Multinationals are attracted to the benefits of Pan-European pension arrangements, but the complexity of EU legislation, taxation issues and the perceived lack of products are hampering progress towards their development, according to an industry review carried out by Mercer.
Mercer believes that as companies extend good corporate governance, limit their risk exposure through moves to DC or hybrid structures and look for economies of scale, the opportunities to move towards PEPs will become increasingly attractive, however.
Mercer conducted a number of structured interviews and spoke to over 80 multinational organisations headquartered in the US or Europe and 25 pension providers with EU operations for an overview of the status of and attitudes towards the issues, challenges and barriers to PEP provision.
According to Barry Mack, head of Mercer’s Pan-European pensions task-force,
“PEPs are seen to provide a number of benefits – competitive advantage in attracting staff, support for multinational benefit policies and a vehicle for helping to co-ordinate the move to defined contribution pensions.
"But there are hurdles - not least, the requirement by multinationals that PEPs be implemented on a cost-effective basis. Until that’s possible, and until the main barriers are removed, many multinationals are reluctant to be amongst the first movers in the market.”
He added: “We believe, however, that much of the value is not just in the creation of PEPs but what can be achieved in the steps taken to get there.”
Survey respondents felt that PEPs are especially attractive for less mature pension markets and smaller locations.
Arrangements in large locations such as Germany, the Netherlands and UK, which have a large concentration of employees, assets and liabilities and associated financial risks, warrant special resourcing to ensure they are managed effectively.
In smaller locations, such arrangements can often operate on a ‘stand-alone’ basis and can be managed on much a reduced scale. There was also a strong desire to bring pension administration under one roof and reduce costs.
Doubt remains over the belief that PEPs suit expatriate employees since this group often consists of small numbers of employees in any given location. Respondents felt that a PEP would ‘overcook’ the provision of retirement benefits for