An influential European regulator has published a discussion paper suggesting pension tax regimes may need to be harmonised across Europe to create a single market for personal pension products.
The European Insurance and Occupational Pensions Authority, or Eiopa, has been asked by the European Commission to provide advice on enabling “cross border activity” for personal pension products.
Eiopa yesterday published a document setting out obstacles to creating a single market for personal pensions and how these might be overcome.
One option explored in the document involves removing barriers to “passporting” pension products from one member state to another.
The regulator says the main barrier to the smooth operation of this regime is the different tax systems operated by different member states.
In the UK, for example, pensions are taxed on an ‘EET’ basis – that is, contributions and investment income and growth are exempt from tax, but benefits are subject to tax.
Other member states operate an TEE system, meaning if someone transfers from one to another they could be subject to double taxation.
The Eiopa paper says: “… the income tax legislation in member states should afford the same tax relief to foreign [personal pension products] as it affords to its domestic PPPs. Hence, this should provide sufficient comfort to the foreign providers in the passporting cross border framework.
“In the case of transferability, different tax regimes applied to pensions in different member states may lead to double taxation or non-taxation of transferred capital.
“Overcoming these obstacles seems to require harmonisation of tax treatment of pensions across member states possibly on the basis of [the] EET system.”
As an alternative, Eiopa says the European Commission could create a new, parallel pensions regime to sit alongside national regimes.
Eiopa says the “second regime” would offer an alternative to national level rules and it would be up to the providers and PPP holders to choose which of the two bodies of law to follow.
However, Eiopa warns the creation of a second regime would be burdensome for providers and regulators, complex and could take a “long time” to deliver.