Developing a true cross-border retirement plan requires not only the right vehicle but also time, money and expertise that only few large corporates can afford. In addition, the company has to be able to manage several external providers in many countries, which can be cumbersome and costly.
This is where Amundi and Luxembourg come in. For corporations which are looking for simplicity and efficiency, Amundi is the only player in Europe offering a multiemployer cross-border pension solution fully operational in seven European countries, soon rising to nine. This plan in Luxembourg allows to host pension funds’ fully customised for each employer. In parallel, Amundi developed their own fully digital, highly secured and user-friendly platform to adapt very quickly to the specific needs of their clients. The platform is multilingual and multicurrency.
Amundi’s one-stop solution out of Luxembourg brings economies of scale and allows corporates to manage and consolidate efficiently all their local plans, to outsource administrative burdens and to monitor underlying risks.
“We started to work on this project four years ago. Based on discussions with a series of large corporates, we felt that we could play a leading role in the development of the new pan-European pension fund market. Even if local social, tax and labor rules are complex in Europe, we structured a solution as simple as possible with a single entry point and a compartment by country fully compliant with the local regulations,” Mr Collot explains.
UNIQUE EXPERTISE TO CROSS MULTIPLE BORDERS
Ireland, UK and Belgium have known modest success in the pension market due to their attractiveness to headquarters of large companies.
Luxembourg offers the unique expertise to cross multiple borders. In comparison with other EU countries, the choice for a Luxembourg vehicle was therefore rather straightforward. “Pooling assets for pension funds as a result of treasury management, is not what Amundi defines as ‘cross-border’, says Mr Ducourtioux.
“Luxembourg is among the few European countries which have fully transposed the IORP directive with the ASSEP (Association d’épargne-pension – pension savings association), a simple and efficient vehicle. It is the vehicle that, according to our analysis, was most ‘cross-border’ and suitable for portability.”
The Grand Duchy is not new territory to Amundi. Credit Agricole, its main shareholder, has a long-standing presence, with 3,000 employees in Luxembourg.
“Luxembourg is one of the most secure and global financial centers. Its social and political stability, expertise of the regulator, as well as strong culture of investor protection, are crucial to us. As this money belongs to employees, the long-term stability of Luxembourg directly affects the stability of our clients.”
The setting up of the pension fund in Luxembourg went smoothly. However, starting from zero is never easy. Ducourtioux points out that each compartment needs a client and the approval of the local authorities. “With compartments fully operational in seven countries with at least a client in each country, we are now in a position where we can help corporates to save a lot of time and money,” adds Ducourtioux.
GOING GLOBAL: FROM EUROPE TO THE UNITED NATIONS
Amundi’s clients include large international groups, mid-size companies and supranational corporations. They all have specific needs.
“We developed each compartment based on clients’ needs and will open new ones on the same basis. In addition to the UK, France, Spain, Luxembourg, Germany, Italy and the Netherlands, we are activating Portugal and soon Ireland,” explains Mr Collot.
Mr Ducourtioux adds: “The fact that we include a new country also often triggers interest of other companies to join the plan. Portugal wasn’t really a priority country but as soon as the news spread that it would be added, we noticed significant interest.”
Today, more and more companies start looking for a pan-European approach. “Some are keen to implement it immediately, others are looking first to decrease the risks associated with the DB plans before moving to cross-border DC plans. We advise our clients to move to a pan-European plan country by country. The change has to be done gradually.”
At this time it is difficult to anticipate whether Brexit could impact pan-European pension funds. “The UK Pension ministers declared that they are not too concerned about the regulatory framework,” says Mr Collot.
For employees outside the European Union, a “world” compartment has been developed that is dedicated to workers employed outside Europe (such as expatriates) and approved by the Luxembourg financial regulator, the CSSF.
Thanks to this compartment of the Luxembourg vehicle, the United Nations pension plan of the Green Climate Fund has chosen Amundi to manage from April 2017 the pension plans of their employees in South Korea.
A PROMISING FUTURE
Long-term growth is in prospect. The pan-European pension market will trigger interest from European corporates, as well as American and Asian groups with subsidiaries in Europe.
Already 10 multinational companies now use Amundi’s platform in Luxembourg. Their main incentives are: cost savings, harmonisation of investment policy while keeping local specificities, improved governance and monitoring, support in the implementation and communication with employees. The open architecture of the plan can integrate several thousand external funds to answer clients’ needs and avoid any conflict of interest.
This type of pan-European solution, instead of running local plans in individual countries, will save costs.
“A multinational with numerous legacy schemes in several jurisdictions will probably not know what they are all costing the company. Based on our experience, global costs can be reduced by around 30%. In today’s low return environment that makes a huge difference,” explains Mr Collot.
“It’s a very promising market. With its undisputable leadership fund distribution, Luxembourg has developed with the ASSEP an excellent cross-border vehicle that deserves more promotion,” concludes Mr Ducourtioux.
There are three Luxembourg structures that allow a sponsor to establish a pension funding vehicle within the 2003 European directive on pension funds, IORP :
Two pension fund vehicles are regulated by the financial supervisory authority, the Commission de Surveillance du Secteur Financier (CSSF):
- SEPCAV – Société d’épargnepension à capital variable (pension savings company with variable capital). This vehicle, which is similar to the SICAV, can only be used for defined contribution (DC) schemes;
- ASSEP – Association d’épargne-pension (pension savings association). This vehicle is suitable for both DC and/or defined benefit (DB) schemes. It is able to pay out a lump sum or an annuity and may also pay ancillary benefits such as death in service, disability pension and payments to widows and orphans.
A third pension fund vehicle is regulated by the insurance supervisory authority, the Commissariat aux Assurances (CAA):
- The CAA pension fund is suitable for DC, DB and/or supplemental benefits in case of death or disability of members. It has a choice of four legal structures, but in practice the asbl, a non-profit making association, is the most commonly used.
All three vehicles can be organised as an umbrella structure: different share classes can be used to separate investment styles (DC plans) or different types of plan (db and dc schemes), or where differing social and labour law provisions make this necessary. All three types of fund can be organised as a “multi-employer” scheme.