The European Union could soon remove one of the biggest barriers to defined benefit pension plans operating in more than one member state, according to actuaries Towers Watson
EU regulations which demand that DB plans be 'fully funded at all times' are a major obstacle to cross-border pension provision. But the European Commission's proposal for a revised Pensions Directive - to be published in the next two months - could see this requirement swept away, making it easier for pensions to operate across border, Towers Watson said.
Paul Kelly, a senior consultant at the firm, said: 'For most employers, the cost of patching-up deficits quickly makes cross-border defined benefit plans a non-starter, though some leading multinationals have established such plans in order to close local arrangements or to consolidate assets and liabilities. Once cross-border plans are no longer subject to tougher funding rules than single-country plans, employers can look at this afresh.
'This should also end the situation where employers have to switch off pension plan membership for employees seconded overseas to prevent the cross-border funding rules from kicking in.'
A more user-friendly regime could release pent-up demand from multinational employers for cross-border pensions, especially for the UK, the firm added.
'For many multinationals, the substantial UK plans that they already sponsor could be a natural starting place when constructing an EU-wide plan, making the UK a potential hub for pan-European pensions,' Kelly continued.
'However, different locations will best suit the circumstances of different international firms: even under the present regime, clients we advise have established cross-border plans based in many EU jurisdictions - including Belgium, Luxembourg, Ireland and the UK.'
Meanwhile, concerns about what would happen to UK pension funds if Scotland voted 'yes' to independence, have also been raised.
The fear is that, if an independent Scotland is a member of the EU, this would turn many DB plans into cross-border plans and bring the 'fully funded at all times' rule into play. Unless these plans were split, employers could then have to pay off deficits much more quickly.
But Kelly noted that the 'fully funded at all times' rule is likely still to apply in March 2016, which is the proposed date for Scottish separation from the UK in the event of a 'yes' vote.
He also said any forthcoming directive would only change funding requirements for cross-border DB plans, and not for single-country plans.