.9 billion
$
24 billion
Total Stockholder Return
-18
Production Volume (net)
2.5 million BOE/day
Exploration Success Rate
49 %
%
A Perfect World
 What sort of plan?
 By definition the interest of employer and employee collide on
this
 What sort of pension regulation?
 Light and qualitative
 What sort of trust board structure?
 A balanced body which is intelligent, motivated and understand
their role well
 Independent pension administrators
 Competent, motivated and self reliant
 Effective Financial regulation
 ??
 Uniform accounting standards worldwide
© 2008 Chevron Corporation
The Real World Today
 What sort of Pensions Plans do we have?
 Older organisations – open, final salary DB
 Newer organisations – predominantly DC
 What sort of pension regulation do we content with?
 Ranges from low to high control, but
 Largely, employers cannot drive their own plans
anymore
 The law of unintended consequences
 What is our experience with trust boards?
 Highly variable, despite the training
 Financial regulation?
© 2008 Chevron Corporation
The real Pensions World of Tomorrow
 Cross-border issues
 Will only become more numerous
 A pan-European environment
 Wonderful in theory
 Rare in practice
 Much needed
 No more final salary DB plans
 Too rich, costly and risky
 What will replace them?
 Probably predominantly DC plans
 Winners and losers
 Winners – employer
 Losers - employees
© 2008 Chevron Corporation
A pan-European Environment
 Conceptually a step in the right direction
 But what will they look like?
 Was DC originally envisioned?!
 Wrong solution to the biggest problems?
 But a solution to different problem(s)
 Where will we go?
 Drivers:
 Regulatory
 Fiscal
 Infrastructure
© 2008 Chevron Corporation
Questions?
© 2008 Chevron Corporation
Coffee Break
11:15 - 11:45
42
Panel session:
Why choose Ireland, Luxembourg,
Belgium or the Netherlands?
Moderator: Gerard Staats
Tilburg University and BDO CampsObers
Panel session:
Why choose Ireland, Luxembourg,
Belgium or the Netherlands?
Brendan Kennedy,
Chief Executive The Pensions Board
Panel session:
Why choose Ireland, Luxembourg,
Belgium or the Netherlands?
Gerd Gebhard,
Director PECOMA
Agenda




Luxembourg as a fund centre
European pension funds
Pension fund vehicles
Conclusion
Luxembourg as a fund centre

Leading fund administration centre in Europe
No. 1 in Europe - € 1.572 bn
– € 1.572 bn = 10% of world fund assets
– 75% of cross-border fund business
– 3.400 funds (UCITS, UCI, SIF)
Cross-border pension funds
– Emerging market
– +/- 70 cross border arrangements
– Dominated by domestic providers
European Pension funds

Pension pooling under IORPS
Pooling assets AND liabilities
Home country: Prudential supervision
Host country: Labour and social security legislation
Taxation…
Language and culture…
Luxembourg Pension Funds

Defined contribution plans
Pension Investment Company (SEPCAV)
–
–
–
–
Banking supervision (CSSF)
Affiliates = shareholders
Pure DC plans
Umbrella structure
Alternative solutions
– Pension Fund (ASSEP)
– Pension Insurance Fund (CAA fund)
Luxembourg Pension Funds

Defined benefits plans
Pension Funds (assep)
– Banking supervision (CSSF)
– Flexible partnership structure
 Affiliates = debtors of the fund
 Adaptable board structure
– Umbrella structure
– DB plans comprising biometric and financial risks
– Funding requirements
Luxembourg Pension Funds

Defined benefit plans
Pension Insurance Fund (CAA fund)
– Insurance supervisor
– Flexible legal structure
– Funding requirements
 General rules
 Sponsor guarantees
– Umbrella structure possible (within limits)
Luxembourg Pension Funds

Funding requirements
General Rules of the IORPS-Directive
– Sponsor covenants
– Calculation of reserves
– Funding requirements
 Taxation
Tax status
Double tax treaties
Conclusion on Luxembourg



Emerging market
UCITS as a blue-print
Neutral territory
No home country legacy
Multi-lingual environment
Flexible, but strict regulation
Panel session:
Why choose Ireland, Luxembourg,
Belgium or the Netherlands?
Lut Sommerijns,
Secretary General BVPI - ABIP
WHY CHOOSE BELGIUM?
 Flexible legal and prudential framework + attractive tax regime
•
flexible = adaptable to your situation, needs and wishes of all
parties
≠
uncontrolled – weak
•
legal structure: organisation according to your needs, outsourcing
•
prudential framework: prudent for your schemes, flexible though
solid, considering your specificities, not one size fits all
•
tax regime: tax status of OFP + international tax treaty benefits
OFP:
Organisation for Financing Pensions
Organisme voor de Financiering van Pensioenen
Organisme de Financement de Pensions
Flexible legal structure
OFP - easy set up
- authorisation CBFA
- organisation and structure adaptable to your needs
supervisory/operational functions & responsibilities
prudent person – good governance
agreement, contractual documents
- participation of plan members: social committees
 comply with SLL of host countries
 info, consultation, participation, co-decision of host country plan
members
- netting, solidarity, ringfencing
Flexible prudential framework
Adaptable to your situation
Calculation of technical provisions
prudent – coherent – valuation method based on economic
and actuarial assumptions – adequate margin for negatieve
fluctuations
Financing plan-funding
SIP
Investments
prudent
coherent
Plans
Plan members
Financing
plan
Technical
Provisions
you define
you justify
Attractive tax regime
• Taxation of OFP
• Taxation of investment returns
• VAT regime for services
• Eligible + benefits double taxation treaties – Belgium has an
extensive network of double taxation treaties (countries
interesting for IORP investment portfolio)
Human factors
• multinationals, cross-border industry-wide: presence in country x-y-z
• centre of expertise – outsourcing
• languages
• access to authorities
To introduce the debate
 Belgium – Luxembourg:
international tax treaties network
supervisory authority/ies
 Belgium – Ireland:
asset + liability pooling
social committees
 Belgium – The Netherlands:
prudential framework
tax
Conclusion
Panel session:
Why choose Ireland, Luxembourg,
Belgium or the Netherlands?
Robin Fransman,
Deputy Director Holland Financial Centre
Panel session:
Why choose Ireland, Luxembourg,
Belgium or the Netherlands?
Moderator: Gerard Staats
Tilburg University and BDO CampsObers
Lunch
12:45 – 14:00
62
Programme
14:00 – 14:30
Credit crisis and pension funds
Prof. (emeritus) Jacques Sijben
14:30 – 15.00
Advantages and disadvantages to relate a panEuropean pension fund with Greece
Prof. Konstantinos Kremalis
15:00 – 15:30
Break
15:30 – 16:45
Panelsession: Theory meets practice
Debaters:
Belgium: An van Damme
Ireland: Paul Kelly
The Netherlands: Jacqueline Lommen
Moderator & Final Debate: Joop Rietmulder
16:45 – 17:00
Chairman’s final remarks
17:00
Drinks
Credit crisis and pension funds
Prof. (emeritus) Jacques Sijben,
Tilburg University
Advantages and disadvantages to relate
a pan-European pension fund with
Greece
Prof. Konstantinos Kremalis,
Athens University / KREMALIS Law Firm
Preliminary remark
In such a task there is an intense conflict of interests
between the parties concerned, namely the
employees, the employers, the third service
providers and the state. Furthermore, one part’s
advantages are usually considered another part’s
disadvantages. The listing below aims to
compromise some major social and economic
interests in order to facilitate a common
understanding
Advantages - 1
1. Favorable public opinion following the downsize of the basic
state pension.
2. Tax-exempted
contributions based on the authentic
interpretation of the income tax law (assimilating the pension
fund contributions with the social security contributions)
3. Tax-exempted
benefits based on the interpretation of the
income tax law (assimilating the pension fund benefits with
the private insurance benefits)
Advantages - 2
1. Flexible design of possible insurance risks coverage
2. Only
one year minimum membership before claiming for
proportional benefit or rights transfer to another pension fund
3. Submission
to the control of an Independent Supervisory
Authority, also competent for the social security strategic
planning
Disadvantages - 1
1. Luck
of experience in asset management and reinsurance
practices
2. No
contracting out of the (earnings-related) State Second
Pension
3. Establishment
exclusively as a non for profit legal entity of
private law with minimum people requirements (100 employed
persons).
Disadvantages - 2
1. Small
steps in introducing the paritarian governance of the
funds.
2. Procedure of recognition requiring a notarial deed, as well as
a ministerial decision officially published.
3. Privilege
of assets distribution (including the employers’
contributions) among the insured persons in case of
bankruptcy
Final remark and proposal
•
•
Every country can potentially be related with a PanEuropean Pension Fund.
A comparative research should be carried out throughout
the EU-members in order to clarify the field of
opportunities and thus reduce the risks involved.
Break
15:00 – 15:30
72
Panel session:
Theory meets practice
Belgium, Ireland, The Netherlands
Moderator: Joop Rietmulder,
Honorary Chairman KPS and
Director Rietmulder c.s.
Panel session:
Theory meets practice
Belgium, Ireland, The Netherlands
An van Damme,
Claeys & Engels
Why opt for a Pan-European Pension Fund?
Economics of scale?
Shopping for the most advantageous home state regime?
Less administration?
Extension of the Group to other European countries
An international pension plan for expatriates
Total merger of
existing pension
funds – transfer of
all assets and
liabilities
⇒
Setting up a new
IORP – only for
future pension
accrual
Setting up a new
IORP – only for
mobile employees,
only for future
pension accrual
influence of the current economic-financial crisis?
Practical example
Data
Home state: Belgium
Organisation for Financing Pensions (“OFP”)
Pension plan for expatriates
Defined Contribution
Host state: several Southern & Eastern European countries
How?
Draft a core text → plan design
Send the core text to the host state → annexes
Challenges
Spain: difficulties to create a category of “expatriates”
Poland: pension plan must be set up by collective agreement,
covering at least 50% of the personnel
“Keep track” of the vested reserves
- for tax reasons
- for other reasons (minimum garanteed return)
Social & employment provisions: no coherence
Eastern European countries (eg. Lithuania): confusion of 2nd
and 3rd pillar
Language requirements
Conclusion
Creativity
Assistance of advisors (actuaries/legal advisors) in the host state
More coherence between social & employment provisions
Alternatives?
An Van Damme
Phone
+32 2 761 46 37
Fax
+32 2 761 46 78
E-mail
an.vandamme@claeysengels.be
Panel session:
Theory meets practice
Belgium, Ireland, The Netherlands
Paul Kelly,
Towers Perrin
Optimising financial and operational
effectiveness for pensions on a global basis
DEFINED BENEFIT
DEFINED CONTRIBUTION
Country
employee
group
A
B
C
IME
s
Local
country
DC plan
D
E
F
G
IME
s
H
Local
country
DC plan
Local
country
DB plan
Local
country
DB plan
Local
country
DB plan
IME
plan
Local
country
DB plan
Cross-border DB
platform (e.g. PenCAP,
IORP*)
Cross-border DC
platform (e.g. IORP*)
Optimises fiduciary,
compliance and plan
governance risks
Cross-border asset pooling
vehicle (with sub-sections)
* Institution of occupational Retirement Provision, under EU Directive
© 2007 Towers Perrin
Optimises financial
and demographic
risks (in an enterprise
context)
Optimises asset management
arrangements (governance,
cost, return)
IORP: why located in Ireland?
 Ireland was early adopter of the pensions Directive
 IORP easy to establish from legal and tax perspective
 Significant Government support – prime ministerial pan-
European pensions taskforce
 Open borders from a tax perspective
 Well-developed funds industry, including asset-pooling
 Well respected pensions industry
 Trust structure
 Balanced regulatory environment
 Core skills in administration, investment funds, actuarial, accounting,
legal, technical, IT
 Host to many multinationals e.g. Intel factories
© 2007 Towers Perrin
Cross Border Pension Plan
Ireland section
Deferred members:
TPP active members
in Ireland
Turkey
Active members:
TPP accrued benefits
+ 8% contribution
Egypt
Active members:
TPP accrued benefits
+ 8% contribution
© 2007 Towers Perrin
UK section
Deferred members:
TPP active members in UK
TPP terminated members
from all countries
IORP
In Ireland
Russia
Active members:
TPP accrued benefits
+ 8% contribution
Poland section
Active members:
TPP accrued benefits +
8% contribution
Hungary section
Active members:
TPP accrued benefits +
8% contribution
Barriers?
 Feasibility of Administration?
 Availability of vendors?
 At reasonable price?
 Tax?
 Social Security and Labour laws?
 Negative attitude of certain players in the
marketplace?
 Attitude of potential sponsors?
 Given financial crisis
© 2007 Towers Perrin
Panel session:
Theory meets practice
Belgium, Ireland, The Netherlands
Jacqueline Lommen,
Hewitt Associates
6th European Pension Debate – Tilburg – 3 April 2009
Cross-border pension funds (IORPs)
A best location?!
Jacqueline Lommen
To protect the confidential and proprietary information included in this material, it may not
be disclosed or provided to any third parties without the approval of Hewitt Associates LLC.
Cross-border IORPs – some basics
IORP Directive
IORP*
Pensionscheme
Country A Pensionscheme
Pensioninstitution
Country B
(financing vehicle,
Legal entity)
Pensionscheme
Country C
“Single lead
supervisor”
Regulated by the (financial) regulation
of the country of domicile of the
pension institution
(“Home country”)
Regulated by the social & labour law
of the country of origin of the
pension scheme(s)
(“Host countries”)
88
IORPs*: Institutions for Occupational Retirement Provision
Cross-border IORPs – no longer theory!
Early movers (CEIOPS overview):
•
Existing cross-border cases
•
Internationally mobile employees and senior executives
•
Test cases
Multinational companies:
•
Combining 2 or more existing local pension schemes or IORPs, stepwise
•
Creating new single pan-European or regional (DC) pension platform
•
M&A: consolidation into group / anticipating and digesting divestitures
Innovative concepts:
•
IORP subsidiaries of financial services providers
•
New markets, product development
89
Cross-border IORPs meeting market needs
Members
CFO / CRO
Reduced operational risks •
•
More grip and control
•
(IFRS, compliance, IORP2)
Efficiency gains
(economies of scale)
Cost savings
(single European entity)
Simplified governance
Reduced internal management time
Improved operational oversight
• Integral risk management
•
•
•
•
Investment performance enhancement
Consistent administration hub(s)
Better access to top quality resources
Fewer providers and interfaces
• Lower regulatory burden
•
•
•
Single reporting
Lower / more flexible financing
Tax advantages
HRM / IEB manager
Pension provisions for mobile employees and sr executives
Internal branding (common look/feel, equality)
Anticipating and digesting M&A transactions; divestitures
Framework for implementing change (across Europe)
90
Flexibility:
maintain
the local scheme
specifics e.g.
format (DC/DB,
indexation),
financing
(funding level,
contributions),
solidarity
(ring-fencing),
information
(Ianguage), etc.
Own identity:
maintain
governance (social
committee),
Information
(language), etc.
IORPs - technical provisions differ considerably
Source: CEIOPS: “Survey on fully funded, technical provisions and security mechanisms in the European
91
occupational pension sector”, 4/2008
• common practice? IORP’s financial requirements
• mandatory?
• contributor?
• eligibility?
Sponsor covenant
Protection institution
Security
mechanisms
Balance sheet IORP
calculation method?
Additional assets
Solvency buffers /
subordinated loans
105%
Additional assets
Regulatory own funds
100%
Assets
Technical provisions
92
Fully funded
• Discount rate?
• PBO/ABO?
• Mortality table?
• Expenses?
IORP Location - Regional clusters
Ireland:
• Anglo-Saxon region (UK, US)
• contract law / trustees
• DC focus
• asset pooling focus
Netherlands (PPI):
• Broad regional base
• DC focus
• corporate control
• broad experience; pension services
????:
• East-European region
• DC focus
• admin hubs
• uniform DC schemes
Belgium
• Continental European region
• DB / DC
• integral pension offering
• checks & balances governance
Liechtenstein (?):
• German-speaking (DE, CH, AT, IT, SCAN)
• DB / DC focus
• integral pension offering
• “rules-based”; “insurance culture”
Luxembourg:
• Broad regional base
• DB / DC
• asset pooling focus
• corporate control
• financial service providers
93
Comparison* local IORP vehicles
IR
LU
LI
BE
DE
NL
Trust
ASSEP
SEPCAV
CAA
PFA pf
OFP
PFonds
PKasse
Pfonds
PPI
pension
institute
Pens
inst
invest
fund
insurer
pension
institute
pension
institute
pension
institute
insurer
pension
institute
invest
fund
Governance
Scope
Finance
“Nature”
Support
* Green: no/few additional restrictions on top of IORP Directive requirements
Orange: additional restrictions on top of IORP Directive requirements
12
94
Cross-border IORPs - Location of choice
•
Lowest financial requirements not the key decision factor
•
Other criteria:
–
–
–
–
•
governance requirements
scope of vehicle (flexibility)
support local authorities
recourse to quality resources (providers, advisors)
Most important:
•
•
•
•
client-specific factors ánd
clear business case ánd
transparent communication…….
……..lead to win/win situations
14
95
Tailormade
solutions
6th European Pension Debate – Tilburg – 3 April 2009
Cross-border pension funds (IORPs)
A best location?!
Jacqueline Lommen
To protect the confidential and proprietary information included in this material, it may not
be disclosed or provided to any third parties without the approval of Hewitt Associates LLC.
Panel session:
Theory meets practice
Belgium, Ireland, The Netherlands
Moderator: Joop Rietmulder,
Honorary Chairman KPS and
Director Rietmulder c.s.
Final Debate
conducted by Joop Rietmulder
98
Chairman’s Final remarks
Prof. Gerry Dietvorst, Chairman of the CCP
Mr. Eric Bergamin, Chairman of the KPS
99
Conclusions
•
•
•
•
Solvency rules are unharmonised
The interests of sponsors and
employees seem to be different in short
or long term
Pan European Pensionfund is more
suited to execute DC rather than DB
Tax issues have to be solved to let it
work properly
Conclusions
•
The interpretation of the IORP rules is
like the differences in food culture in
Europe:
– Some drink tea with biscuits,
– Some have proper lunches including
wine or Guiness
Drinks
Thank you for your visit!
102