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Association of Pension LawyersDevelopments in cross-border DC IORPsJohn Feely2 June 2006Dublin
Total European household assets amount to €32 TN in 2005, with 40% of the total being based in UK and Germany Breakdown of PFA by country 2005 Comments • UK, with total PFA of €6.5 TN, accounts for 21% of total PFA in Europe • Germany has the second highest level of assets, but is largely still a home equity and cash based savings landscape • France, accountable for 14% of total European PFA, has the second highest portion in life insurance, but has minimal occupational pensions penetration • Italy and Spain both have immature long term savings markets, and are reliant on home equity as the principal source of wealth • The Netherlands has the most highly penetrated occupational pensions system with over 90% of employees covered by some form of company pension €BN Note: Rest of Europe includes Austria, Belgium, Denmark, Finland, Ireland, Norway, Sweden, Switzerland, East Europe. Portugal and East Europe excluded due to date availability Source: Mercer Oliver Wyman analysis
The pension fund market accounts for €4 TN, with 22% of total assets invested in DC schemes Type of scheme by country Comments • The institutional pension fund market in Europe was €4 TN at the end of 2004 • This excludes pension assets that are held by the life insurance industry, estimated at a further €2 TN (individual plus group) • The UK accounts for a large proportion of this with total assets of €1.6 TN or 40% of the total • Three other markets account for a further 40% of assets • Despite most new schemes being DC across Europe, it is still a relatively small part of the asset base • 20% of total assets are DC, driven principally by UK (size) and by Denmark (high penetration) €BN
Multinational company (MNC) representation in Europe Percentage of top companies with presence in each country
Drivers for MNCs • Reduced costs (internal and external) due to: • Removal of requirement to run multiple small plans • Being supervised/regulated by a single country regulator • Economies of scale in admin and investments • Opportunity for mobile employees to remain in one pension plan for much of their careers • Consistent philosophy for retirement benefits across states • Single governance structure and reduced risk
Market Drivers • Move towards single European market • Closures of DB funds and growth in DC • Demographic trends, shift from State to occupational/private provision and potential mandatory provision • Requirement for low cost retirement solutions
Where MNCs will focus Pan European Pension Funds Defined Contribution Asset Pools Defined Benefit
Key issues for MNCs with pan European pensions concept • Fit with existing arrangements • Costs and benefits • Legal, tax and regulatory constraints • Assessment of vehicles • Assessment of jurisdictions • Major obstacles • Tax • Social and labour laws • Complexity • DB and DC • Language and culture
Key issues for MNCs with pan European pensions concept • Fit with existing arrangements • Costs and benefits • Legal, tax and regulatory constraints • Assessment of vehicles • Assessment of jurisdictions • Major obstacles • Tax • Social and labour laws • Complexity • DB and DC • Language and culture Build it and they will come???
EIORP 2005 Model for pan European plan (EFRP) US MNC employees in NL, UK and IRL • IRL regulations • IRL supervision • Assets and liabilities co-mingled Financial Services aspects Single Fund located in IRL UK section NL section IRL section Taxation aspects IRL tax law UK tax law NL tax law Social and Labour law IRL social and labour law UK social and labour law NL social and labour law Benefits paid as if from IRL plan Benefits paid as if from UK plan Benefits paid as if from NL plan
Ireland’s advantage • Ireland has adopted the IORP Directive • Ireland has opened its borders from a tax perspective • Ireland has well respected pensions and funds industries • Balanced regulatory environment • Core skills in administration, actuarial, accounting, legal, technical • Ireland is host to many multinationals, including EU Headquarters • Ireland has the desire and commitment to make this happen • Ireland has other developed skills • Language skills • IT skills … and of course the main selling point is …