BRUSSELS - Pension administrators say Europe is still "decades away" from having a Continent-wide pension market capable of saving multinational companies benefit administration costs, despite action taken last month by the EU's executive body to censure six member countries over discriminatory pension tax laws.
The European Commission sent formal notices to Belgium, Italy, France, Spain and Portugal, informing the governments that their laws penalized individuals contributing to schemes domiciled in other countries, breaching EU conventions. Denmark was issued a "reasoned opinion," the second stage of the EC's infringement proceedings.
Companies with operations across Europe are constrained in their ability to set up central pension schemes because of a myriad of tax and social security barriers, and the companies have been pushing national governments and the EU to do away with those barriers.
Officials at BP PLC, London, estimated the company would save $60 million annually if it were allowed to consolidate its disparate pension schemes in each member country into one scheme.
Other companies, such as Unilever PLC, London, haven't put a dollar value on their potential savings, but they have been pushing for reform.
And multinational companies aren't the only ones that would benefit.
Officials at money management firms say they expect a pan-European pension market to boost transparency and efficiency.
American firms, especially, also anticipate that it would be easier to market their services to central pension than to individual schemes in every country.
Peter Schwicht, head of continental European institutional business at J.P. Morgan Fleming Asset Management, Frankfurt, said although he was "not optimistic" of parliamentarians achieving pan-Euro pensions within five years, he said such an outcome would reduce costs of providing asset management services.
"In every country there's different rules on setting up asset management businesses. For instance in Germany, you need to set up a special vehicle to manage money. You have certain restrictions on asset allocation of pension money in some states, but these restrictions also differ between countries," he said.
Another benefit would be applying international standards to pension schemes in Europe, which he believed would raise the transparency in markets.
But a single market was also a double-edged sword for money managers.
Lower barriers to entry resulting from increased efficiency would draw more firms to Europe, he said.
"The barriers to entry would be a lot lower. It would clearly increase competition, but I'm not afraid of competition. We have good products and local knowledge," Mr. Schwicht said.
But one casualty may be the smaller, local money managers who have big market shares in their domestic regions, he said.
"If you have a big marketshare, there's only one direction to go from there, really," he said.
The EC is expected to receive the proposed directive on cross-border pensions, which it must approve in order to become legislation.
The European pension directive is a bill designed to consolidate Europe's disparate pension rules into one central code. However, its passage has been continuously delayed by politicians over issues such as whether to place investment restrictions on schemes.
The bill was passed last month by the European Parliament's Economic and Monetary Affairs Committee with several last-minute compromise amendments, including a five-year phase-in period. Despite the bill's progress and the European Commission's enforcement action, many remain skeptical of achieving the Euro-pension dream.
"I think it's still a lifetime away," said Geoffrey Benney, head of pensions for Peugeot S.A, Paris. "Europe still has such different social security and pensions and tax systems, it will take decades to harmonize."
Jim Stephens, head of European pensions at British American Tobacco PLC, London, took a similar view. "It doesn't make any difference for us at all. We still have disparate pension schemes across Europe, and I can't see anything in the near future that will alter that.
"Even the directive - that's getting closer, but it still doesn't even look at tax and social security. Those issues have to be dealt with by individual nations, and that will take a very long time," he said.
But pension lawyers and actuaries close to the debate over pan-European pensions were more optimistic.
"The commission's move will be welcomed by expatriates and multinational employers as a positive outcome which will help with cross-border mobility," said Mark Sullivan, a European partner at Mercer Human Resource Consulting, London.
No driving need
He disagreed that there's a driving need to completely harmonize the tax and social security structures of all member states to have practical cross-border pensions.
"If we can get to the stage where multinationals can have workers in different member states contribute across border without penalty, that's as much as we need. That doesn't necessarily require harmonized social security systems," he said.
Sullivan said there was no real gauge on how long this would take, but "not a lifetime." He said the EC's intervention was a very good sign that things will move quickly.
In test of cross-border tax laws, a group of companies led by Mercer last year sponsored a U.K.-based employee to contribute to a Dutch pension scheme. The companies, who have remained anonymous throughout the process, are now awaiting a decision by Britain's Inland Revenue on whether these contributions will be taxed in the U.K. The Inland Revenue's decision is expected in March, Mr. Sullivan said. Further details were unavailable.