Wednesday, January 31, 2007
Breakthrough Ideas for 2007
XBRL features as #10 (of 20) in the Harvard Business Review's List of Breakthrough Ideas for 2007. Other ideas we find particularly interesting are #4 (algorithms), #7 (partial attention), #13 (patriarchism) & #20 (accountabalism), of course.
Tuesday, January 30, 2007
ECJ continues to support cross border pensions
In another important ruling, the European Court of Justice rules against surprisingly recent Danish provisions (law of 2003) permitting tax deductibility of pensions contributions only for institutions located in Denmark in the case C-150/04 Commission vs. Denmark (assisted by Sweden).
Continuing its standing practice, the Court relies solely on the Mutual Assistance Directive 77/799 without having direct recourse to double taxation treaties in order to refute the tax avoidance argument: Furthermore, it must be noted that the mere fact that a taxpayer makes contributions to a pension scheme taken out with an institution established outside Denmark cannot form the basis for a general presumption of tax avoidance or justify a fiscal measure which prejudices the enjoyment of a fundamental freedom guaranteed by the Treaty.
With regards to the cohesion of the tax system, the Court shows that a country's tax system is only adversely affected if the future pensioner takes residence outside of said country before taxable benefits fall due. Since he is entitled to do so under the Treaties, the general refusal to grant a tax advantage is not permissible.
Continuing its standing practice, the Court relies solely on the Mutual Assistance Directive 77/799 without having direct recourse to double taxation treaties in order to refute the tax avoidance argument: Furthermore, it must be noted that the mere fact that a taxpayer makes contributions to a pension scheme taken out with an institution established outside Denmark cannot form the basis for a general presumption of tax avoidance or justify a fiscal measure which prejudices the enjoyment of a fundamental freedom guaranteed by the Treaty.
With regards to the cohesion of the tax system, the Court shows that a country's tax system is only adversely affected if the future pensioner takes residence outside of said country before taxable benefits fall due. Since he is entitled to do so under the Treaties, the general refusal to grant a tax advantage is not permissible.
Mortality bonds
Our earlier story seems to have been very topical. epn also has an interesting piece on the securitisation of longevity and recent developments therein. All this coïncides (probably not randomly) with an extreme mortality securities for some mortality risks in France, Japan and the US being successfully issued by SwissRe in November of last year.
Friday, January 19, 2007
Transparency in Greece
It was very interesting to contribute to the Greek Capital Market Commission's conference on the interaction between regulatory authorities and supervised entities and market competitiveness in Athens yesterday. Here are the slides of the short presentation, and this is an audio recording of it.
Wednesday, January 10, 2007
Pensions barometer
Keeping in line with the unseasonally mild weather, Aon has published its European Pensions Barometer 2006. The purpose of this instrument is to determine which systems are under the greatest pressure, so that material change is likely to be forced to occur in the medium to long term. Given the omnipresent pressure on fiscal policies, such change will invariably affect labour cost, which is why the results are considered relevant for corporate location decisions.
The five countries with the worst pensions climate are Belgium, Slovenia, Greece, France & Malta with the best three being Denmark, Estonia & Ireland. This ranking is generated using four broad macroeconomic categories, only one of which refers to occupational pensions. The categories are evenly weighted. The low weight of occupational pensions makes sense if seen in the context of the barometer's purpose.
The approach is interesting and expandable. Naturally, individual categories and variables are subject to the authors' discretion, but this type of helicopter view is often useful. Unfortunately, important countries are currently missing from the survey's assessment, such as Switzerland, which is certainly an important potential location, or the new EU members Bulgaria & Romania.
The five countries with the worst pensions climate are Belgium, Slovenia, Greece, France & Malta with the best three being Denmark, Estonia & Ireland. This ranking is generated using four broad macroeconomic categories, only one of which refers to occupational pensions. The categories are evenly weighted. The low weight of occupational pensions makes sense if seen in the context of the barometer's purpose.
The approach is interesting and expandable. Naturally, individual categories and variables are subject to the authors' discretion, but this type of helicopter view is often useful. Unfortunately, important countries are currently missing from the survey's assessment, such as Switzerland, which is certainly an important potential location, or the new EU members Bulgaria & Romania.
Tuesday, January 09, 2007
Infringement proceedings
The EU Commission swings into action with some treaty infringement related proceedings. It has decided to take Sweden to the ECJ about the country's practise not to grant tax deductibility for pensions contributions paid to insurers resident abroad (but within the EEA) in line with the EET principle. Strangely, there seems to be no reference to the Pensions Directive.
In other news, the Commission is satisfied with recent modifications of Spanish legislation which also did not allow for tax deductibility of cross-border pensions contributions. The infringement case against Spain is therefore closed - in this case with reference to the Pensions Directive btw. Notably, the new Spanish tax rules explicitly allow deductibility for IORPs resident in the EEA, and specifically Liechtenstein, which removes an important legal uncertainty with Liechtenstein IORPs, at least with regards to their relation to Spain.
In other news, the Commission is satisfied with recent modifications of Spanish legislation which also did not allow for tax deductibility of cross-border pensions contributions. The infringement case against Spain is therefore closed - in this case with reference to the Pensions Directive btw. Notably, the new Spanish tax rules explicitly allow deductibility for IORPs resident in the EEA, and specifically Liechtenstein, which removes an important legal uncertainty with Liechtenstein IORPs, at least with regards to their relation to Spain.
Friday, January 05, 2007
Early birds
There is no more appropriate way to start the first post of the year than by dedicating it to an early bird, even though the year is well advanced already. The early bird in question is Allianz with its European ComPension product, the first product that has been designed with a pan-European pensions market in mind. Meanwhile, we've had a bit of time to look at this interesting solution, which is only the first of several products that are currently under development, as we hear.
European ComPension is a fairly plain-vanilla insurance retirement product that is available through Allianz's international network, but only in France, Italy and Germany for now. Unsurprisingly, it offers only DC solutions, although this entails a guaranteed minimum return in Germany. The pricing reflects the first mover advantage. Assets are invested in one of two new Luxemburg based Allianz Global Investors European Pension funds Dynamic or Balanced which invest in an opportunistic combination of Euro area stocks and bonds.
Given the somewhat moderate pace of the market, I am not sure whether the first mover advantage is really that big in the case in point. European ComPension has obviously been designed from a network perspective so as to not cannibalise the network's incumbent business. As it is our view that the pan-European pensions market has the potential to disrupt insurance networks in that specific segment, it is probably unwise to choose such a development approach.
While the choice of the development approach may be ill advised but comprehensible, it is hard to understand the investment strategy of the funds on offer. The geographic limitation of investments to the Euro area appears to present such a strong impediment to the portfolio's potential efficiency that one may wonder whether this is in line with the Prudent Person Rule at all.
European ComPension is a fairly plain-vanilla insurance retirement product that is available through Allianz's international network, but only in France, Italy and Germany for now. Unsurprisingly, it offers only DC solutions, although this entails a guaranteed minimum return in Germany. The pricing reflects the first mover advantage. Assets are invested in one of two new Luxemburg based Allianz Global Investors European Pension funds Dynamic or Balanced which invest in an opportunistic combination of Euro area stocks and bonds.
Given the somewhat moderate pace of the market, I am not sure whether the first mover advantage is really that big in the case in point. European ComPension has obviously been designed from a network perspective so as to not cannibalise the network's incumbent business. As it is our view that the pan-European pensions market has the potential to disrupt insurance networks in that specific segment, it is probably unwise to choose such a development approach.
While the choice of the development approach may be ill advised but comprehensible, it is hard to understand the investment strategy of the funds on offer. The geographic limitation of investments to the Euro area appears to present such a strong impediment to the portfolio's potential efficiency that one may wonder whether this is in line with the Prudent Person Rule at all.
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