Gold Magazine March - April 2013, Issue 24 | Seite 86

{MONEY}

LOCATION
OF CHOICE
By Kyproula Papachristodoulou

CROSS-BORDER PENSION FUNDS COULD GENERATE HUGE FINANCIAL BENEFITS
FOR THE CYPRIOT PROFESSIONAL SERVICES INDUSTRY

T

he European Pensions Directive has fundamentally
changed the way pension
funds are managed and
operate on a pan-European
level as it has created the
opportunity to establish cross-border pension
funds, covering participants located in multiple
European Economic Area (EEA) countries.
Such pension funds can be established by
single employers or by financial institutions for
groups of participants.
Total EU pension assets under management
are close to €3-€4 trillion. At the moment,
the vast majority of employees are covered
under pension funds established in their own
countries. But things are changing. Philippos
Mannaris, CEO of Aon Hewitt Cyprus has
been more active than anyone in the country
in endeavouring to increase awareness of the
wide range of opportunities arising for Cyprus
after the adoption of the EU Directive in
November 2006. He told Gold that there are
currently 84 registered cross-border pension
plans, most of which are sponsored by single
employers. Cross-border pension fund assets amount to approximately €30 billion. A
number of financial services providers are us ing
the EU pension directive to offer retirement
products on a multi-country basis. Mannaris
highlights the fact that a number of EEA jurisdictions are actively promoting themselves as

locations of choice for cross-border European
pension funds but, he says. “Cyprus is noticeably absent to date.”

The Directive

European Union Directive (2003/41) on
Activities and Supervision of Institutions for
Occupational Retirement Provision (IORPs),
commonly known as the Pension Fund Directive, sets out prudential supervisory rules for
funded occupational pension funds across the
EEA. The Directive specifically allows for the
mutual recognition of pension funds within
the EEA. This means it is legally possible to
establish cross-border or pan-European IORPs,
i.e. a pension fund established in one country
with schemes and participants in other countries. Although the Directive does not cover
tax, the European Commission has issued a
tax communication backing up several rulings of the European Court of Justice, making
membership of a cross-border IORP at least
as tax efficient as membership of a local pension fund. The Directive can also extend to
cover participants in non-EEA locations such
as Russia and the Middle East. It covers most
funded occupational pension plans established
separately from the sponsor in the EEA.
Cross-border IORPS are always authorised
and regulated by the “home” country (i.e. the
country in which the pension fund is established) rather than the “host” country (where

the schemes originate and participants are
located). In contrast to domestic-only IORPs,
they must always be fully-funded and must
comply with “host” country social and labour
laws. For example, it is never possible to pay
lump sum retirement benefits to Dutch-based
participants, irrespective of where the IORP
covering those participants is based. In addition, countries have the option to impose further information, ring-fencing and investment
requirements on cross-border IORPs, although
they may cannot be more discriminatory than
those applying to domestic IORPs.
Importantly, “host” countries do not have
the opportunity to approve cross-border
IORPS; there is simply a notification by the
home country authorities and a request for
information about social and labour law requirements. There is a defined process (the
Budapest Protocol) which sets out the crossborder registration process and details concerning the cooperation of supervisors. The procedure makes the establishment of cross-border
pension funds a very easy process as there is no
opportunity for “host” supervisors to reject an
application.
As Mannaris points out, multinational companies lobbied very hard for many years for the
European framework to establish cross-border
IORPs as they believed there were considerable
financial benefits and reduced operational risks
and costs from consolidating retirement plans

86 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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