Are International Pensions fiscally deductible in Europe?

The answer is no, but find out when it is really convenient for you to look at the international scale.

6_Pension_low.jpgCompanies operating across Europe can find it a challenge to deal with the variety of country-based pension systems. To complicate this picture, recent trends show that countries are raising the exit tax of second pillar pensions or increasing the retirement age. Employers worry that national governments could “catch up” and take back advantages negotiated at the entrance, and they enquire about the opportunity to replace national plans with international ones.

While this is certainly possible, it is our responsibility to inform our clients of the pros and cons of this approach, so that they can take the best informed decisions and ensure the success of their employee benefits strategies.

Pension system regulations vary widely across Europe, thus presenting companies with a fragmented scenario. A multinational company willing to offer pension plans to workers across Europe, will need to buy or create separate plans for each country where it operates. However these plans can differ widely from one country to the other, making it difficult to ensure consistent value to employees of the same organisation.

How to ensure that, to make an example, your employees in Greece will have the same treatment as if they were based in Norway? International Pension Plans could provide a solution.

These plans allow creating a consistent framework and a unique design to cover employees that reside fiscally in different countries or that may need to move and relocate during their career. The resulting equal treatment in benefits across geographies creates value for a company’s Employee Value Proposition and can be instrumental in attracting and retaining staff at local and global level.

Among the other advantages to consider, IPPs are more flexible, and simplify risk management and plan administration by enabling companies to manage one unique plan rather than separate contracts per country. Finally, IPPs are generally less taxed at the exit (retirement stage) because they were not granted fiscal advantages before.

However, when assessing risks and benefits, it is important to note that IPPs are not recognised by national legislations. This means that though they are absolutely legal (employers have the right to invest in IPPs) it will not be possible to obtain deductibility of contributions. As a result, if an employee receives a salary of 2500 euros and place 300 euros in an international pension plan, she will be taxed on the total of her salary (2500) and not on the remaining 2200, as it would be the case if she were using a national pension plan.

In conclusion, we need to make a choice between fiscal deductibility of national pension plans in our worklife, or the flexibility of the IPP and its lighter taxation at the exit.

At this stage, it is not possible to get both within an IPP and it is not foreseen an evolution within the European labour market towards fiscal deductibility of non-national pension plans.