| TheActuary | January/February 2004 u  assistance from other member states under the Mutual Assistance Directive; and u  conclusion of agreement with the pension provider. The story continues The  ECJ  judgment  in  the  Ramstedt case relates to employer-sponsored pensions. It follows closely on the court’s  similar  ruling  in  2002  in the  Danner  case,  where  tax  dis- crimination by Finland in relation to Dr Rolf Danner’s personal con- tributions  to  his  individual  pen- sion arrangements in Germany was also held to exist. The European Commission is now turning up the heat and taking deter- mined   action   on   pension   taxation against more than half of the 15 member states.  The  spotlight  turns  next  onto  Den- mark, which has been referred to the ECJ over pension  tax  discrimination,  while  letters  of  formal notice  (the  first  stage  of  the  formal  infringement process)  have  been  sent  to  Italy,  Belgium,  Spain, France,  and  Portugal.  The  Commission  has  also expressed  ‘serious  concerns’  in  relation  to  possible incompatibility on the pension tax laws of the UK and Ireland (UK law requiring appointment of a UK- based administrator to deduct and remit taxation). The writing is now on the wall, and life assurance companies should be planning to be in the vanguard of companies taking advantages of the opportunities arising from these changes. Single insurance market European life companies operating on a cross-border basis  and  wanting  to  write  local  pensions  business have previously been frustrated by the need in most cases  to  establish  insurance  branches  in  other  EU countries.  This  has  hitherto  been  something  of  a hurdle, as the whole concept of the Third Life Direc- tive was the freedom to transact cross-border insur- ance business without the need for a branch. With the tax  hurdle  being  dismantled,  it  is  logical  to  expect insurers to develop cross-border pensions in the same way as they have constructed a true cross-border mar- ket in life assurance. (For example, many of the largest life companies in Ireland are now international life companies transacting foreign business, rather than the traditionally dominant local companies.) Companies writing cross-border business in the more flexible EU countries have a natural advantage over insurance companies in ‘old’ Europe, where over-regu- lation often still prevents the development of modern product structures. The successful transition in most EU countries to a common currency has undoubtedly boosted the potential cross-border market further. European  life  companies  should  be  looking  over their  shoulders  at  the  threats  posed  by  ‘outsiders’ established or now establishing elsewhere in the EU, particularly in the more flexible environments where the appointed actuary system (in its traditional rather than  future  FSA  form)  holds  sway.  Ireland  in  this respect  has  quickly  overtaken  Luxembourg  as  the prime  centre  for  cross-border  European  insurance business, and its potential for the same leadership posi- tion  in  relation  to  insured  pension  arrangements within Europe is equally real. Implications for UK insurers UK insurance companies should be actively consider- ing the potential for significant new business in Euro- pean markets. Exploiting gaps left by the diminishing role of state pensions, assisted by the successful adop- tion of the euro common currency, and being cog- nisant of the regulatory arbitrage opportunities will separate the winners from the losers. Within the next five years UK insurers can expect to face real competition from other European insurers in the field of occupational and personal pensions, an area protected by fiscal barriers to entry until now. Equally, recognising that the EU is expanding from 15 members to 25 in May 2004, many UK insurers will – or should – be enticed by opportunities in the pen- sions markets of the 24 other member states. What  UK  insurers  need  to  examine  carefully  is whether  a  UK  base  is  the  optimal  domicile  from which to operate. My experience is that cross-border insurers in offshore European centres such as Ireland are,  in  many  ways,  best  placed  to  roam  across  the new landscape, exploiting the numerous advantages they hold in crucial areas including taxation, regula- tion,  and  technology.  Offshore  opportunities  have just got bigger. o 2 Gary Boal is managing director of Boal & Co, consulting actuaries specialising in cross-border and offshore life business | PENSIONS | Return to Previous Page