The European Commission should address the issue of past service benefits and avoid making unnecessary changes to the existing rules on cross-border pensions, Aon Hewitt has said.

In light of the proposed new legislation on institutions for occupation retirement provision (IORPs), which is due this Autumn, Aon Hewitt said that the existing IORP directive works well from a cross-border perspective.

Instead, the company said that the existing directive is "less satisfactory" in enabling the way past service benefits from previous pension arrangements are consolidated.

Regarding addressing the issue of past service benefits, Aon Hewitt partner and UK international retirement practice leader Paul Bonser said: "This is a key element for increasing the popularity and effectiveness of cross-border arrangements – with all the economies of scale and improved governance that they can bring.

"Paramount in our view, is that the legislation should facilitate the cross-border consolidation of assets and liabilities."

Bonser said that a key part of the process of establishing a cross-border pension fund is the winding-up of existing local pension funds/insurance contracts and consolidating those assets and past service liabilities in the cross-border vehicle.

He added: "Failure to do so leads to increased operational costs, governance and an inability to benefit from economies of scale. While some regulators already apply the spirit of the pensions directive to cross-border asset transfers, others are taking a more protectionist approach."

Over the last 12 months, Bonser noticed that there has been a renewed interest in cross-border arrangement from multinationals and said that most of the barriers to cross-border arrangements are perceived rather than actual.

He said that instead of setting up a single plan with a single set of benefits for all countries, multinationals have used the cross-border plan to provide existing benefits for some countries more efficiently and with improved governance.

Bonser said: "We don't believe that this is time to tinker with the existing regulations. Other than addressing asset transfers, the most influential action that the EC should take is to communicate more effectively that the cross-border process does work in practice – using existing cases as positive examples – and that it is not obstructed by insurmountable barriers."

First published 30.07.2013

monique_simpson@wilmington.co.uk