Zurich Corporate Life & Pensions - Mobility trends: a hidden risk?




Having an internationally roaming workforce can make a company vulnerable to a host of expensive regulatory issues. Stewart Allanson, international corporate distribution manager of Zurich Corporate Life & Pensions, draws attention to the potentially steep financial risks inherent in cross-border pension schemes.


By its very nature, global mobility increases risk. Finance directors responsible for accommodating it face a host of challenges, including complex taxation, currency volatility and regulatory change, and these are now being compounded by unprecedented changes in its scale and nature.

One of the myriad - but often overlooked - headaches concerns European cross-border pension regulations, and demonstrates the increasing need for finance directors, HR teams and risk managers to work closely together on the design and implementation of overseas assignments.

Most organisations are aware of these and will be confident that they have them in hand, but a rise in the number of related enquiries suggests that things can and do go wrong, and the financial consequences can be severe.

Under EU law, a pension scheme established in one member state that has members resident in another may be deemed to be 'cross-border', and must be registered as such with the appropriate regulator in the country in which it is established.

It must also create separate, nation-specific sections that satisfy the social and labour laws of the country in which the member resides.

For example, member literature may need to be produced in the local language; benefit forecasts may have to use a specified rate of investment or earnings growth; contributions and benefits may be restricted; tax may need to be deducted from benefit payments at source; and so on.

Liability issues

These are potentially complex and expensive requirements, especially if only one or two members are resident overseas, but the biggest financial risk is almost certainly the requirement that cross-border defined benefit schemes must be fully funded, potentially adding many millions to a company's liabilities.

Cross-border status for overseas members only applies to those who are employed locally, not those seconded to work abroad. The crux of the matter is whether or not the employee is on a fixed-term assignment, working on behalf of the home country employer, and with a clear intention of returning home at the end of the assignment. If so, the plan is not considered cross-border.

If there is no clearly defined period of secondment and the employee has effectively been localised, active membership of the home scheme must cease, unless of course, it has been appropriately registered and is accordance with regulations.

Long-term outlook

As the nature of overseas assignments shifts from the traditional, short or medium-term secondments to more permanent, long-term positions on local contracts, this fixed-term assignment is increasingly being missed, triggering many problems. Also, fixed-term assignments are not always regularly monitored, leading to potential oversights as assignments overrun without scheme managers and trustees realising.

It only takes a small number of employees to create a cross-border pension problem, but the financial consequences can be huge. Care and regular auditing of overseas assignments are therefore essential to good governance.

Remember that alternative solutions are available to retention in home schemes, such as establishing host country plans, or, perhaps, international pension plans, which are the traditional home of the expatriate and mobile employee.

Stewart Allanson, international corporate distribution manager of Zurich Corporate Life & Pensions.
Always try to keep track of cross-border pension regulations.