Safeguarding Pension Rights Ray Martin Vice-Chairman - EFRP
Misconception • Safeguarding Pension Right equals transferability of pension rights • This is not true, the transfer value of not a lot is not a lot !!!
So What do I mean by Safeguarding • Immediate Vesting - number one priority • Protection of consumers from mis-selling and excessive charges • Cross border recognition for tax relief • Transferability is then the final piece in the protection
Why Immediate Vesting • Pension rights are part of an employee’s remuneration package and should not be taken away. • A small vesting period is tolerable for administrative reasons - up to 2 years • Vested benefits then should be protected in real terms against inflation
Protection of Consumers • Closed Funds vs Open Funds • Closed Funds are those that are those set up by a single employer, or group of employers, and are controlled by the employer(s) and the employees • Open Funds are those that are sold commercially either directly to the employees or through their employer, but the management remains with the provider.
Closed Funds - Protection of the Consumer • Based on relationship between employer and employee • Member elected Directors / Fiduciaries • Minimum Funding Requirement • Independent Custody / Management • Independent contract with Investment Managers • Duty on fiduciaries to act prudently
Open Funds - Protection of the Consumer • Independent Advice • Cooling-off periods • Maximum Charges • Solvency requirements for products with interest or mortality risks • Right to cease contributions • Maximum surrender penalties
Cross - border recognition • For a short period, say up to five years, employees should be able to continue contributing to their home plan and receive tax relief equivalent to the host country • To be given effect through double taxation treaties, and in Europe at a EU Level.
Transferability - the final piece of the jigsaw • More important within country than across border, to ensure employees not tied into one provider • Cross border is helpful because, it • allows consolidation • avoids currency risks for pensioners • simplifies tax affairs