YOUR MONEY
What's a peripatetic worker to do at the end of the walk?
Europeans who spend their careers in more than one country may wonder if the treaties safeguarding the free movement of people and money have an asterisk in the fine print about pensions. With the regulations of retirement systems, and especially the taxation of private pensions, varying from one member state to another, just how likely is it that peripatetic citizens of the European Union will get a fair shake?
Tax breaks on contributions to corporate and personal pensions are common across the union, but what if a multinational sends an employee from Country A to Country B? Will Country B allow the employee to write off contributions made to the company's plan back home? If not, then will something equivalent in the new locale provide similar benefits and be worth the administrative hassle of joining?
Some success has been achieved in establishing the legal and regulatory architecture necessary to develop cross-border and even regionwide pension plans, according to consultants who specialize in European retirement planning. Even so, the degree of progress is less than some people had expected, and far less than they might have hoped for in what is supposed to be a single economy with a single currency.
"Although the legal framework is in place, hardly any true pan-European pension scheme can be found in the market," said Brigitte Miksa, head of international pensions at Allianz Global Investors.
The most significant piece of EU pension legislation of the past decade introduced a barely fathomable acronym of the sort for which the European Union is renowned: Iorp. It stands for Institutions for Occupational Retirement Provision and refers to the directive intended to establish cross-border pensions.
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Today in Your MoneyThe term is not to be confused with Ucits, which is short for Undertakings in Collective Investment in Transferable Securities, the Eurocratic term for mutual funds, or Eeyore, a character in the Winnie-the-Pooh stories.
But Iorp and Ucits may have enough in common to cause concern in any individual or company looking for greater pension portability. When the first Ucits directive was introduced in 1985, there was hope that it would serve as a single passport for funds - qualify for sale in one country, sell into all others.
It took many years before distribution of Ucits funds approached the ease envisioned in the directive. Many countries insisted that fund providers undergo a duplicate approval process, just as cumbersome as the one in the home country, and there were no common rules and procedures for marketing, administration and information reporting.
Implementation of the Iorp directive has been impeded by an even greater reluctance among national governments to cede control of pensions. And there is only so much that lawmakers in Brussels can do, Miksa said. Contribution ceilings and tax rates vary from one country to the next, she said, and certain countries, most notably Germany, allow only defined-benefit plans and not defined-contribution plans.
Peter Ferrigno, who leads the human capital practice at Ernst & Young, sees conditions in much the same way. History tends to emphasize the differences among European countries rather than the similarities, and that extends to retirement programs.
"If you're looking at pensions across Europe, there is a whole range of countries with different philosophies about the role of the state in providing retirement benefits," he said. Establishing cross-border plans involves "trying to fit square pegs in round holes and round pegs in square holes."
It is a cumbersome and time-consuming ordeal. Gerry O'Carroll, a senior consultant for the benefits practice at Watson Wyatt, lamented the formidable obstacles to cross-border pensions in a research paper in 2005. Does he think conditions have improved since then? Not really.
"The bottom line is we're three years on, and not a great deal has happened on this front," he said. Regional pension programs "are going to be a long time coming, and the reason is the lack of common fundamentals," he said.
One common element that does exist for European pension programs is political sensitivity, and it is preventing progress. The provision of retirement benefits "is so enshrined in social and labor laws," O'Carroll said, adding, "It's difficult to change that."
But not impossible. Although the Iorp directive has yet to have a material impact, more vigorous enforcement of decades-old EU treaties has allowed multinational companies and their workers to make headway in enabling pension plans to travel as freely as their beneficiaries do.
Paul Kelly, a specialist in European cross-border pensions for the consulting firm Towers Perrin, explained that national tax authorities, egged on by Brussels, had become less xenophobic. Now, when that citizen of Country A takes an assignment in Country B, Kelly said, Country B is more inclined to recognize the employee's home pension program and grant favorable tax treatment.
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