Shift from international pension plans to international savings plans

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Employers move to provide a savings vehicle as opposed to a retirement plan

LONDON, Monday 9 December 2013 – More companies than ever are using International Pension Plans, according to a Towers Watson survey of multinational employers, with the total number of plans in the survey having increased to 438, around a 10 per cent rise since last year. The company’s latest International Pension Plan survey, now in its sixth year, also indicates a rise in International Savings Plans.

According to this year’s survey, the reasons for companies to offer International Pension Plans (IPPs) remain unchanged, with the main reason to provide expatriates with a retirement benefit (as a replacement for not being able to remain in a home country or host country retirement plan). A continuing trend is to extend participation to include local work forces where their local retirement or savings solutions are either not available or not satisfactory due to poor market conditions.

IPPs can and are also being established solely for a local workforce, where local retirement or savings markets are inadequate. There is also a slowly emerging trend for international IPP sections to be established within cross-border pension arrangements or Institutions for Occupational Retirement Provision (IORPs).

An interesting observation this year is the objective for setting up an IPP is evolving and is now commonly to provide a short to medium-term savings vehicle, as opposed to a traditional longer-term retirement objective. The evolution of IPPS into International Savings Plans (ISP) is as a consequence of the relatively shorter service of expatriates or local members within the plan. Towers Watson estimates that around a third of all IPPs are now used mainly as a ISP savings vehicle (ie an ISP), while the remaining two thirds are still used as a “traditional” IPP pension plan.

Michael Brough, director of consulting services at Towers Watson, said: "We are seeing more companies using their IPPs as a savings vehicle instead of a longer term retirement plan and have noticed an increase in the number of companies favouring an ISP approach. This is particularly evident in the Middle East and Latin America for local employee groups, but also for expatriate groups with shorter expected service periods as expatriates.

“For most expatriates, an ISP can offer an efficient (low cost) employer and employee funded savings facility, which offers them when not working in their home country an excellent opportunity to build up some savings through a group arrangement for when their international assignment ends."

The Middle East is an increasingly popular region for IPPs with six of the 15 new plans in 2013 being set up for local Middle Eastern based work forces. Overall the majority of the new plans were established for more global workforces.

Michael Brough said: "More companies are creating a mobile workforce, which brings the challenge of what to do for their benefits offering. Expatriates can often only stay in home country pension arrangements for limited periods. When there is no host country plan or this plan is inadequate, the expatriate can easily end up with a gap in their retirement savings. Employers will have to address this problem or otherwise could find their expatriate employers knocking on doors at the end of their career for some last minute top-up pension funding."

Note to editors

The 2013 Towers Watson International Pension Plan Survey includes 438 IPPs sponsored by 406 companies, representing an increase of around 10 per cent compared to 2012. Participants include large and mid-sized multinational employers across a variety of industry sectors that employ expatriate and local workforces participating in IPPs ranging from less than ten members to over 7,000. The survey includes data on IPP membership criteria (plan size and location), plan design (such as DC, DB or Hybrid plans), funding, vesting criteria, vehicle, employer and employee contribution amounts, investment funds and retirement distribution options.

About Towers Watson

Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organisations improve performance through effective people, risk and financial management. With 14,000 associates around the world, we offer solutions in the areas of benefits, talent management, rewards, and risk and capital management.

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