Cross-Border Schemes: Basics

Each UK occupational pension scheme must comply with the cross-border provisions of the PA04 which transposed the requirements of the European Pensions Directive into UK law. The cross-border provisions were designed to protect members of a pension scheme which is not based in the country in which they work and also, therefore, to facilitate movement of workers throughout the EU by allowing a multi-national to operate a pan-European pension scheme. The principal additional safeguards required are that such a scheme must register with the relevant regulatory body (TPR in the UK) and that the scheme must be “fully funded at all times”. TPR interprets this as a requirement to meet the “statutory funding objective”.

Unhelpfully, there is no stand-alone definition of a “cross-border scheme”. The general rule is that a cross-border scheme is an occupational scheme established in one European member state (the home state) which has members who work for a European employer in another European member state (the host state). For this purpose, European member state also includes the EEA countries: Norway, Iceland and Liechtenstein.

A scheme needs to register in order for a “European employer” to make contributions to the scheme. An employer is a “European employer” in relation to a UK pension scheme if:

(1) it employs a “qualifying person”; and

(2) it makes contributions to the UK pension scheme in respect of him.

This definition in essence forms a two part test.

Meaning of Qualifying Person

A “qualifying person” is broadly a person who is employed under a UK contract and is “sufficiently located” in another EU member state so that he is subject to the social and labour law on pensions relevant to that other EU member state.

Meaning of Contributions

If a company does have an employee who is a qualifying person, it will only be a “European employer” if it makes contributions in respect of him. In addition to contributions in respect of active members, trustees should consider that the following may count as contributions for this purpose:

• payments in respect of a deficit;
• payments of section 75 debt;
• payments to cover revaluation of members’ or survivors’ benefits on a statutory basis (or on a fixed or limited basis expressed in the scheme rules) based on the members’ salaries or benefits at the date they became deferred members; and
• payments for revaluation based on members’ current salaries after the date on which they became deferred members.

Meaning of Social and Labour Law

TPR’s guidance states that:

“As a general rule, people who are required by their employment contract to work habitually in another state for an indefinite period are likely to be subject to any relevant social and labour laws in that state. The essential question is whether the nature of any member’s employment means that the scheme has to comply with any other EU state’s social and labour laws in respect of that member.”