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03-04-2009
6th European Pension Debate
April 3rd 2009
What is the best location for pan-European
pension funds?
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 pan-
European 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 UniversityApril 3, 2008
What is the best location for pan-European pension funds?
Prof. dr. Ton Daniels
Page 11
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 12
Relevant decision factors for the location of a pan-European IORP
► Tailored vehicles
► Product catalogue
► Governance
► Solvency
► Ring-fencing
► Tax
► Business Models
Page 13
IORP vehicles: many vehicles in Europe
► Tailored vehicles in:► Luxembourg: SEPCAV (company), ASSEP (association), CAA
(pension fund)
► Belgium: OFP
► Netherlands: (under construction: PPI for defined contribution and API)
► General framework for pension arrangements► Ireland: trust arrangement with trustees
► U.K.: trust arrangement with trustees
► Netherlands: stichting
► Insurance arrangements
Page 14
Pension vehicles in selected countries
Belgium Ireland Luxembourg Netherlands UK
Defined Benefit OFP trust ASSEP, CAA
Pension Fund
Stichting
[API]
trust
Defined
ContributionOFP trust
ASSEP, CAA,
SEPCAV
Pension Fund
Stichting
[PPI]
trust
Page 15
Governance
► Luxembourg: umbrella fund structure with ability for
tailored governance at sub-fund level to comply with host-
state 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 16
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:
► the competent authority shall intervene;
► the home Member state may require ring-fencing.
► Maximum rates of interest should take into account:
► 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 17
“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 18
The key parameters – discount rate & regulatory funds in case study
► Belgium ► Discount rate:
► 6% pre retirement date
► 4% post pension date
► Regulatory own funds Euro 3.2 million fixed
► U.K.► Discount rate:
► 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 19
European intraday swap rates
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61
31-12-2008
31-1-2009
28-2-2009
constant 4%
Minimum rate 10 years – 3.524% /28.2.2009
Highest rate – 4.123% / 31.1.2009 - 15 years
Page 20
Solvency rules: 105% of what?
Required assets € 17,7 million € 37,8 million € 11,8 million
Belgium
The Netherlands
United Kingdom
Technical provision
Regulatory own funds
€ 14,5 million
€ 28,5 million
€ 11,8 million
€ 3,2 million
Risk based € 9.3 million
€ 7.8million
€ 1.5
Page 21
Unharmonised coverage ratio’s for identical pension plan
U.K. Belgium NL
Liability 11.8 14.5 28.5
Minimum own funds 0 3.2 1.5
Required assets 11.8 17.7 30.0
“Cov. Ratio” 100% 122% 105%
Comparison 100% 150% 254%
Page 22
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 23
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 24
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 25
Single corporate model: step 1Centralization investment management = asset pooling
.
...
Service Provider 3
Service Provider 2
Pension FundCountry A
SPONSORCountry A
• Belgium = SICAV / FCP
• Ireland = CCF• Luxembourg = FCP
• The Netherlands = FGR• UK = PFPV
SPONSORMultinational company
. . .
SPONSORCountry B
SPONSORCountry C
SPONSORCountry D
Pension FundCountry B
Pension FundCountry C
Pension FundCountry D
Pension Plan
Pension Plan
Pension Plan
Pension Plan
ASSET
POOLING
Asset Class 1
Asset Class 2
Asset Class 3
Service Provider 1
ALM StudiesAsset Allocation
Investment ManagementInvestment Reporting
Performance ManagementCustody
Securities LendingTax Management
The other activities of the pension fund remain the responsibility of the local
pension fund:• Pension administration
• Risk Management• Pension Communication
Page 26
Single corporate model: step 2Centralization through pensions competence center
.. . .
Pension FundCountry A
SPONSORCountry A
SPONSORMultinational company
SPONSORCountry B
SPONSORCountry C
SPONSORCountry D
Pension FundCountry B
Pension FundCountry C
Pension FundCountry D
Pension Plan
Pension Plan
Pension Plan
Pension Plan
SPONSORPension
Competence Center
Assets and liabilities remain at the pension fund level 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.
Page 27
Single corporate model: step 3Centralization through IORP
.Pension Scheme
Host Country A
SPONSORCountry A
SPONSORMultinational company
. . .
SPONSORCountry B
SPONSORCountry C
SPONSORCountry D
IORPHome Country
• The pan-European pension fund operating cross-border will be supervised only by the Home
Member State supervisory authority
• Asset and liabilities pooled
Benefits paid to participants in plan A
Pension Scheme
Host Country B
Pension Scheme
Host Country C
Pension Scheme
Host Country D
Benefits paid to participants in plan B
Benefits paid to participants in plan C
Benefits paid to participants in plan D
Page 28
Multiple clients model: step 1Outsourcing investment management = asset pooling
.
...
Service Provider 3
Service Provider 2
Pension FundSPONSOR 1
SPONSOR 1.
. . .
SPONSOR 2.
SPONSOR 3.
SPONSOR 4.
Pension FundSPONSOR 2
Pension FundSPONSOR 3
Pension FundSPONSOR 4
Pension Plan
Pension Plan
Pension Plan
Pension Plan
ASSET
POOLING
Asset Class 1
Asset Class 2
Asset Class 3
Service Provider 1
ALM StudiesAsset Allocation
Investment ManagementInvestment Reporting
Performance ManagementCustody
Securities LendingTax Management
The other activities of the pension fund remain the responsibility of the local
pension fund:• Pension administration
• Risk Management• Pension Communication
Asset Manager
Page 29
Multiple clients model: step 2Centralization through outsourcing
.. .
Pension Fund SPONSOR 5
SPONSOR 5
.. .
Pension Plan
SPONSOR 6
SPONSOR 7
SPONSOR 8
Country B
Pension Fund SPONSOR 6
Pension Fund SPONSOR 7
Pension Fund SPONSOR 8
Pension Plan
Pension Plan
Pension Plan
PDO Branch
Country B
Pension Delivery
Organization(PDO)
Pension Fund SPONSOR 1
SPONSOR 1Pension Plan
Assets and liabilities remain at the pension fund sponsor level
SPONSOR 2
SPONSOR 3
SPONSOR 4
Country A
Pension Fund SPONSOR 2
Pension Fund SPONSOR 3
Pension Fund SPONSOR 4
Pension Plan
Pension Plan
PDO Branch
Country A
Assets and liabilities remain at the pension fund sponsor level
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.
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.
Page 30
Multiple clients model: step 3Centralization through IORP
.
• The pan-European pension fund operating cross-border will be supervised only by the Home Member State supervisory
authority• Asset and liabilities pooled
Pension Scheme
SPONSOR 1SPONSOR 1
. . .
SPONSOR 2
SPONSOR 3
SPONSOR 4
Benefits paid to participants in plan 1
Pension Scheme
SPONSOR 2
Pension Scheme
SPONSOR 3
Pension Scheme
SPONSOR 4
Pension Scheme
SPONSOR 5SPONSOR 5
. . .
SPONSOR 6
SPONSOR 7
SPONSOR 8
IORPHome Country
Pension Scheme
SPONSOR 6
Pension Scheme
SPONSOR 7
Pension Scheme
SPONSOR 8
Benefits paid to participants in plan 2
Benefits paid to participants in plan 3
Benefits paid to participants in plan 4
Benefits paid to participants in plan 5
Benefits paid to participants in plan 6
Benefits paid to participants in plan 7
Benefits paid to participants in plan 8
Country A
Country B
Page 31
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
Questions?
Ernst & Young Belastingadviseurs LLP
Corporate point of view 2008 of
Chevron/Texaco
Jos van der Velden,
Chevron Corporation
© 2008 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
Tilburg, Nederland3 April 2009
Chevron: 2008 Performance Overview
© 2008 Chevron Corporation
2008: Strong Performance
23.9$billionRecord Earnings
26.0%ROCE
24$billionCapital & Exploratory Spending
-18 %Total Stockholder Return
2.5 million BOE/dayProduction Volume (net)
Exploration Success Rate 49%
© 2008 Chevron Corporation
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?
4242
Coffee Break
11:15 - 11:45
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
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
WHY CHOOSE BELGIUM?
OFP:
Organisation for Financing Pensions
Organisme voor de Financiering van Pensioenen
Organisme de Financement de Pensions
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 legal structure
Financing
plan
Investments
Technical
Provisions
Plans
Plan members
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
prudent
coherent
you define
you justify
Flexible prudential framework
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
6262
Lunch
12:45 – 14:00
Programme
14:00 – 14:30 Credit crisis and pension funds
Prof. (emeritus) Jacques Sijben
14:30 – 15.00 Advantages and disadvantages to relate a pan-
European 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 Pan-
European 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.
7272
Break
15:00 – 15:30
Panel session:
Theory meets practiceBelgium, Ireland, The Netherlands
Moderator: Joop Rietmulder,
Honorary Chairman KPS and
Director Rietmulder c.s.
Panel session:
Theory meets practiceBelgium, 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 [email protected]
Panel session:
Theory meets practiceBelgium, Ireland, The Netherlands
Paul Kelly,
Towers Perrin
© 2007 Towers Perrin
Optimising financial and operational
effectiveness for pensions on a global basis
Country
employee
group
IME
sA B E F G H
IME
sC D
Local
country
DC plan
Local
country
DC plan
Local
country
DB plan
Local
country
DB plan
Local
country
DB plan
Local
country
DB plan
IME
plan
Cross-border DC
platform (e.g. IORP*)
Cross-border DB
platform (e.g. PenCAP,
IORP*)
Cross-border asset pooling
vehicle (with sub-sections)
Optimises financial
and demographic
risks (in an enterprise
context)
Optimises asset management
arrangements (governance,
cost, return)
Optimises fiduciary,
compliance and plan
governance risks
DEFINED CONTRIBUTION DEFINED BENEFIT
* Institution of occupational Retirement Provision, under EU Directive
© 2007 Towers Perrin
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
IORP
In Ireland
Ireland section
Deferred members:
TPP active members
in Ireland
UK section
Deferred members:
TPP active members in UK
TPP terminated members
from all countries
Poland section
Active members:
TPP accrued benefits +
8% contribution
Hungary section
Active members:
TPP accrued benefits +
8% contribution
Turkey
Active members:
TPP accrued benefits
+ 8% contribution
Egypt
Active members:
TPP accrued benefits
+ 8% contribution
Russia
Active members:
TPP accrued benefits
+ 8% contribution
© 2007 Towers Perrin
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
Panel session:
Theory meets practiceBelgium, Ireland, The Netherlands
Jacqueline Lommen,
Hewitt Associates
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 pension funds (IORPs)A best location?!
Jacqueline Lommen
6th European Pension Debate – Tilburg – 3 April 2009
88
Cross-border IORPs – some basics
IORP*Pensioninstitution
(financing vehicle, Legal entity)
PensionschemeCountry A Pensionscheme
Country B
PensionschemeCountry C
Regulated by the social & labour law of the country of origin of the
pension scheme(s)(“Host countries”)
Regulated by the (financial) regulation of the country of domicile of the
pension institution(“Home country”)
IORP Directive
“Single lead
supervisor”
IORPs*: Institutions for Occupational Retirement Provision
89
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
90
Reduced operational risks
More grip and control
(IFRS, compliance, IORP2)
• Simplified governance
• Reduced internal management time
• Improved operational oversight
• Integral risk management
Cost savings
(single European entity)
• Lower regulatory burden
• Single reporting
• Lower / more flexible financing
• Tax advantages
Internal branding (common look/feel, equality)
Pension provisions for mobile employees and sr executives
Framework for implementing change (across Europe)
Efficiency gains
(economies of scale)
• Investment performance enhancement
• Consistent administration hub(s)
• Better access to top quality resources
• Fewer providers and interfaces
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.
Cross-border IORPs meeting market needs
Anticipating and digesting M&A transactions; divestitures
HRM / IEB manager
CFO / CRO Members
91
IORPs - technical provisions differ considerably
Source: CEIOPS: “Survey on fully funded, technical provisions and security mechanisms in the European
occupational pension sector”, 4/2008
92
Technical provisionsAssets
Regulatory own funds
Solvency buffers /
subordinated loans
Additional assets
Additional assets
Protection institution Sponsor covenant
Security
mechanisms
Fully funded
Balance sheet IORP
100%
105%
IORP’s financial requirements
• Discount rate?
• PBO/ABO?
• Mortality table?
• Expenses?
• common practice?
• mandatory?
calculation method?
• contributor?
• eligibility?
93
IORP Location - Regional clustersIreland:
• Anglo-Saxon region (UK, US)
• contract law / trustees
• DC focus
• asset pooling focus
Belgium
• Continental European region
• DB / DC
• integral pension offering
• checks & balances governance
Luxembourg:
• Broad regional base
• DB / DC
• asset pooling focus
• corporate control
• financial service providers
????:
• East-European region
• DC focus
• admin hubs
• uniform DC schemes
Liechtenstein (?):
• German-speaking (DE, CH, AT, IT, SCAN)
• DB / DC focus
• integral pension offering
• “rules-based”; “insurance culture”
Netherlands (PPI):
• Broad regional base
• DC focus
• corporate control
• broad experience; pension services
94
Comparison* local IORP vehicles
IR LU LI BE DE NLTrust ASSEP SEPCAV CAA PFA pf OFP PFonds PKasse Pfonds PPI
Gover-nance
Scope
Finance
“Nature” pension institute
Pens inst
invest fund
insurer pension institute
pension institute
pension institute
insurer pension institute
invest fund
Support
12
* Green: no/few additional restrictions on top of IORP Directive requirements
Orange: additional restrictions on top of IORP Directive requirements
95
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
Tailor-
made
solutions
14
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 pension funds (IORPs)A best location?!
Jacqueline Lommen
6th European Pension Debate – Tilburg – 3 April 2009
Panel session:
Theory meets practiceBelgium, Ireland, The Netherlands
Moderator: Joop Rietmulder,
Honorary Chairman KPS and
Director Rietmulder c.s.
98
Final Debate
conducted by Joop Rietmulder
99
Chairman’s Final remarks
Prof. Gerry Dietvorst, Chairman of the CCP
Mr. Eric Bergamin, Chairman of the KPS
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
102102
Drinks
Thank you for your visit!
