pension funds and international pension vehicles
Luxembourg has long held the ambition of positioning itself as a centre for the management and administration of cross-border pension vehicles, as it believes in the future development of pan European pension funds which present major advantages for multinational companies, such as
- greater consistency in quality of asset management and performance;
- increased performance through securities lending, trailer fees and other commission mechanisms;
- better control and oversight on a range of pension schemes with respect to management and administration;
- reduction in transaction costs and asset management fees;
- outsourcing of administrative and routine tasks;
- simplified reporting from a single global custodian and administrator.
As well as offering a variety of legal vehicles for pension fund pooling, Luxembourg is an established centre for investment fund management and administration.
Three Luxembourg structures allow a sponsor to establish a pension funding vehicle within the meaning of 2003 European Directive on pension funds (Directive on the activities of Institutions for Occupational Retirement Provision - IORP). Aspiring to attract foreign employers/sponsors, the characteristics of the Luxembourg legislation allow a high degree of flexibility in plan design and the investment of plan assets.
Two pension fund vehicles are regulated by the financial supervisory authority, the Commission de Surveillance du Secteur Financier (CSSF):
- SEPCAV – société d’épargne-pension à capital variable (pension savings company with variable capital). This vehicle, which is similar to the SICAV, can only be used for defined contribution (DC) schemes.
- ASSEP – Association d’épargne-pension (pension savings association). This vehicle is suitable for both DC and/or defined benefit (DB) schemes. It is able to pay out a lump sum or an annuity and may also pay ancillary benefits such as death in service, disability pension and payments to widows and orphans.
A third pension fund vehicle is regulated by the insurance supervisory authority, the Commissariat aux Assurances - CAA. The CAA pension fund is suitable for DC, DB and/or supplemental benefits in case of death or disability of members. It has a choice of four legal structures, but in practice the asbl, a non-profit making association, is the most commonly used.
All three vehicles can be organised as an umbrella structure: different share classes can be used to separate investment styles (DC plans) or different types of plan (DB and DC schemes), or where differing social and labour law provisions make this necessary. All three types of fund can be organized as a “multi-employer” scheme.
Our brochure Luxembourg Pension Pooling Vehicles provides more details on pension pooling and other international pension fund solutions.