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European pension complexity driving up costs for multinationals, survey shows

The complexity of Europe's diverse national pensions system is driving up costs for multinationals in the region, according to the first ever pensions survey of multinational companies published by Netherlands-based life insurance and pensions firm Aegon.

The ‘Bridging Pension Plans Worldwide’ survey, which consulted 115 pensions experts during the third quarter of 2006, suggests that this diversity is making the region less competitive than its global rivals and is accelerating the trend towards relocating jobs outside of the European Union.

According to the survey, 74% of those interviewed would prefer to design and implement their own integrated cross-border corporate pension systems rather than waiting for EU-wide pension legislation to be implemented. This is new evidence that multinational corporations are looking for more efficient ways to provide retirement benefits to employees.

The research also revealed an increasing worldwide trend that has seen companies transferring a greater degree of financial risk from their own balance sheets onto individual employees through the use of defined contribution pension arrangements. According to the survey, 61% of employers with over 5,000 employees agree that the switch from defined benefit to defined contribution pensions is likely to continue.

According to the survey, 91% of those questioned believe that the complexity of EU pension plan regulations significantly affects the cost of providing retirement benefits in the EU. In addition, 78% of the panel of experts think the higher costs, estimated on average at an additional 7.5% in administrative costs for EU-wide pension plans, render European multinationals less competitive and are impeding the creation of new jobs throughout Europe.

Frans van der Horst, managing director of the Aegon Pension Network, said: Our survey suggests that multinational employers are seeking a way through the European pensions maze and that they are concerned that complexity is pushing up administration costs.

He continued: The absence of integrated cross-border pension systems is seen as a significant obstacle to competitiveness. There is a clear and emerging need for a corporate solution to help multinationals regain their competitive edge and keep costs down.

The survey, conducted in conjunction with Limra International, the worldwide association of insurance and financial services companies, showed that the experts consulted believe multinational firms will take the lead in establishing cross-border pension integration.

Those asked believed that, in five years, 22% of the world’s top 500 multinational corporations will have established their own integrated global pension solution for all of their employees.