Willis Towers Watson: IPPs and ISPs reach record levels

Willis Towers Watson: IPPs and ISPs reach record levels

A record number of international pension and savings plans (IPPs and ISPs) were set up last year, according to Willis Towers Watson, as employers strive to meet the savings needs of a global workforce, and to help staff in hotspots of economic and political instability.

Willis Towers Watson revealed in its latest International Pension Plan Survey that 43 IPPs and ISPs were established in 2017, which is a record in a survey dating back to 2008, and far higher than in recent years (16 in 2016 and 23 in 2015).

IPPs and ISPs supplement or complement the usual national systems and typically have a global or regional membership. They were originally aimed at the traditional ‘expat’—usually a senior executive or specialist—but their usage is expanding as employers offer them to other employee groups.

These include expatriates excluded from, or who will not obtain a benefit from, home and/or local systems; local workers in the Middle East (Gulf Cooperation Council and beyond); local staff in countries that are economically unstable, or perhaps where no local pension system exists; and executives capped by local plans.

Michael Brough, senior director in Willis Towers Watson’s global services and solutions group, said: “Interest in these longer term pension and savings plans is very strong, and I expect it to remain high as employers try to attract and retain skilled workers and global nomads. Multinationals are also exploring these plans to support different groups of their international workforce.”

“While they are still popular for senior expats, these plans are increasingly being used to support foreign workers in countries where the host system is off limits. Many find themselves locked out of the local pension systems, such as in nomad hubs like Singapore, or where they have to contribute but cannot get the local benefits, like in China.”

Brough continued: “In some countries, local employees may find that the pension infrastructure is unreliable or simply doesn’t exist, and international plans can be a very effective option. They can safeguard employee assets and offer some protection from sharp currency falls or local corporate and government bond defaults. Many plans have been established to cover countries where there has been a high degree of economic instability in recent years, including Argentina, Egypt, Turkey, Venezuela and Ukraine.”

“In the Middle East, international plans have been popular because employees place a strong emphasis on retirement benefits. In many cases, the international plans are far superior to what is on offer locally.”

Commenting on the market in Europe, Brough added: “Another growing trend is that employers are accepting that the much sought after pan-European pension plan or cross-border Institution for Occupational Retirement Provision remains a bit of a myth for now, with few, if any, realistically viable non-associated multi-employer vehicles on the market.”

The Willis Towers Watson IPP Survey 2017 also found that:

  • IPPs/ISPs are offered by companies in more than 20 business sectors, but particularly in banking and finance, oil and gas, and industrials
  • Assets under management for the funded plans covered in our survey are estimated to be up to$13 billion
  • 58% have been established with a ‘retirement objective’ (IPPs), with 42% having a shorter-term ‘savings objective’ (ISPs)
  • The majority (62%) of plans have global coverage, with the rest restricted to different regions
  • In the majority of IPPs and ISPs, employee contributions are voluntary, or are not allowed. Nearly all plans are defined contribution in design

Brough added: “IPPs and ISPs have become much more efficient in recent years. Better ‘bundled’ all services products have been developed out of increased scale of assets. And there is more competition offering a wider range of investment funds, enhanced administration services, and communications support in multiple languages and currencies utilising the latest technology.”

“Charges have fallen greatly since they were first introduced and a good plan will have annual total costs of under 1%. This can fall further when supported by Willis Towers Watson, where we can provide access to institutional investment funds.”

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