Expats working for multinational firms in Europe could see a big change in the way workplace pensions work.
European Union proposals for a pensions directive could scrap barriers that stop defined benefit pensions operating in more than one member state, according to actuary Towers Watson.
Tearing down the barricades would make retirement saving easier for expats who work in more than one European Union country.
The European Commission is expected to publish a report on defined benefit pensions by the end of May.
The stalling point for cross-border pensions is the schemes need regulating in the country where they are based and full funding.
Multinational company pensions
As many British defined benefit schemes are underfunded by employers, they are non-starters as pan-European schemes while in deficit.
The proposals would lift the fully-funded condition from March 2016 – but if agreed as European law, the directive would only apply to pan-European schemes and not single country employer pensions, so rules for UK based defined benefit pension plans that only operate in the UK would not change.
Towers Watson feels the directive could inject new impetus into multinational company pensions.
“If cross-border pensions are not treated harsher than single country pensions under funding requirements, then employers can revisit their arrangements for workers who move between countries’,” said a spokesman for the firm.
“The costs of funding a pension to qualify as a cross-border scheme now make the prospect impossible for many firms.
“If the proposals come in, employees won’t have to switch pension membership on and off as they move between European countries to stop the funding rules kicking in for their employers.”
Expat pension options
The move could also improve retirement saving for many expats as defined benefit schemes often include enhanced benefits unavailable through private pensions.
“The directive could also work for the UK, because many firms could look at establishing a pension in Britain, which has a tough regulator but is more user-friendly than many other European states,” said the spokesman.
The timing of the directive is also important to the Scottish vote on independence.
Many UK pensions are based north of the border and would convert into cross-border schemes that require fully funding should the independence vote come in as a ‘yes’.
The expat current choice for pensions outside the workplace depends on tax residence.
Expats who are tax resident in the UK can contribute to a SiPP or personal pension and still receive pension contribution relief.
Non-residents can opt for a Qualifying Recognised Overseas Pension Schemes (QROPS).