A new Towers Watson survey multinational has found that 33 new International Pension Plans were established in 2012. This brings the total number of IPPs managed by the responding employers to 403.
The International Pension Plan survey, now in its fifth year, alsofound that IPPs are being developed within multi-country pension frameworks, including Pan-European structures, known as Institutions for Occupational Retirement Provision.
"The growth of the IPP market is mainly driven by more companies offering IPPs for international or expatriate employees to either 'top up' or replace home country retirement plans," said Michael Brough, senior consultant at Towers Watson. "We also see more multinationals extending the eligibility of existing IPPs to allow local workforces to join the IPP, where possible. This illustrates the continuing trend for these vehicles to be set up where local alternative arrangements are inadequate or absent."
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He added that, "Expatriate pension vehicles can be used to deliver pensions and long-term savings to diverse groups, such as nationals living in the Middle East, parts of Asia, Africa and Latin America. These are generally viewed as markets that may not have the developed infrastructure to support such a pension offering."
According to the survey, multinationals are using creative ways to include multiple groups into a single pension structure, which can deliver synergies through the use of a single administrator, a single investment platform, and a single governance framework, which supports mobility, portability and cost reduction. Other creative approaches identified in the survey are the development of member decision-making tools and smartphone technologies.
"We see big improvements in provider propositions through the development of these tools and technologies to address mobility, portability and cost reduction. These tools include individual rate of return calculators, projection tools, risk assessment tools and smartphone apps to enable fund value and contribution history viewing. Given the typical IPP membership, the use of these online and mobile tools will appeal to global workers and those based in remote locations," he said.
According to the survey, funded defined contribution plans remain the most prevalent design for IPPs with defined benefit plans still in operation but typically closed to new members. However, the survey also shows that one new DB plan was set up in 2012. In addition, the number of investment funds being offered by IPPs and their sophistication, continues to increase with around 40 per cent of IPPs offering up to ten investment funds while most of the rest offer in excess of ten investment options. Furthermore, some 40 percent of IPPs now offer lifestyle options, with over 20 percent offering more than one lifestyle option to provide for different membership demographics, risk profiles or currencies.
"Through the use of institutional investment funds we have seen a move to lower charges for IPP products. This can deliver significant savings for members with charges for some passive funds being as low as six basis points, which competes favourably with charges in the established US and UK domestic DC markets," Brough said.
The survey also found that the most popular form of distribution at retirement continues to be a lump sum with nearly 60 percent of IPPs offering lump sum benefits only. Thirty-seven percent of IPPs now offer a choice between lump sum or an internal annuity or drawdown, he said.
"Internal annuities can provide tax advantages for certain individuals drawing benefits from IPPs and this option has become more common among those IPPs set up in the past five years," Brough said.
The survey included 403 IPPs sponsored by 391 companies. Participants included large and mid-sized multinational employers across a variety of industries.
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