BRUSSELS, Belgium - Belgian government officials are drafting regulations that would remove a minimum 15% investment requirement in Belgian bonds for domestic pension funds.
But another rule requiring Belgian pension funds to use a domestic custodian likely will remain on the books until the European Commission adopts guidance for pension funds in the European Union.
Lifting the 15% minimum investment rule isn't likely to have a significant impact on Belgian pension fund asset mixes, experts said. The average allocation to domestic bonds was 22.3% at midyear, according to William M. Mercer's Brussels' office. Belgian pension funds have about $8 billion in assets, according to Pragma Consulting N.V./S.A., Brussels.
"I don't think there will be any great changes," said Willy Santermans, assistant manager of Mercer. But the change will provide additional investment flexibility, he said.
The removal of the investment restriction is tied to efforts to make investment rules for pension funds more in line with those of insurance companies, experts said.
Peter de Vos, an actuary with the government's Office de Controle des Assurances, Brussels, said the regulations, known as a royal decree, should be ready in the next six months to a year.
But Luc Eelens, a Mercer consultant, warned lifting the investment restrictions might be linked to other pension reforms. For example, the government wants Belgian pension funds to provide portability of benefits, which is opposed by pension fund officials because of increased administrative costs, he said. Legislation that would include portability is being drafted, Mr. de Vos said, although he denied any connection between the two.
In addition, debate over whether insurance companies or pension funds pay greater taxes may cause further delay of rule liberalizations, Mr. Eelens said.
Currently, employers pay a 4.4% tax on contributions to either insurance companies or pension funds. In addition, pension funds pay a tax of 0.17% on total assets.
Only pension funds pay taxes on dividends and interest, but they are able to circumvent the latter taxes by investing in SICAVs (societes d'investissement a capital variable) the equivalent of mutual funds, which automatically reinvest dividends. Insurance companies, on the other hand, pay taxes on earnings.
Lobbying efforts to create a level playing field may cause delays. But Mr. de Vos said the issue of taxation is not on the table.
Winning permission to use a non-Belgian custodian may take even longer. Government officials had hoped the European Commission's now-aborted pension directive would have paved the way for use of foreign banks. Among other things, the rule would have eliminated geographic restrictions on use of custodians. Then, the Belgian government could have changed its rules to follow suit.
Now, Belgian authorities no longer can lay the blame at the EC's door. Instead, they will wait for EC officials to revive their pension directive, Mr. de Vos said.
Koen de Ryck, managing director of Pragma, said the Belgian authorities' failure to act will cause a disparity between rules for pension funds and insurers, which are permitted to use non-Belgian custodians.
"That would be quite illogical if they (Belgian authorities) would allow insurance companies to have foreign custodians," but not allow pension funds to do the same, Mr. de Ryck said.
The 10.4 billion Belgian franc ($328 million) Voorzorgskas voor Geneesheren, Tandartsen en Apothekers vzw, Brussels, however, has skirted the rules. With the government's permission, it has picked State Street Bank & Trust Co. in Brussels as the pension fund's first global custodian, said Karel Stroobants, deputy general manager.
The pension fund, also known as Caisse de Prevoyance des Medecins, Dentistes et Pharmaciens asbl, covers Belgian doctors, dentists and pharmacists.
Reflecting the liberalization of pension rules, the pension fund also got permission to reduce its minimum allocation to Belgian bonds to 15% from 50%. It had been operating under old rules established in 1969, Mr. Stroobants said.
Fund officials tentatively have picked their first international equity managers to run some 2 billion francs, but they declined to disclose the names. Another 2 billion francs is expected to be allocated for international stocks later, Mr. Stroobants said. Pragma Consulting, consulted on the manager hires.
