Economies of scale may be achieved by centralising investment management, pension administration and actuarial support. This may benefit employers and employees in terms of lower contributions and higher benefits.
A cross-border pension fund will also bring savings by simplifying governance. Employers will only have to deal with a single board of trustees and supervisory authority. Also, a pan-European fund may enhance the management of the employer’s financial resources, because shortfalls and surpluses may off set each other on a European level.
But the cross-border market is very small, with currently only 84 pension funds.
An important barrier to the functioning of the pensions market is the wide variety of prudential regimes across Europe. The existing EU regime, the Institutions for Occupational Retirement Provision (IORP) directive, takes a minimum harmonisation approach, allowing member states to supplement these with additional prudential rules. It is often difficult to accommodate occupational schemes from other EU countries as national prudential regimes are tailored to the domestic situation.
Another barrier is that pension arrangements must operate as part of each member state’s overall legal system in respect of occupational pensions, for example taxation and social and labour laws.
Among other non-legal and non regulatory obstacles for cross-border schemes are cultural and language barriers.
Gabriel Bernardino is chairman of the European Insurance and Occupational Pensions Authority